Introduction
You’re not excited to talk about money with your partner, are you? Although there are no hard-and-fast guidelines, these suggestions should help with the move.
Adults who live with their partners are becoming more prevalent.
It might be challenging to keep up a positive relationship with your partner. When money is involved, it has the power to make or break your financial situation.
The best way to manage your finances with your partner isn’t predetermined. However, relationship and financial gurus have provided us with some dos and don’ts for navigating shared finances in a partnership. Additionally, we provide several financial integration situations that have been successful for couples just like you.
The “do’s” of combining finances
In any challenging conversation, being honest and upfront is crucial. particularly this one. Discuss your worries openly with your partner. Encourage your partner to do the same by writing them down. After that, talk openly about each of your worries and think about potential solutions.
Don’t be scared to pose challenging queries. What is their salary? Imagine if you split up. Does he or she use problematic money management practices? Speaking to your issues is not the right method to criticize your mate. Try to come up with solutions that will benefit both of you.
Do you prefer having separate or merged bank accounts? This depends on where you are in your relationship and financial life, which differs from pair to couple. The quick response is that you must act in your own best interests.
For some couples, this entails having separate funds but also keeping a joint account to which each can make contributions. These kinds of joint accounts ought to be utilized for shared costs including rent, mortgage, utilities, and groceries.
Decide which accounts you will be combining
If you do decide to combine your accounts, you will both have access to the money through a joint account, for example. In other words, you both have the legal right to withdraw the money and use it whatever you like. Any debt incurred on the account is your joint responsibility, and it could have an impact on each of your credit scores.
You should aim to reduce stress as much as you can because it can seriously harm a relationship.
Start by developing a financial strategy and having an honest discussion about your debt. inquire about your debt load, for example. What is the cost each month? What is the rate of interest? Even while you might not be able to pay off all of your debt at once, including school loans, you can start by paying off your credit card debt and other minor obligations.
What if the majority of the debt is being carried by your partner? Once more, your response will depend on your relationship as a pair. You might want to take all possible measures to support your lover financially. It’s important to be honest about the support you can provide, though. It’s important to communicate. Think of ways you can support the other person emotionally and assist them in getting back on track.
Create a debt repayment plan
How much in terms of your spending habits is “too much”? Create a budget with your partner to serve as a guide. You may see how combining your finances will look by doing this. According to Money Management International, Gabriel Kaplan, a CFP® and CPA in New York City, he and his wife “decided on a savings rate, deducted from our living expenditures, and then allocated what was left over to ourselves… We stick to our budget, and we both have faith in the other person to take responsibility, so everything has worked out.
For the first two to three months, make a budget. Include date evenings, groceries, rent, and other living expenses. Establish your average monthly or weekly spending.
This will provide you with a clear picture of your financial situation and show you how much money you should be setting aside. Create a budget, stick to it for the first few months, and then make adjustments as you go. Your budget should serve as a guide for spending, not as a constraint.
A budgeting app can help you save money and track your spending as a couple.
One of your first joint financial objectives should be to start a savings account for emergencies. You will almost certainly run into unforeseen costs throughout your partnership. A job loss, significant house repairs, or health issues could affect one of you. There is an emergency reserve to lessen that blow.
It serves as a backup fund for unexpected costs, preventing you from going into debt. It’s a good idea to set aside 6 to 9 months’ worth of living expenses.
Put this cash in a different account so that you won’t be tempted to withdraw it. To ensure that your money is earning interest over time, think about opening a high-yield savings account.
People who are in committed partnerships ought to be considering retirement, even if they are only in their early 20s. If you and your partner are sincerely committed to each other, retiring together and pooling your resources will enable you to create a future support system for each other.
Through a tax-advantaged retirement account offered by your employers, such as a 401(k), 403(b), or thrift savings plan, you can begin saving for retirement. If you work for yourself, you should think about a SEP-IRA, which enables you to create an account through a brokerage or robo-advisor.
