There is not a couple on the planet who has not fought about money. Who earns it, who spends it, who saves it, and how to best manage it…these are hot-button topics even within the happiest of relationships. Money is such a divisive topic that researchers at Kansas State University found it to be the number one reason for relationship unhappiness in their 2013 study on couple dissatisfaction.
Part of the conflict comes when merging assets. Before being in a relationship, you made your own money and spent it as you pleased. If you overspent your monthly budget and had to eat ramen noodles until your next paycheck, the only person affected by this was you. If you wanted to take a luxury cruise that had you pulling out your credit card to pay for it, you solely assumed the debt and the monthly repayments needed to keep your credit record clean.
But being in a couple can mean combining finances and with that comes sensitive but essential discussions. There are people, especially people who fall in love later in life, who decide to keep all money matters separate, and that is fine. But most young couples take the “what is yours is ours” view towards finances with everything going into one common pot.
A bit of advice: do not merge your money until you are married.
If you are engaged or just living together, keep your accounts separate. If you end up splitting up, it makes things much easier when it comes to untangling finances. When a marriage is over, there are legal structures in place to protect the parties and disengage the joint finances. For unmarried couples, those legal protections do not exist.
As you are merging your lives and your assets, it is important to sit down with a spreadsheet and define how you are going to manage your money in a way that makes sense to the two of you. Here are some of the points this conversation should include:
Begin with a description of your money habits
Pull out your bank statements from over the past year. These can provide you with a picture of where your money went over the last 12 months and should be a fairly accurate representation of your spending and saving style at this point in your life. Do remember that your financial goals will change as you move forward with life so plan on having these types of conversations periodically.
Ask each other what you want your money to do
Examine how aligned your financial goals are. What percentage of your paychecks should go into long-term savings: for a home purchase, children, children’s college funds, retirement, etc.
How much should you spend on health insurance? Does it make sense to choose a higher deductible if you are currently in good health?
Life insurance: What sort of policy is appropriate for you at this time in your lives?
Vacation styles: do you agree that a fancy yearly vacation is something worth saving for, or do you prefer cheaper getaways such as camping or staying with friends and family? What percentage of your income should go towards this?
Pre-existing debts: Does one of you have college loans that you are still repaying? How about credit card debt from before you were together; who is responsible for that?Car loans? Will living together mean both of you will contribute to these debts?
Financial experts say that any future inheritances should be seen as separate property and not shared assets.
What if your earnings are unequal?
Does taking a “what’s mine is ours” approach makes sense to both of you? Do you agree that the higher-earner should contribute more to overall expenses? What about banking the lower-earner’s paycheck and living exclusively on the higher-earner’s paycheck? Many couples with unequal incomes find a three-account system: each of you maintains your own individual bank account and a third pooled account, accessible by both of you, is used for shared expenses like rent, groceries, bills and restaurant meals.
If money management discussions become too heated, or you find that you and your spouse just can’t reach agreements on certain things, consulting a financial planner makes sense.This expert can help you navigate hard conversations and arrive at decisions that are fair to both of you. Using a third party to take the lead when talking about money will greatly help keep the peace in your marriage so don’t hesitate to make an appointment with a financial planner. Money-centric conversations are never easy and often can mask or uncover other conflict points for couples, so having a neutral trained professional help you through these situations can be a life (and marriage) saver.