When it comes to finances, does one plus one make just two, or does the joining of accounts, debts and financial education add or subtract value beyond the individual components? Do you merge all the assets and liabilities and share responsibilities? What if you and your partner don’t see eye to eye on spending habits? If both partners have reasonable spending and saving habits and debt not in excess, the transition to financing as a couple can be smooth and simple. Here’s what will change and some helpful tips to make the transition.
Keep it Cool
About three-fourths of couples talk about money on a weekly basis, but many don’t know the right way to discuss it. People can be emotional and reactive about money, particularly when sharing responsibilities and having to justify themselves to someone else. Habits that never presented a problem may now become the subject of arguments. Emotion and finances shouldn’t mix. Imagine the family finances as a business to remove the emotion from the equation. People will be more methodical and logical about money when seeing it as a business issue, not a family matter.
Marriage studies have shown that money is the number one reason why couples argue, and it’s a key factor in many divorces. So how do you adjust the finances? If you still earn the same income, your personal spending habits shouldn’t change significantly whether you’re single or hitched. Many couples struggle with the question of how much to merge financials, and there is no single answer. “Married couples should try different ways of handling the money to see what works for them,” according to Ginita Wall, CFP and co-founder of the Women’s Institute for Financial Education. A joint account may help just to simplify the accounting of household and shared expenses. When it comes to keeping separate accounts, couples should choose what works for them. If one spouse prefers to take care of the money and the other is content and satisfied with the outcome, financial and marital harmony will ensue. The skills to handle money in a relationship are the same skills needed to handle money individually. You both will need to accurately track spending to know where the money is going. The core concepts of budgeting don’t change with marriage, only the numbers; you still need to know where the money goes, how much you need to save and what you can afford to spend. Couples need to reach an agreement on how much discretionary spending each partner can afford, whether distributed equally or in proportion to salary. Use your spending money as you choose and allow your partner to do the same without criticism.
Maintaining an individual credit history is important for both partners, since a bad credit score can hurt a spouse’s ability to get credit. Keeping separate credit cards is an easy way to do so. While it’s probably more convenient to designate one person as the regular bill payer, the other should be familiar with the process, know what bills must be paid when and perhaps take a turn just to have a payment history. The bottom line is that while having someone to share financial burdens and help manage finances can be a relief, each individual needs the ability to handle money independently in case of death, divorce or other special circumstances. In couples where one partner handles all the bills, the other partner is not building credit history, something that most don’t consider until it becomes a crucial issue.
I take you…and your debt
Many marriages join two individuals with unequal debt loads. One pitfall that catches many is resentment that may simmer when one spouse appears to be the “spender.” However, appearances may be deceiving. The partner who spends on day-to-day items will likely spend the same amount as the partner who rarely shops but brings home big-ticket items on those rare occasions. The key lies in understanding one another’s priorities and views on money and making financial plans accordingly.
Investing as one?
Should investment remain an individual responsibility or a shared one? If you and your partner have similar risk tolerance and financial goals, working together can be a bonding experience that helps you build mutual trust for your future while you build wealth. However, if risk tolerance varies widely, keeping separate investments may be the simplest and least stressful way to invest. Problems arise if your partner is mismanaging or taking unnecessary risks with money; if this is the case, the offense goes beyond losing money and becomes a question of trust which can quickly erode a relationship.
Would you consider lying about losing money in the stock market or gambling a reason for divorce or separation? These are the most extreme cases, but a survey from SmartMoney magazine found that 36% of men and 40% of women have lied to their partner about the price of a purchase. So does keeping financial secrets ruin a relationship? Not necessarily, depending on the nature of the secret. If the damage was slight and not likely to repeat, a fib won’t hurt the relationship any more than a little white lie about how much your spouse loves spending time with your parents.
In short, getting hitched doesn’t change your financial situation from time to time. The same principles of budgeting, living within our means, and saving still apply. You have the benefit of pooling resources and sharing expenses like housing and utilities, but your spending habits shouldn’t change drastically, unless, of course, you adopt a pet or decide to have children. Those will change your budget situation dramatically, so be prepared!