Another excellent choice is a Roth IRA. “Roth IRAs offer a lot of flexibility and perks that other retirement savings accounts don’t, like as the option to withdraw your own contributions without tax or penalties,” says Shannon Compton Game, CFP® and host of the Millennial Money podcast. You can optimize your contributions by setting up a separate Roth IRA on the side and making work-related contributions to your 401(k) if your salary is within the limits.
Start an emergency funds
Sharing your finances with your partner enables you to streamline long-term financial objectives. If you’ve talked about getting a house or organizing your ideal getaway, working together will help you accomplish these objectives more quickly.
First, think about visiting a financial planner. Calculating how much you need to save each month can be made simpler by having a neutral person there to pose the difficult questions.
Regardless of how little money you have in your account, many banks give the same rate for savings accounts. For this money, open a new savings account. You can avoid using that money for purposes other than those for which it was intended by using multiple savings accounts. It can also make it simple for you to see how successfully your financial goals are being achieved.
Consider buying life insurance
You might require more protection than you anticipate when developing your life with another person. Life insurance can help with that. Even though it’s a scary concept, discussing the possibility of your partner passing away is necessary when pooling finances. What financial effects, if any, would your partner’s death have on you?
You might want life insurance if you have shared debts, have children together, or have purchased a home together. If something were to happen to you or your partner in the future, life insurance might help you both escape any financial difficulties.
Term life insurance is an affordable option. This type of life insurance lasts for a fixed period of time (typically 10, 15, 20, 25 or 30 years) and provides a financial payout to your beneficiaries. That means your beneficiaries would typically be paid a lump sum of tax-free money if you were to pass away.
| 30-YEAR TERM LIFE INSURANCE RATES | ||
|---|---|---|
| AGE | COVERAGE | $1,000,000 |
| 30 | Male | $53.32 |
| Female | $43.31 | |
| 35 | Male | $63.24 |
| Female | $51.65 | |
| 20-year term life insurance rates | ||
| Age | Coverage | $1,000,000 |
| 30 | Male | $30.82 |
| Female | $24.55 | |
| 35 | Male | $34.08 |
| Female | $29.03 | |
| 10-year term life insurance rates | ||
| Age | Coverage | $1,000,000 |
| 30 | Male | $21.24 |
| Female | $15.70 | |
| 35 | Male | $25.17 |
| Female | $18.32 |
The “don’ts” of combining finances
Do not combine everything at once
Even if your ultimate goal is to consolidate all of your accounts, start slowly and do it in stages. List all the accounts you want to combine along with their purposes. Start by keeping some of your accounts distinct.
When it comes to shared bills like rent, groceries, and utilities, try opening a joint account. Make a list of your assets (such as investments and bank accounts) and liabilities (such as credit card debt and student loans) and indicate who owns each and how you will divide it. Although it may seem like a lot of work, doing this will ultimately spare you a lot of problems.
After combining your funds, you could get complacent and stop paying attention to your partner’s and your own spending patterns. This is a precarious slope. You might be accustomed to handling your finances on your own terms if you’ve been alone for a while or if this is your first time splitting finances. Sharing is a crucial component of every relationship, but using common funds for personal costs may give the impression that you are taking advantage of your spouse, according to clinical psychologist Carissa Coulston.
No longer are you allowed to spend $200 on a pair of designer shoes just because you want to. Now that you are a team, you must decide what is financially beneficial for both of you. Make time to talk about your finances once a month, especially if you sense that one of you is starting to lose sight of this. Make it a chance for the two of you to leave the house and talk. On a weekend morning when stress levels are low, try to do this.
Dont micromanage
Keeping an eye on your partner shouldn’t be justified by shared financial obligations. Observing them from behind and criticizing their expenditures will only make them turn away. You’re a team once more. And trust is a key component of a great team. You believe your partner when they say they’ll use the credit card to buy groceries and that’s exactly what they’ll do.
If, however, you discover that this is not the case, you should quickly address any reckless or impulsive spending patterns. They should be doing their share, just as you need to make sure you’re doing yours.
