Update: I've described a different method of handling your finances as a couple recently as well.
If you've ever been in a relationship where money became an issue, you know how important it is to be open and honest about finances with your significant other. When my wife and I first moved in together she suggested we start things off on the right foot by establishing a fair and open method for dealing with our mutual expenses. Looking back, I think this was one of the best things we've done together as a couple and is one of the (many!) reasons we're so happy together. Today I'll show you how we handle our joint finances and I'll tell you why I think it works so well for us.
Let's start off with a diagram showing our system:
The cornerstone to our method is our joint bank account. Every two weeks we each contribute an equal sum of money to the joint account. We use the money in that account to cover any expenses we incur as a couple. These joint expenses include things like:
There are other expenses that we each have that are more personal in nature. We both cover our own personal expenses using our own money. Some examples of our personal expenses are:
Occasionally, if one of us ends up paying for a "joint" expense using our own money then it's an easy task to transfer that amount out of the joint account into our personal account. Of course it also helps to let the other person know what you are up to when this happens!
So joint expenses are paid for out of the joint account and personal expenses are covered from our individual accounts. That's how we are doing things currently but there is always room for changes.
Whenever one of us identifies an expense that we think should be shared between us, we take some time to discuss it. If we decide we want to share the cost then we use the funds in our joint account to cover the new expense. If the new expense in a recurring one, then we might also need to increase the amount that we each regularly contribute.
For example, we are currently each paying for our own medical and dental expenses. However, if one of us developed a health problem and these expenses became large, we might decide as a couple that we want to share the additional cost equally between us. At this point we would determine how much extra was needed and increase our contributions appropriately.
Some of the benefits of handling our finances this way are as follows:
Our system might not be appropriate in all cases.
For example, both my wife and I are earning enough that we can each afford to cover half of the financial burden. If one of the people in your relationship earns significantly more or less than the other, you might want to consider each contributing different amounts to reflect the imbalance - possibly in proportion to your respective incomes.
This method of handling our finances together has been working well for us for the past three years. We've had to tweak things a bit by adding or removing expenses but so far we haven't run into anything that wasn't easy to handle using our system. I guess the best measure is that we are both still happy and finances have never been a sore point for us at all.
I'm sure there are some other methods that people use to manage their finances as a couple or as a family. I'd be interested in hearing how you handle things if you are doing things differently.