Blending Finances: Strategies for Everyday Money Management

Choosing how to manage your day-to-day finances in a blended family is a big decision. If you were previously married you may have promptly merged your bank accounts into one or more joint accounts soon after that marriage's wedding day. This is a pretty common event in a first marriage. However, it isn’t always such a crystal-clear decision when blending families. You may need to navigate several different financial realities, such as child support, alimony, bio and stepchildren, etc., that simply don’t exist in a first marriage.

There are many ways you can handle your daily finances. But, most come down to some variation of these two primary systems: fully merged and the three-bucket system (aka “yours, mine, and ours”). Which system you should use is a personal decision you must make together. There will be trade-offs regardless of the system you design for yourself. To help you make an informed decision, let’s cover these two systems in more detail. In a future post, I will share some insights on how to work well together regardless of which system you use.

Defining Daily Finances

Before we dive in, I want to clarify what I mean by “daily finances.” In this case, daily finances are all about how you handle your household income and expenses. Financial planners call this your cash flow. I make this distinction now because one could argue that we all use a three-bucket system since retirement accounts, such as your 401(k), IRAs, 403(b), etc., are designed to be individually owned accounts. Understanding your cash flow is crucial in a blended family context, as it sets the foundation for transparent and effective financial management. It helps align short-term spending with long-term goals, ensuring that everyday financial decisions support your family's financial health. 

The Fully Merged System: What’s Mine Is Yours and What’s Yours Is Mine

In this approach, all your household income is pooled into a joint account (or multiple joint accounts). All your expenses flow out of this account. This simple process keeps everything very transparent and relatively easy to manage. Some couples have one of the partners as the primary financial manager who handles the bills every month. That’s okay, but remember that you’re in it together. Find a way to keep each other involved in money decisions, and don’t let all the financial burdens fall onto one person's shoulders.

Here is an example of how this could work:

You may choose to use this system if you are both very comfortable with your financial situation and want everything to be shared amongst the family. This includes sharing responsibilities for any incoming debts and expenses from a previous marriage, such as child support, alimony, college expenses, etc.

The benefits of this system include ease of management, a straightforward process, and transparency, especially if both partners have access to the accounts. However, there are drawbacks to consider. It may lead to a loss of financial independence for one or both partners. Differences in money values, such as spending habits, could be accentuated. Additionally, there's a risk of becoming disconnected from your financial situation if you're not actively participating in financial decisions.

The Three-Bucket System: Yours, Mine, and Ours 

A common method for blended family couples to manage their day-to-day finances is the three-bucket system, often called the “yours, mine, and ours” method. Since this method is more complex than merging everything together, it warrants a more detailed explanation. 

Here’s an example of how this system could work:

This approach can give your family some flexibility to handle the financial complexities of a second marriage. For example, when you married, you may have had a child or two about to attend college in the near future. This was the case for me and Cara. (We had four kids either in college or starting college within a year of our wedding!) We decided to separate those expenses because most of that planning was already done. For my youngest, who was in middle school at the time, we started planning for his college expenses together. (Note that this doesn’t mean he will get a better deal than his siblings. 😊 It is just a reflection of our evolving situation.) This is a simple example of how the three-bucket system can provide flexibility. 

Another primary reason for using this system in a blended family is that it helps to maintain some sense of independence in your new marriage. Let’s be honest; if this is your second marriage and/or second marriage for your spouse, you’ve likely both spent the past few years regaining your independence after your first marriage ended. It can be a little scary to jump right back into all joint accounts after rebuilding everything yourself. Even more practically, you may be receiving or sending child support payments, alimony, or some other financial assistance required by your divorce. Keeping these payments in a separate account can help track those specific cash flows more easily.

However, this method isn’t without some major risks. It can lead to spending that creates (or has the potential to create) a wedge in your relationship, isn’t congruent with your family’s financial values, or derails your family’s future. In addition, if communication between spouses isn’t always open and transparent, it can be more difficult to understand your overall financial picture.

This system is exactly like it sounds. Your income flows into your own bank account. Your spouse’s income flows into their bank account. Typically, you will set up a joint account to handle all your joint expenses – you will have to decide what those are. Any individual expenses are paid from your individual account. As you can imagine, this approach can be a little complicated – with more moving pieces – and therefore, more coordination is required. But needing more coordination could be a hidden blessing that makes it easier for you and your partner to discuss money matters.

Together, you will need to decide which expenses are covered by your joint account and which expenses are covered individually. You may also need to decide and set boundaries on what individual spending is acceptable.

There can be several variations of these systems. You can create separate accounts for separate planned expenses. For example, maybe you set up a vacation fund in a single account and a new car fund in another account because that helps you keep track of your goals. 

Flexibility is the Key to Success

Regardless of how you design your cash flow system, remember to stay flexible. Adaptability is key as your family's needs and financial circumstances evolve. Open communication and regular reviews of your financial plan will ensure it continues to serve your family's best interests.

If you found this post helpful or know someone who might, feel free to forward or share it. And if you would like help designing a financial system tailored to your family's unique needs, we invite you to schedule a complimentary introductory call with us. 

Based in St. Paul, MN, Endurance Financial Group is an Independent Registered Investment Advisor partnering with blended families to combine their household finances in a unified financial plan that works for all members of the family. They can be reached by phone at 651-605-2318 or online at efg-planning.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.