The hassle-free way to merge finances

Not every couple decides to merge finances but if this is the path you’ve chosen, it may be hard knowing where to start. Is there an easy way to join your finances in a relationship?

Well, that depends on your definition of easy. Merging finances requires planning, honest discussion and budgeting, according to Greg Pride, financial adviser with Centric Wealth.

“The issue is that each individual may potentially have had a very different approach to the subject of money and finances before they became a couple,” Pride said.

“So there will be a period of adjustment – ‘How did you do it? How did I do it?’”

Put money on the agenda

The best way to begin is to identify your individual financial goals, what you cannot live without and what you are happy to compromise on.

“The greatest success comes from writing down in an honest way what you are trying to achieve with your finances, then come together as a couple and look at each other’s notes and be open and honest and communicate. That exercise will be the starting point of the discussion,” Pride said.

Knowing your individual goals will help you develop a joint plan of attack – will you opt to save together for your own home or a holiday? Does one of you spend money on a daily lunch at work and will the joint goal be better served by cutting out or limiting that expense? Do you have separate pre-existing financial commitments that will need to be taken into account? For example, if one of you already has a mortgage. There will be plenty of questions to consider.

The joint bank account

After your honest discussion, you should arrive at your joint goals and an agreed strategy – and calculate a budget accordingly.

In Pride’s opinion, a joint bank account is the best way to tackle your joint expenses.

“A joint account is best because if you have continuing silos you will have continuing issues,” he said.

“At some point you need recognition that this is a joint issue and a joint project.”

The joint account will cover living expenses such as rent or mortgage, bills and joint dinners. Plus, money from it can go towards a holiday fund or into a joint high-savings interest account towards an agreed financial goal.

Pride also recommended that each person take out a weekly personal allowance – the same amount to keep things fair. That will cover personal expenses, such as clothes, beauty and grooming products, hairdressing trips, hobbies and the like.

If you save together for a joint financial goal – whether it’s a home, a holiday or a car – you will find it easier than going it alone.

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Learn more about savings accounts

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.