Money cannot buy you love, but disagreements about money can strain even the most loving of relationships. The reality is that if a relationship is to have a long-term future, couples must be prepared to reach agreements about managing their finances and both parties need to be happy with, and willing to stick to, these agreements. Here are 5 steps to making that happen.
- Take stock of where you are now
Regardless of whether you are just officially becoming a couple or whether you have been together for some time but never (properly) addressed the issue of managing money, you need to have a starting point for your financial journey. So, where are you both now? Singly and jointly lay out your income, expenses, debts and assets. Check that your sums add up, in other words if you get to the end of the month without actually knowing where your salary has gone, it’s time to start tracking it.
- Decide where you both want to be going into the future
Think about where you want to be in one, five and ten years from now. What is important to you both and what is important to each of you individually? Map out a plan for your future together and work out how much your ideal life is going to cost.
- Start to build a map which links your current situation to your future dreams
Realistically speaking, you may not be able to achieve your plans in your initial “ideal” time-frame. That is fine, it will give you a starting point and get you thinking about short-, medium- and long-term goals and realistic time-frames in which to achieve them. Financial planning is largely a balancing act between addressing current needs and wants and preparing for the future so take some time to think about what is really important to you in the here and now and what you are prepared to give up now so as to be better prepared for the future.
- Decide on whether or not you are going to have a joint account
Joint accounts can be very convenient in terms of managing household expenses. Both parties can pay into them and shared bills can be paid out of them. This means that, in principle, either or both halves of the couple can manage household expenses. The challenge with joint accounts is that the account holders can have very different views on what constitutes reasonable expenses and withdrawals. One way to address this issue is to keep a joint account for household and other clearly-joint expenses and for each individual to have their own bank account into which they pay themselves and allowance to do with as they please. This can also provide a safety net in case of any issues with the joint account, e.g. banking outages.
- Make the effort to understand each other’s point of view
If one half of a partnership is a habitual saver and the other is an easy-come-easy-go spender, conflicts can arise out of frustration with these different habits. Instead of getting angry or upset, talk to each other and make the effort to understand why it is important to for the saver to save and for the spender to enjoy living in the moment. Then work to find a way to accommodate both your needs. For example, if the spender has a stressful job and likes to have some fun at the weekend, maybe they could start taking their own coffee to work instead of stopping off at a coffee shop and using the money they save to finance going out at the weekend.