Do not keep secrets
You shouldn’t keep secrets in your relationship regardless, and secrets around finances are a recipe for disaster. You may feel tempted to hide things from your partner if you have spending habits you aren’t proud of. Similarly, you may hide the amount of debt you have because you’re embarrassed. Don’t do this.
“Financial secrets take an added toll due to the effect they have on a sense of both physical and emotional security,” according to Carla Manly, a clinical psychologist. For example, if your partner ends up spending all of your emergency fund without you knowing and an accident happens, this affects both your emotional safety (betrayal of trust) and literal safety (financial security).
Different ways to approach combining finances
Every couple’s relationship is different. What works for one relationship may not work for you. So, it’s critical to do what feels right for you and your partner. Below are five approaches to finances that have worked for couples like you.
1.The “Equal” approach
- What it is: Keeps most finances separate except for one joint account that you both contribute to equally.
- Who it works for: Great for couples who consider themselves to have equal income and finances.
- Who they are: Steven and Angela are in their late 20’s and have been living together for about a year. They both work hard and are successful in their careers. Neither has significant student loan debt or loans to pay off and they make around the same salary. Together, they decide to set up a joint checking account for shared expenses such as groceries, rent, and date nights. They both agree on an amount to contribute to the account each month.
2. The “Equal Percentage of Earnings” approach
- What it is: Similar to the approach above, except instead of contributing the same amount to a joint account, you will be contributing the same percentage of each of your paychecks.
- Who it works for: Say your partner makes a substantially larger income than you or vice versa. This approach helps even the playing field.
- Who they are: Alice started a health company five years ago and it just recently started taking off. She is now making significantly more than her boyfriend, John, who is a freelance graphic designer. They have talked of marriage and buying a home together. Alice wants to move to a wealthier neighborhood. John is afraid he won’t be able to support the mortgage with his current income. Together, they decide to open a joint account where they each contribute a certain percentage of their earnings.
3. The “I Got You Next Time” approach
- What it is: In this approach, you will take turns picking up bills and/or expenses for the other.
- Who it works for: Perfect for couples who were on the fence about combining finances.
- Who they are: Sierra and Mitch just moved in together. Mitch has a significant amount of student loans to pay off while Sierra has no debt at all. Mitch makes around $5,000 less than Sierra, but he loves to grocery shop and plan out their meals for the week. To make their finances easier, Sierra and Mitch decide to split their bills. Sierra pays for cable since she loves to watch football and Mitch decides to pick up the grocery bill because he loves to cook. Sierra, in return, buys a nice dinner out once a week.
4. The “It’s On Me” approach
- What it is: When one person pays for all expenses in the relationship.
- Who it works for: A couple where one partner earns a larger salary than the other or is the sole income earner.
- Who they are: Mia and Alex have been living together for some time now. Alex just got accepted to grad school where she plans to get her Ph.D. However, during that time she will have to quit her current job. Mia makes a solid amount of money and has agreed to help pay the bills and the majority of expenses while Alex goes back to school. They have talked about the possibility of marriage and having a more equitable approach to finances once Alex has gotten her degree.
5. The “What’s Mine Is Yours” approach
- What it is: This is when you and your partner combine finances entirely and equally.
- Who it works for: Married couples or serious couples who see marriage in their future.
- Who they are: Kendra and Riley are getting married in a few months. They have discussed saving for a house and eventually a family. Kendra has some student loans, but Riley has agreed to help her pay them off. They decide to open a joint account where each of them deposits their monthly income. They use this account to set aside savings and pay for bills. They’ve also agreed to start saving for a down payment on a home.
Managing money together can help bring you closer as a couple. However, it can also tear you apart if you don’t approach it correctly. It’s important to be open and honest about any concerns and discuss different approaches that will work for both your relationship and finances.
Whether you decide to go all in and open a joint account or take it slow and start by picking up each other’s bills, create a monthly budget or spreadsheet that lays out what is combined and what is not. Doing this successfully will always come down to communication, your willingness to compromise, and trust. Remember to do what’s best for you as a couple.