As a couple, it’s natural to progress from spending your free time together to living together and over time you may start to consider yourself as one financial entity. But what is the best way to manage your finances? The truth is that there is no one size fits all approach. Every person’s attitude to money and relationships is different so you will need to have a discussion about what works for you as a couple.
While it’s not the most romantic way to start your journey together, sharing money with your other half is a big responsibility and it’s important to understand each other’s approach and expectations before you take this serious step forward. You should be honest with yourself and your partner about your mindset on managing money, your savings goals and priorities. Having this conversation early on will help you to consider each other’s boundaries and level of commitment and you will have the opportunity to mitigate potential problems before they arise.
You should get comfortable discussing this difficult topic because situations can change instantaneously in life and you need to be able to communicate with each other clearly in order to handle the situation in the best-case scenario.
There are several approaches to managing your finances as a couple. Every strategy has its advantages and disadvantages and you may find that the different approaches can work for you at different stages of your relationship.
The simplest way to manage your money is by keeping your money separate. Each of you will look after your income, savings and expenses privately. If there are any shared expenses or bills, they will need to be dealt with on a case-by-case basis. This can be a comfortable starting point for people who are used to managing their own finances and don’t yet share many expenses.
Each of you will be responsible for managing your own income and expenses, as well as fulfilling any shared financial responsibilities. By keeping your money separate, you will retain your privacy and you will be less likely to quarrel over your spending habits.
Keeping your finances separate while managing a joint budget relies on you keeping a constant flow of communication, and if you are not comfortable putting in the work to figure out who owes what each month this may not be the best option for you.
Another popular financial management strategy adopted by couples is to share everything. You can open a joint bank account, where you will combine both your incomes and all your expenses will be deducted from. Both of you will have control over the account at any given time and you will be able to see all expenses made from the account. You may wish to agree on a spending threshold so if one of you wishes to make a larger purchase you would both have to authorise the transaction.
This strategy may be most suitable for couples who share similar money management values, but it may not be suitable if you both have different understanding and expectation of financial control.
Keep in mind that once you are financially bound with another person, for example through a joint bank account, their actions may affect your credit score. Your credit rating is used to evaluate your creditworthiness and may impact your ability to take out credit. If you are aware that your partner has a less than perfect credit history, it may pay off to wait until they have rebuilt their credit score to merge your finances.
Having your income and expenses in one pot makes it easier to control your budget and track your spending. All your regular fixed and variable monthly expenses will come out of your joint account which eliminates the admin required to manage these expenses on a month by month basis.
Having full access to each other’s income and spending habits can feel intrusive to some people so it is important to be respectful of each other’s boundaries and agreements in order to avoid squabbles. Moreover, the financial decisions taken by one partner may impact the other partner’s credit history.
Perhaps the perfect middle ground would be to share some of your income towards a joint budget and keep some of it private. You can both redirect a proportion of your salary to your joint account which would pay for all your priority bills and you can retain some money for your own spending.
You will need to work out your shared regular expenses and come up with a budget. Once you have your budget you will need to decide how much each of your will contribute towards your mutual budget. Some couples may settle on a 50/50 contribution, while others may contribute proportionately to their income.
This strategy may be most suitable for couples who want to retain some autonomy of their finances, while also sharing their funds for the household.
Having both a joint and a personal bank account gives you the freedom to manage your own spending while also working towards a shared goal with your partner. Keeping your spending pools separate will ensure that your priority bills are always covered before you tap into your personal resources.
Having multiple bank accounts can be a hassle, if you manually need to manage the finances for both accounts. Moreover, splitting your spending into priority and non-priority bills may create the illusion that each of you has a personal allowance, which may lead to unprecedented overspending.
Bringing up sensitive topics with compassion can be challenging, however it’s critical not to put off having important conversations especially when it comes to money. Whether you are discussing your monthly budget or making a large purchase, remember to listen to each other’s opinion respectfully before coming to a joint decision. Setting a time aside each month for a financial briefing can help you get more comfortable talking about your finances and will help you track your budget and goals.
Managing a household budget is not an easy task and both partners should be equally involved in making decisions. If the responsibilities aren’t distributed and one partner takes the lead, the other person may be left in the dark about the couple’s financial situation. On the other hand, working as a team will allow you to identify your strengths and weaknesses in money management so you can find the support and learn from each other to meet your financial goals.
Have an honest chat about your vision of the next 1 year, 5 years, 10 years. What financial milestones would you like to hit together? Whether you are excited to start saving for your first home or you want to clear a debt, making a financial plan that you can comfortably stick to is essential before you combine your budgets.
If the worst happens and you have to go through a difficult separation the last thing you may wish to think about is money, however it is best to address the elephant in the room as soon as you are both ready.
Your ex-partner may have been your spouse, civil partner or simply your girlfriend or boyfriend. You may share children, a home or a business. It is important to know your legal rights in each situation. You may be able to come to an arrangement on how to divide your shared funds, assets and other belongings, nevertheless it may be a good idea to consult a professional before you make a final decision. The Citizen’s Advice Bureau can offer impartial support to help you partition your assets fairly and amicably when your relationship ends.
Managing your money as a couple doesn’t have to be difficult. Honest communication and a little planning can go a long way in having a good relationship with each other and your finances. Working together to make your dreams into reality can be exciting when you strike the right balance between responsibility and fun. Remember that there is no right way to handle your money and different approaches can work for you in different stages of your relationship. Always keep in mind that you can seek the advice of a professional if you are struggling to make it work.
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