Financial planning for newlyweds: Should you combine finances after marriage?

Marriage is a beautiful journey of togetherness, and while it's primarily about love and companionship, it also involves navigating the practical aspects of life, including finances. A common question newlyweds face in India, deeply rooted in our evolving value systems, is whether to merge finances or maintain separate accounts. There's no one-size-fits-all answer, and the best approach depends on individual circumstances, financial habits, shared values, and, importantly, an awareness of the changing social landscape.

Traditionally, in many Indian families, financial decision-making rested primarily with the elders, often the father. This was often driven by the patriarchal structure and the father's role as the primary breadwinner. Furthermore, financial expertise wasn't always readily accessible, and decisions were often based on "availability" – relying on the wisdom of elders, even if their expertise was limited to traditional methods. However, the modern Indian family is changing rapidly. Families are becoming smaller, and both husband and wife are increasingly educated and financially aware.

Atul Shinghal, Founder and CEO of Scripbox, says, "Exposure to information through social media, online platforms, and other avenues has empowered couples to take charge of their financial destinies. This shift necessitates a move away from passively accepting traditional advice to actively seeking knowledge and making informed decisions. Women are now earning and contributing to the family income, leading to greater involvement in financial matters. This new era demands a shift from relying solely on "availability" to seeking "expertise" in financial planning."

Financial independence: Under any circumstances, the woman should not be left to uncertainty where the relationship is also under the rock and separating out finances is also a concern. It's essential to ensure that both partners have financial independence and can make their own financial decisions. This will help to build trust and ensure that you're both working together to manage your finances.

Pros of merging finances

Merging finances for newly married couples can have several advantages. It can make things simple without having multiple accounts to track. It's easier to budget together and work towards your goals. The most important benefit is it will empower each other a lot and give you a sense of responsibility. Think of it, if one of you faces any financial problem in your career, the other is there to take care and the entire burden is not on you entirely. Financially stressful times can be better managed if you merge your finances with your partner. You never know when any unfortunate event will happen.

Cons of merging finances

Couples who merge finances may sometimes feel they don't have a lot of control over their own money or they are forced to follow their partner’s financial goals and priorities.

Nehal Mota, Co-founder & CEO, Finnovate says, "When you combine your finances, you may have different spending habits, financial priorities, and investment strategies, which can lead to disagreements and power struggles. If not managed carefully, these conflicts can escalate and damage your relationship. Moreover, merging finances means you are not taking care of your individual CIBIL score which can hamper your financial stability."

Mota suggests newly married couples and the 50/30/20 rule: 

- As a new family, you should budget out properly. Follow the 50/30/20 budgeting rule to split your finances.

- 50% of your combined in-hand income will go towards your basic needs (groceries, bills, etc.).

- 30% of your income will go towards your wants (travel, entertainment, etc.). and

- 20% of your income is at least what you should strictly save.

In this way, you plan better and bucket your finances. Not in every couple’s case this ratio will be the same. It will be based on both of your take-home income.

Key considerations for couples

● Cultural values: Consider the influence of family traditions and cultural norms on your views about money management. Be open to adapting them to suit the modern context. "Discuss all assets, debts, and financial expectations early on," says Priyanka Bhatia, Co-founder, Women on Wealth.

● Earning parity: Discuss how expenses will be shared fairly.

● Financial transparency: Essential for a healthy financial partnership.

● Long-term goals: Align your financial strategies with your long-term goals. Bhatia says, “Plan for significant purchases, investments, and long-term financial security together.”

● Individual financial identities: Maintain some individual accounts to retain autonomy and pursue personal financial goals.

● Legal implications: Be aware of the legal implications of joint accounts and property ownership. One must get help from a financial advisor and/or legal professional.

Shinghal, says, "It's also important to acknowledge a changing social reality: divorce rates, particularly among well-educated and well-earning couples, are on the rise. While no one enters a marriage expecting it to end, it's prudent to consider the financial implications of such an eventuality. This doesn't mean approaching marriage with a pessimistic outlook, but rather with a realistic and informed perspective."

"One should follow a hybrid approach. Even after merging some finances, many couples may still find this approach works best,@ adds Shinghal. 

This often involves:

● Joint account for shared expenses: A joint account is used for household bills, rent/mortgage, groceries, utilities, and other shared expenses. Both partners contribute a pre-agreed amount each month.

● Separate accounts for personal spending: Each partner retains their account for personal expenses, entertainment, hobbies, and investments.

● Open communication: Regularly discussing finances, even if accounts are separate, is crucial. This ensures both partners are aware of the overall financial picture and are working towards shared goals.

The bottom line

The decision to merge or separate finances is a personal one. Bhatia says, “Ultimately, the decision to merge or keep separate finances depends on the couple's comfort level, financial compatibility, and shared vision for the future. Whether finances are merged or kept separate, regular, open conversations about money are essential for a strong financial foundation and a successful partnership.”

Remember, financial planning is not just about money; it is about building a secure and happy future together. In today's world, where financial expertise is readily available and couples are well-informed, don't hesitate to seek professional guidance. A good financial advisor can help you navigate these discussions and create a tailored plan that aligns with your specific needs and goals, keeping in mind the evolving financial landscape of Indian families and the importance of a prudent approach.