Friday, January 18, 2008

The joys of merging finances

I'm currently on a kick of improving the level of communication between myself and Ms. Loonie regarding personal finance. As part of this, we're looking at combining our finances. Currently, we hold a joint chequing account, our mortgage is a joint account, and Ms. Loonie is an authorized user on one of my credit cards. Aside from that, however, we have separate accounts.

I don't believe that a couple should only hold joint accounts. It's nice, for example, to be able to use our respective credit cards to shop for gifts for each other, without giving away the surprise. However, I absolutely believe that a couple needs to have transparency around their finances. To have one partner hiding debt from the other is a recipe for disaster.

Ms. Loonie and I have decent communication in this area, but it tends to be mostly in the form of short "did you pay the bill?" conversations, just to make sure we're keeping on top of things. Beyond these basic checkpoints, we don't often discuss our respective budgets.

One thing has come up in our renewed discussions around finances: the two of us have different approaches to paying our credit card bills. Although neither of us carries a revolving balance on our cards*, she uses each month's income to pay off the previous month's bill. I, on the other hand, set aside cash every time I make a credit card purchase, and use this accumulated cash to pay the bill when I receive it.

From what I've read, the ideal approach to budgeting is to use last month's income to cover this month's spending. Neither of us is at this point yet; I'm using this month's income, and she's using next month's income. This poses a problem for developing a consolidated budget, and I'm not sure exactly how to tackle this.

One solution, building on yesterday's post, is to build up a cushion of one month's worth of Ms. Loonie's discretionary income, and use this to get "ahead" on her credit card. It won't get us to the one-month-ahead ideal, but it will at least get us in sync with each other. I think we'll try to go this route. Until we get there, I'm not sure how we can put together an effective household budget.

Do any of you have experience with this?

* I currently have most of my revolving debt on a 0% credit card, and the rest is on my line of credit. Our regular-use credit cards are paid in full at the end of the month.

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