Tips On How To Manage Money As A Couple
Your finances may sometimes become intertwined in a relationship, whether buying a home together or just moving in together as common-law partners. Multiple studies reveal that finances remain a primary source of conflict in relationships. Here's how to avoid it in your relationship and how to navigate the (sometimes) tricky world of "my money", "your money," and "our money".
Understand Your Significant Other's Money Mindset
We all have different approaches to finances and money management, which is why it's important to understand your partner's mindset before entering into large financial commitments with them. Is your partner a saver or a spender? Do they buy impulsively? Do they have expensive tastes? Understanding their money mindset will help you navigate life's financial decision points.
Talk Openly About Your Past Financial Mistakes
When discussing your money mindset, don't forget to discuss your past financial mistakes, too. It's okay to admit that you've made mistakes, even big ones—perhaps you used to have a gambling problem, or blew an inheritance in record time. Whatever your financial mistakes, you and your partner must be open about them, so you can avoid making them together in the future.
Discuss Your Income Streams
If you want to know where you're going in your financial life, it's important to understand where you are right now. What is your annual income? What's theirs? Do you have other income streams, such as investments? One of you may be the breadwinner—this is totally normal and okay.
Don't Let Income Disparity Become A Problem
Income disparity can become a huge issue for some couples, but it doesn't have to be. It's simply a normal part of life's ebbs and flows. Sometimes, you'll make more than your partner, sometimes they'll make more than you. As long as you're having open and honest conversations about how you'll address the disparity, you'll be fine.
Are You Going To Allot Expenses Based On Income? Or Split Things 50/50?
Some couples decide to allot expenses based on income—a common approach for those where one (or both) people have an income that fluctuates. For example, if one is a freelance graphic designer, while the other is a full-time employee for a company, the person with the salary position may cover more of the expenses during slow periods for the freelancer. Another common choice is to split expenses 50/50—this is most common when both partners have a guaranteed income.
Split The Household Expenses As A Percentage
Another option is to split household expenses as a percentage of your overall income. Say that your gross household income is $100,000: you make $70,000 and your partner makes $30,000—you could split the household expenses into percentages. So, you pay 70% of the household expenses, while they pay 30%. However you work it out, ensure that it's fair and reasonable.
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Understand How Cohabitation Affects Your Workplace Benefits
Moving in with someone significantly affects your workplace benefits, as this means that they could be included on your workplace benefits plan. For example, they could be added to your workplace health insurance or receive other benefits through your work insurance, including receiving additional coverage for any ailments of their own.
Cohabitation Affects Taxes
Be aware that moving in with someone will affect your taxes. If you file your taxes jointly, which you should do if you live together, there are specific benefits you could receive, including receiving some of the largest tax deductions and returns. This is especially true if you have dependent children together.
Talk About Your Individual Financial Goals
While you're still a unit, it's important to understand that having your own financial goals is perfectly acceptable and normal. Discuss what your individual financial goals are at the start of each year; maybe your partner could offer insight as to how you could achieve them that you hadn't thought of.
Align Your Financial Goals As A Couple
Even if you don't have the same individual financial goals, it's important that you at least align your financial goals as a couple. Could your new home use a new roof? Or a facelift? Is a vacation something you both want? It's important to align both your short-term and long-term financial goals as a couple and find solutions to things you may disagree on.
Build An Emergency Fund
One of the most important things you can have as a couple is an emergency fund. If you don't have an emergency fund yet, it's time to build one! Start by saving $1,000. This should be enough to cover a blown alternator or a major home appliance that breaks unexpectedly. Then, start to save between three and six months' worth of household expenses.
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Manage Your Personal Debts Personally
Once you've built a three- to six-month emergency fund, it's time to manage your personal debts and start paying them down. The debts you came into the relationship with are yours to manage and pay down. Any debt you accrue together is your joint responsibility. Work out a plan to pay down your personal debts first, giving you more money to put toward your collective debts.
Decide On A Debt Repayment Method
Whether you're repaying your debt using the snowball or avalanche method, it's important that you both agree on the importance of each type of debt and can build a debt repayment plan that you can both agree on. Most couples contribute an equal amount to their joint debt to pay them off, but you can agree to pay off debts unevenly, particularly if your income fluctuates.
Establish Short-Term Savings Goals
Short of a major emergency, combining finances can mean saving toward short-term financial goals, like next year's vacation, or buying a new car to support a soon-to-be family of three. Establish some short-term savings goals as a couple, then decide how (and where) you'll save for them.
Build A Savings Plan
Building a savings plan for a short-term savings goal could be as simple as each person agreeing to contribute $100 each per month toward the goal. Work out what the goal costs and how long it will take to reach it at your current savings rate. Decide how much you're both willing to contribute towards this goal.
Establish Long-Term Savings Goals
Once you've got your emergency fund in place, it's time to establish long-term savings goals. These may change over time and that's okay, but it's a good idea to at least understand where you're at as a team and what your long-term goals are for your money. Did you want to buy a second property together someday? Or a boat? Do you have a dream vacation? Establish your long-term savings goals and make sure you're somewhat on the same wavelength.
