Managing Your Money Together (For Couples)
While finding a partner you’re committed to building a future with is very exciting, it’s also essential to make sure you have compatible financial values. One of the most important talks you’ll ever have with your partner is deciding how to manage your finances together. You may be tempted to put this conversation off ─ especially if you know there’s a good chance it will lead to a fight ─ but the lasting health of your relationship depends on it.
Finding Your Money Management Strategy
Couples typically choose one of three money management styles:
Joint Accounts: Many couples choose to combine their income and savings for a variety of reasons.
Joint accounts may make it easier to pay common expenses and they offer both you and your partner full access to funds in case of an emergency. Keep in mind that sharing all funds with your partner is a big adjustment, and it may require both of you to change your money management habits.
Separate Accounts: Couples with different spending habits may opt to split expenses and keep their finances separate. This allows each person to manage their own debt and maintain individual credit histories. Keeping separate accounts requires excellent communication and high levels of trust, as you must rely on your partner to monitor their own expenses and pay allocated bills on time.
Partially Merging Finances: Some couples decide to keep a joint account for combined expenses like mortgage payments, groceries, and other living expenses, but separate accounts for their personal spending money. This means that each person gets a certain amount of spending money to spend each month that they don’t necessarily have to consult the other about.
Take the time to figure out which strategy works best for you. Just because you start out using one money management style doesn’t mean you have to operate this way forever. Many couples realize down the road that the method they’ve grown accustomed to isn’t working and switch to a different system.
Important Topics to Discuss
While deciding on a money management strategy is a huge step, that’s only part of the discussion. There are many other important topics to discuss to ensure you’re both on the same page about your finances. Some of these include:
Debt Management: Being open and honest with your partner about the debt you’re bringing into the relationship is essential.
If you have student loans, credit card debt, or any other outstanding financial obligations, be upfront about it and create a plan to manage these responsibilities together.
Debts brought into a relationship, whether you’re married or not, are the responsibility of each person.
That being said, you can choose to help your partner pay off their debt if that’s something you’re able and willing to do.
Setting Goals: A lot of couples’ goals for the future are tied to their finances. Discuss where you two would like to be 5, 10, 20 and 40 years down the road so you can create a savings plan to get there. This may include working together to save up for a mortgage, setting money aside to travel the globe, planning for retirement, or anything else the two of you would like to achieve together.
Assigning Expenses: If you opt to keep separate accounts, you’ll need to decide who is responsible for paying which shared monthly expenses. Many couples allocate expenses based on salary. For example, if one person earns $60,000 per year and the other earns $40,000, the top earner will pay 60 percent of expenses and the latter will cover 40 percent.
Use of Credit: Whether or not, or how, you use credit cards is a huge decision that you must make together.
Some people are only comfortable paying with cash, while others don’t mind financing with credit and making payments.
If one of you is charging up the credit card against the wishes of the other, you’re going to have some serious problems.
Conversely, if you two want to build credit in order to purchase a home or take out a car loan,
the cash-only partner may need to budge and get a credit card they feel comfortable using.
Emergency Savings: If one partner unexpectedly loses their job or can no longer work, you need to come up with a plan to handle the change in income. Most experts recommend that couples have enough money in their emergency fund to cover a minimum of three months living expenses, but six months’ worth of expenses is preferred.
Love is a beautiful thing, but don’t let your sentiments blind your financial decision-making skills. Remember, there’s no cookie-cutter way to manage your finances. In fact, what works for one couple might be disastrous for another. Be sure to focus on what makes sense for the two of you and your future financial bliss.
Damaris Olaechea, NerdWallet