Money is one of the most common reasons couples fight. It’s also among the top reasons for divorce. This makes learning how to manage money as a couple a crucial skill to keep your relationship and finances healthy.
Deciding how to split finances when living together or married can be daunting. After all, it might be the first experience you’ve had with sharing money and financial responsibilities.
Money is an awkward topic for most people. However, tackling the subject of sharing money head-on is essential to put yourself and your partner in the best financial position while avoiding conflict in your relationship.
With your partner, you must decide how to split finances when living together or married, whether you want a joint account, and what your future financial plans include.
Here are the seven things to consider when deciding how to manage money as a couple.
1. Open and honest communication
Open and honest communication is the foundation of any good relationship. This makes hiding things from your partner a surefire way to damage their trust in you and erode your ability to work as a team effectively.
This is especially true when it comes to learning how to manage money as a couple. In any serious relationship, you should be transparent about your financial situation, especially when your finances significantly impact both of your futures.
When discussing things like saving for a house, a wedding, or any other big purchase, couples should be honest about their savings and what they’re comfortable contributing to the purchase.
You should also let your partner know if you have any unpaid debt so you can decide how to manage money as a couple with all the information you need to make good financial decisions.
You should also discuss your expectations in terms of building wealth and retirement planning so you can work towards your financial future together effectively.
2. Setting shared financial goals
You’ve decided to build a life together with your partner. Naturally, this future will involve sharing money and managing your finances together, so you should also start setting your financial goals.
You're in the best position to set smart financial goals once you’ve built a picture of your joint financial situation – through open and honest communication about your finances.
If it turns out that one of you has a high-interest debt, the first goal might be to pay this off before you start saving for any big life purchases since this will leave you more well-off as a couple in the long run. After all, in addition to sharing money, you may also share a credit score if you have a joint account.
What’s more, if you have significant aspirations for your future finances, you can work together to implement plans to make this happen. You might decide to invest together – which can be more lucrative than investing alone – or even start a business.
Whatever the case, it’s a good idea to set your most important financial goals as a team, pinpointing which are most important to you and which you plan to work towards first.
3. Create a joint budget
Budgeting as a couple is the best way to decide how to split finances when living together and start saving money.
There are a couple of ways to budget as a couple, depending on your preferences and respective incomes.
If you have similar incomes, you might decide to split expenses 50/50. This might include paying half each on a jointly owned mortgage and sharing utility costs equally. If your salaries differ significantly, when deciding how to split finances when living together or married, you might decide it’s better to contribute an equal percentage of your salary to cover the costs.
Beyond deciding how much each of you will contribute to your shared budget, you’ll also need to determine what spending categories come within this budget and how much should be allocated to each spending category.
Budgeting apps can help you to budget and allocate funds to jars representing different spending categories, including utilities, travel, savings, discretionary spending and more. You could also use a spreadsheet to create a budget, documenting both your incomings and designating an allowance for each of your outgoings.
It’s important to regularly review your budget as a couple to account for any changes in incomings, outgoings, or evolving savings goals.
4. Manage joint and individual accounts
When deciding how to split finances when living together, some couples keep their finances separate, while others commit to sharing money with a joint account. Others choose to use both a joint and separate account.
Opening a joint account comes with both advantages and disadvantages. Depending on your financial situation, these may make it a good or bad idea for you as a couple.
Here are some of the benefits of having a joint bank account:
· More convenient to split bills – sharing a bank account makes it easier to pay bills. Instead of having to split the cost of each bill and pay them individually, all bills can be paid out of one account automatically.
· Easier to work towards joint savings goals – with a joint bank account, both yourself and your significant other are kept accountable to contribute to your savings fund. More than this, because both of you are pooling your savings, the interest you earn will be greater – especially with investment accounts.
· Greater transparency – when you share a bank account, you get a comprehensive look into your financial situation as a couple. This can help you to plan for your future and work more effectively towards your financial goals.
Here are some of the drawbacks of having a joint bank account:
· Credit score may be affected – if one member of the couple has a bad credit score, then this will impact the other person’s credit score, too, if you open a joint account. This can make it harder to get loans with good terms.
· Less privacy (and potentially autonomy) – while transparency can be a good thing in some respects, it can also come with drawbacks, from the more trivial problem of being unable to buy a surprise gift for your partner to being questioned about your buying and feeling like you have less financial independence.
· Makes splitting up trickier – sharing a joint account can make breakups more challenging to navigate since it’s unclear whose money belongs to whom.
5. Handle debt as a couple
To plan your financial future as a couple, you must be aware of each other’s debts and strategize how and when to pay them off. You also need to decide whether each person will take sole responsibility for their own debt or whether you’ll help each other to pay the debt off sooner.
Especially if you have a joint account, debt – especially high-interest debt like credit card debt – can damage your credit score even if the debt isn’t yours. What’s more, the longer either person keeps this debt, the more expensive it becomes.
So, paying off high-interest debt should be a priority before you both begin to save for bigger purchases, like a house. You should also come up with a plan to avoid getting into debt as a couple in the long term to strengthen your financial position.
Regardless of whether one or two people are paying off a debt, you should wait until this is paid off before you both begin to save. This will also help you to get more favourable mortgage terms, too.
6. Long-term financial planning
Sharing your life with a significant other makes learning how to manage money as a couple essential since you’ll need to plan for your financial future together. Studies have shown that couples who plan together end up financially better off in their retirement than those who don’t.
You should set joint financial future goals together. From plans to acquire wealth over the coming decades and deciding how you’ll fund your lifestyle – whether that includes kids or not – to planning for your retirement, these are decisions that couples should make jointly.
More than just ‘two heads being better than one’ is the reason to make joint financial decisions, by planning together, you can maximise the tax benefits available to couples. Doing so will make you both more well-off in the long term.
You should share which retirement accounts you already have, including whether you’re enrolled in a pension at work, have a personal pension and/or an individual retirement account. You should also discuss the pensions you don’t have to decide if they might be helpful to reach your future financial goals as a couple.
You might also want to consider life insurance. If one or both partners would experience financial difficulty if their significant other suddenly dies, adding life insurance to your financial plan is a good idea to protect them (and give you peace of mind).
7. Seek professional guidance
If you’re uncertain about any aspect of your financial future – or about how to manage money as a couple – it’s a good idea to talk to a financial advisor.
Whether it’s fine-tuning the plan you have already, pointing out any miscalculations in your plans, or simply working with you to produce a comprehensive map towards achieving your financial goals, a professional has the experience to ensure your financial aspirations as a couple become reality.
Shared banking, seamless together with HyperJar
Couples can use HyperJar to save and budget to work towards their shared financial goals. With the app’s jar feature, couples can add funds to different jars – e.g., utilities, groceries, travel, and savings – to help split bills, share expenses, and consistently save money.
Couples can also send messages in the jars to each other, like nudges about payment or shopping lists. You can also keep jars ‘just for you’ to keep some of your finances separate without having to use a different saving method.
Unlike sharing a joint bank account, using HyperJar to pool your resources, save, and budget together won’t affect either of your credit scores – even if your significant other has debt.
To begin working towards your financial future together conveniently and quickly, download the HyperJar app and order the joint prepaid card today.
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