It’s February, which means love is in the air. We thought this would be a good time to discuss a very unromantic topic, personal finances as a couple. Whether you are in a long term, committed relationship, engaged, or newly married, it’s important to be open and transparent about finances.
Pick a Time to Talk
Talking about money is hard. It often evokes emotional responses and makes people uncomfortable, so they just avoid the subject altogether. However, having open and frank conversations about money can help foster a sense of teamwork and help avoid or mitigate sources of conflict down the road. If you and your partner or significant other haven’t ever discussed finances, start the conversation at a high level. Ask each other questions to get a sense of how each of you feel about money and what motivates you. Examples include: Are you a spender or a saver? Do you have a budget and do you follow it? Do you have a plan to manage any outstanding debts? When is the last time you checked your credit report? These questions may seem basic, but they can reveal a lot. You may find that as a couple, you are polar opposites when it comes to money habits. Or, you may find that you have similar good (or not so good) money habits. At the very least, these questions serve as a starting point to get the conversation going and provide some early insights into areas that may need more attention than others.
After you have discussed how each of you feel regarding money in general, you should look to start delving into some finer details. Each of you should take an inventory of your income coming in, basic monthly bills you are responsible for, how much debt you have outstanding, and your monthly liability payments towards those debts. You should also have a general breakdown of all your assets. Understanding where each person stands financially helps with formulating goals.
Set Goals and Decide What to Merge (Or Not)
After reviewing each of your individual finances, you and your partner or significant other should discuss how you want to handle certain joint expenses and financial goals moving forward. There are a number of different approaches to consider and remember you don’t have to do everything at once. Some couples decide to combine everything, while others decide that keeping everything separate works for them. A couple of ways to meet in the middle could be to contribute equal amounts per month to a joint bank account to cover agreed upon shared expenses and keep the rest separate. Or, if one person makes significantly more money than the other, contribute based on a percentage of your income rather than a fixed dollar amount to cover shared expenses. You can consider the same formula for saving toward joint financial goals. You can set up a joint savings account and contribute either equal dollar amounts per month or mutually agreed upon amounts. The important thing is to find a system that allows for open communication and adequate transparency.
When it comes to managing debt, tread carefully. If one person brings significantly more debt into the relationship than the other, it may be a good idea to talk with a financial professional on how best to handle.
Bring in a Neutral Third Party
If you find that you and your partner or significant other are at an impasse when it comes to talking about money or one side is being cagey, secretive, or evasive, it may be worthwhile to talk as a couple with a financial professional. A big part of our job as financial planners is to just listen. We hear both sides and provide a neutral, unemotional opinion or recommendation.
Talking about finances is a hard but very important part of any relationship. Talking over time, taking baby steps, and building trust can go a long way.
Securities and Advisory Services offered through LPL Financial, member FINRA/SIPC, a Registered Investment Advisor. LPL Financial and Croxall Capital Planning do not provide tax or legal advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.