Coming together to manage finances can be a bit of a daunting task. Have you found yourself at the stage in your relationship where you are considering tackling financial matters as a united force with your significant other? After all, it’s likely that you and your partner have varying levels of financial literacy and unique spending and saving habits, among other differences in money management.
As a new couple, this is the first time you have managed finances with someone else. Transitioning from handling a single income and expenses to adding another person’s finances is a learning curve. How can you go about successful money management? Consider the following tips.
One of the biggest hurdles to successful money management as a couple is open communication. This challenge may stem from embarrassment around poor financial habits or feeling overwhelmed by money-related conversations on the part of one or both partners.
Whatever the reason, it’s vital that a couple get comfortable talking about money as soon as possible because you will need to have regular conversations about the topic. If you plan to spend your life with this person, married or not, you will want to discuss this critical matter in detail to ensure that both individuals are on the same page. Be open and honest about your aspirations, spending habits, and paychecks. It is not too early to talk about your retirement savings plan or when you might want to retire.
In the beginning, such conversations can surface, but you need to have more in-depth discussions about individual income, credit scores, debt management, and goals.
In addition, it wouldn’t hurt to understand how each person feels about money and perhaps any financial trauma or anxiety. Furthermore, when arranging opportunities to talk about money, be mindful of the time, setting and manner. Both partners should be in a good headspace to talk about this topic.
Late at night or after a long work day may not be the ideal time to broach this subject. Instead, you might consider a quiet environment that allows each person to focus and is conducive to productive conversation. Lastly, do your very best to keep calm and be respectful toward one another. Money can often be a source of strife in relationships. So, avoid having a conversation about finances when you are actively upset with your partner, especially about a recent purchase.
Gain an Accurate Understanding
Open and regular communication about money with your partner is key to understanding your financial circumstances accurately. Having this understanding will inform your goals and plans. You can create a realistic budget with thorough knowledge of the money coming in and out and know where you can have extra money to save.
Tracking your finances every month is essential, especially in the early stages of managing finances with your significant other. It will take some time to get a handle on your money and figure out how to make things work. Besides creating a budget, you should put together a combined net worth statement of your assets less your liabilities.
Beyond just talking about the money, you need to understand your earning sources and spending outflows for your basic living and discretionary costs. You are keeping track of your financial wellness to get an idea of patterns and areas that need improvement for both parties. You want to avoid living paycheck-to-paycheck.
To make expense tracking easier, consider using a budgeting app. You will surely find one that meets your household’s needs, as there are many options. If you’re detail-oriented and skilled with spreadsheets or more technical software, you can track the comings and goings of your and your partner’s money.
Choose a Method
Managing money as a couple takes many different forms. The most common are combining your money, keeping it separate, or combining the two.
You and your partner should decide whether you want to (1) combine both of your incomes and share expenses, (2) maintain separate, individual accounts and open a joint account for both parties to contribute to, or (3) keep everything separate and decide on how to split the bills between the two of you.
There’s no right or wrong method. The first option takes a more holistic approach to money management as a couple, the second allows a measure of independence, and the third provides nearly complete financial independence.
The last option makes more sense for two people who make the same amount. Otherwise, you run the risk of issues. The method you choose depends on your circumstances and preferences. Take into consideration how much each person earns and contributes.
Even after you agree on how to tackle finances as a couple, there’s no need to be rigid. Remember that the three methods mentioned above are just common suggestions. They are not the only options. You may develop your own or combine various methods to create something that works best for your household. If you realize your chosen method is not working for you and your partner, it may be time to reevaluate the original financial plan.
Goals–you either love them or hate them, but no matter how you feel about them, they are integral to efficient money management for single ones and those in a relationship. Why? If you don’t have any financial aspirations, it’s easy to spend frivolously and deprioritize savings.
In addition, short-term and long-term goals provide focus, structure, and direction. They also inform and impact your plans for the future. Your future self will thank you for establishing and sticking to them.
Consider meeting with a financial advisor for financial advice or to discuss aspects of financial planning, which include saving for an emergency fund, paying off debt, including student loans, retirement planning, estate planning, and building an investment portfolio for your financial future.
You may have set goals as a single person, but in a relationship, you have to make room for joint plans and may need to abandon or alter individual financial goals. You guessed it, determining goals as a couple will require more open communication.
Before establishing joint goals, you should clearly outline your individual goals. Don’t hold back. Use this opportunity to be transparent with your partner to avoid heated disagreements about how you should spend money. Remember that all of your goals do not have to be financial. However, discussing them during these money-related conversations with your partner is still important because any of your objectives can impact your finances.
If you have trouble developing goals, consider using the SMART formula. SMART stands for specific, measurable, appropriate, realistic, and timely. These five aspects will guide you in setting worthwhile and attainable goals. Once you have a firm hold on your individual goals, you and your partner can discuss combined goals and perhaps weed out or revise some of the individual ones. Beware: This is an area in your relationship that will require compromise. However, the result can be equally rewarding for both of you.
Once you determine your individual and shared financial goals, you can devise an action plan. Destinations fall short because people often forget the most crucial step of achieving their aspirations. Put simply, goals without a plan are just dreams. (Dreams are good but won’t affect your financial health.) A plan of action details what you need to do to accomplish something. There’s no need to overcomplicate this part. Just tackle one goal at a time and determine what steps you need to take to achieve said goal. As you do, avoid being vague and try to account for mishaps.
Additionally, when planning for anything, you must determine how you will finance whatever you need or want. Good credit scores will provide you with better flexibility. Thankfully, financing options are pretty limitless, regardless of your plans. We’ve got the obvious and most readily available choices, such as cash and credit cards, but sometimes those two just don’t cut it. You might require more money than either of those options offers.
Depending on the need, it’s time to research options like a home equity line of credit, peer-to-peer lending, dipping into your retirement if possible, and exploring options for personal loans or lines of credit. Each option is different, and you must understand the differences before selecting the one that best serves your needs. Take your time and do your research. If necessary, consider consulting a financial professional that can help guide you in your wealth management and tax planning.
Managing money as a couple begins a new stage in your relationship. Depending on the individual, it could be a bit uncomfortable at first. It may even test the boundaries of your relationship, but in the end, it’ll all be worth it.
Take the time to communicate openly with one another. Grasp an understanding of the financial standing of yourselves and each other. Choose a method of money management that works best for both of you. Set and adjust individual and joint goals, and make specific plans to accomplish said goals. Focusing on money management as a couple will help put you on the path toward financial success.
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With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.