Talk About Investments You Could Make Together
One long-term savings goal you have could be investing together. If you both have a passion for investing in stocks, real estate, bonds, or other investment vehicles, you could open a joint brokerage account. This allows both parties to contribute to stocks, bonds, and index funds and make trading decisions together. Joint brokerage accounts aren't for all couples, but they can make it easier to invest, if that's something you're both into.
Decide On Whether You Want To Open A Joint Bank Account
One critical decision you'll need to make as a couple is whether you want to open a joint bank account, or keep things separate. Either is fine and it really comes down to personal preference. Of course, you could decide to have both a joint account and personal accounts. Joint accounts can be used to pay for household needs, like utilities, groceries, or paying off the mortgage.
Using A Joint Bank Account Can Sometimes Make Things Easier
While we get the appeal of having separate accounts, all shared household expenses should come out of a joint account, where the money is pooled after each pay. This will ensure that there's no song-and-dance about any disparity in income as bills and joint expenses are removed from this account only.
Decide On Discretionary Spending
If you're going to have a joint bank account, then you need to decide on discretionary spending that can be withdrawn from that account into individual accounts. This should be delineated in your household budget. Compromise is your friend here to ensure fairness and cooperation.
Create A New Household Budget
Once you've had the conversations about short-term and long-term financial goals, it's time to set a household budget. Keep it simple and ensure that you're both upfront and honest about your income. Decide on how much you're willing to contribute to those short-term and long-term financial goals. Plan for this in your budget.
If You're Getting Married, Consider A Prenup
Getting married is one of the ultimate acts of love between people. But it also has consequences that can leave you financially intertwined in ways that aren't easy to extricate yourself from, should the worst happen. Consider getting a prenuptial agreement drawn up if you're getting married soon. This prenup doesn't have to be complicated, but it will clearly define financial ownership and responsibility for things. This will make any separation or divorce process much easier.
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Ensure You Have Individual Credit Cards
Of course, nobody wants to ruin their credit, but things happen! If your partner is already in the process of rebuilding their credit or has poor credit, it's a good idea to have individual credit cards. This will allow you to maintain independent credit scores and not risk your financial futures, in case one of you makes a mistake that tanks their credit score.
Establish Regular Financial Check-Ins
It's a good idea to check in regularly with your significant other about how they're feeling about their finances. Are their goals still the same as they were six months ago? Do they want to make any changes to your financial goals, both short-term and long-term? Have regular conversations about money, especially about big purchases!
What To Do If You're A Saver, But They're A Spender
What do you do if you have fundamentally different approaches to money: if one person is a spender, but the other is a saver? This type of personality difference can make it difficult to tackle financial life as a couple, but compromise is key here.
Work Out Where To Save & Spend Appropriately
Of course, there are appropriate and inappropriate ways to save and spend, as well as appropriate (and inappropriate) use of joint funds. Account for discretionary spending in your monthly budget and ensure that your significant other is able to stick to it.
Keep A "No Fuss" Slush Fund
Discretionary spending can be kept in a slush fund where you both agree to a no-questions-asked approach to the fund. There's, say, $200 in there that you can spend without any questions, nagging, suspicion, or creating an atmosphere of mistrust or malfeasance. Think of it as a monthly allowance out of your joint budget.
What To Do In The Event Of Financial Impropriety
A betrayal of trust in the realm of money can be one of the toughest losses to take. Alongside the emotional toll that such a betrayal can inflict, there's the additional financial losses—even if it was something like hiding additional debt during your initial disclosure of finances. It can be tough to salvage a relationship, but if you're willing to try, then here are some things to consider.
Rebuilding Trust Through Action
The easiest way to rebuild trust is through action. You've been gracious enough to give your partner another chance, now it's their turn to demonstrate they can change their behavior. Accountability, openness, and honesty are required in order to make this work. It's time to start over.
Agree To Repay The Lost Funds
It's important that your partner agree to repay any funds they've taken out of joint accounts. This should be delineated to a certain amount each time they get paid and continue until such time as the amount is repaid in full. No more discretionary slush fund until such time as the joint account is back to its former balance.
Build A New Budget
Because of this betrayal, you'll have to start a new household budget to accommodate for the short-term loss of funds from your partner's income (that's going towards). This may mean you'll have to skip on the things you'd otherwise spend on (no dinner dates for a month, for example), but that's part of this re-building of trust process.
Monitor Your Joint Account Closely
Once your partner has begun their repayment process, it's important that you monitor your joint account closely. You should see the normal discretionary amount go into the joint account. Monitor the account for any financial irregularities.
Consider Financial Counselling
If the financial impropriety involved excessive spending or an addiction, it's important that financial counselling and/or therapy be sought as part of the healing process. This may help you and your partner address deeper issues with your relationship, too.
Once You're Back On Track, Stay There
Once your partner has rebuilt your trust, it's important that the trust remains. Do regular financial check-ins wherein total transparency is observed. Once you've both worked hard to salvage the relationship and make those changes to fix the financial infidelity, it's important that they remain on track, for the sake of the relationship.
Here's To A Long, Happy, & Healthy Relationship!
Money mistakes happen, but it shouldn't define your relationship. If you both have it in you to get over the infidelity and move past it, you can still build something wonderful together. Get on the same page. Be honest. Use your collective capital to build a life free of money problems.
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