One of the leading causes of break-ups and divorces is money. I can't tell you how many calls I've been on were couples argue about it. Therefore, I wanted to share with you five tips on how to manage money as a couple.
In addition, at the end of this article, I provide an example of how these tips can benefit your relationship.
One key takeaway I want you to remember: When you manage your money together wisely it will be easier to have money complement your life instead of dictate it.
Tip #1: Define Your Couple Category
To figure out how to manage money as a couple, you need to know what couple category you fall into.
Couples may be dating, engaged, married, partners, etc…
How you manage money as a married couple versus a non-marital relationship had significant differences when it comes to big items such as taxes to little items such as who is paying for dinner.
Therefore, know where you stand in a relationship and move on to tip #2.
Tip #2: Handling Finances In A Relationship
What I’m about to tell you is the most important item about money and relationships… Ready? COMMUNICATE!
Most money problems are a result of people simply not talking about it. They treat money as though it’s a taboo topic.
Ironically, he was engaged and still hadn’t spoken to his fiancé about money and goals. He knew she had six figures in loan debt but no idea how much it actually was!
Discussing money early is extremely important when you begin a relationship. How most relationships begin is how they continue.
If you don’t bring up money topics early in the relationship, then most likely you’ll never bring it up. And if you don’t bring it up, trouble will be lurking.
Let’s use an analogy. Let’s say you are dating someone that has blonde hair and blue eyes. You get accustomed to seeing them looking this way for a year.
Then suddenly, in month number 13, they come home with brown hair and brown eyes. They then tell you they’ve been wearing a wig and contacts for the past year. You’d be a little shocked.
It’s the same thing with money. If you are constantly paying for things like dinner and suddenly ask your partner to start paying its going to be a shock.
If you are married or engaged and never discussed major financial decisions such as how much student loan debt you have, its going to be a shock.
Again, I’ve literally spoken to people who’s fiancé doesn’t know they have $250k in student loan debt!
If you are already in a relationship or married and haven’t talked about money… Start immediately!
Tip #3: Money Imbalance In A Relationship
Should relationships be a 50/50 split? My answer is no because no one has the exact same financial situation so it’s virtually impossible to be a 50/50 split.
Moreover, you need to address this imbalance question differently if you’re dating versus married.
Let’s first approach this for a couple who are currently dating.
Money Imbalance When Dating
I mentioned previously that most people treat discussing money as though it’s a taboo topic.
However, the dating period is your opportunity to go on a fact-finding mission. As taboo as it maybe, money does matter in a relationship, so you might as well figure this out early.
For example, let’s say you are dating someone who makes significantly less money than you do.
When you go out for dinner and dates you pay for everything. However, paying for everything may cause you stress.
Therefore, you are contemplating having a money discussion with them and asking if they would pitch in. This is where it may become tricky.
As we’ve covered above, you should discuss this with them. However, I personally wouldn’t even do that in this specific situation.
If you are dating someone who makes less than you, it is likely (in most instances) that if you get married, this imbalance will continue and you’re going to continue having to pay for most things.
Therefore, if paying for everything is already stressing you out, make sure that you have a plan to 1) reduce money-related stress or 2) or find a new partner.
Another fact-finding mission is to assess your partner’s spending habits. If, for example, you are very frugal and your partner is not, the likely hood of him/her turning frugal is very slim. And vice-versa.
Most of the time, what I’ve seen when people communicate their “love for frugality” to a partner, the person stops spending for a while but then goes back to their old ways relatively quickly.
Again, if I was personally in this situation, I’d probably find someone I have more in common with…but, yes, there is more to relationships than money. However I believe that getting the money part wrong will jeopardize it all.
Tip #4: Splitting Finances When Married
Its easy to see why people tend to ‘split’ their finances. This is because bank accounts tend to be opened as individuals or your spouse may not be liable for debt like student loans.
However, I highly recommend not splitting finances but splitting tasks. I will first start off by explaining “splitting” of finances.
When you are married, you are one. That means all assets, all debts, all expenses, and ALL INCOME are yours as much as his/hers. I know some people do not do this and continue to keep everything separate.
However, a super majority of couples I’ve seen split finances end up divorced.
It is OK to have accounts in your name only. I still have bank accounts and investment accounts in my name only as does my wife. However, we manage everything together.
This is why it’s so important to communicate early and often while you’re dating or start doing it now if you are married. You want to get on the same page. That is also why our financial planning technology considers you and your spouse as one account.
With that being said, what should be split are tasks. Tasks are things like who’s in charge of the day-to-day expenses like bill paying, who is in charge of managing investments, etc.
For example, my wife deals with the day-to-day bills. I continually monitor our investments or diver deep into nerdy analytics when deciding whether we should use debt when buying a house or not. I am a finance nerd after all!
Of course, I discuss these things with her before making decisions, but I do most of the “heavy lifting”, inform her of what I’m thinking and why, then WE decide what to do next.
Tip #5: Financial Planning For Couples
First things first, if you are dating someone, I would not look at your respective finances as “one bucket”. That doesn’t mean you shouldn’t discuss money. It means you shouldn’t be combining your finances. It’s best to wait until your engaged or married to do so.
Then start discussing what your goals are and start listing them in order of importance, I.e. paying off debt, saving for a house, starting a family, etc. That way you can see if you are on the same page financially.
Example Of Why Married Couples Should Manage Money Together
The following is an example of a couple that were Members of FitBUX. It highlights how financial risk and earnings potential greatly changes once you look at everything as a “single unit”.
A husband and wife became FitBUX Members and scheduled a call to speak with a FitBUX Coach.
He previously had an account and his FitBUX Score was a 210 which means he had good potential but a high level of financial risk. Primarily, he hadn’t saved anything and had a significant amount of debt.
By contrast, his wife was in a really good situation.
When we combined their FitBUX profiles, their combined FitBUX Score was over an 800. This means that combining their assets and debts for financial planning purposes greatly decreased their existing level of financial risk.
Now, the problem was that they were managing their financial plan and money separately.
This was a big problem because he wanted to start a company but he was looking just at his FitBUX Score individually and had concluded that starting a business would increase his level of financial risk even more.
However, his wife had extremely stable income that more than covered their day-to-day expenses and was enough to hit their short-term and long-term investment goals.
Therefore, quitting his job and forfeiting his income to start a business actually introduced very little risk.
Once he understood that he decided to work on a new business full-time. His company is now grossing well over six figures a year and they are doing great. Had they continued to look at their finances separately, he wouldn’t never have started a business!
Managing money as a couple is not an easy task, but it is doable. If you can follow the tips laid out in this article, it will make things much smoother.
Communication is going to be essential. So, make sure to have the tough conversations sooner rather than later.
If you are a couple and/or married and want financial planning help, be sure to check out our new technology that makes financial planning extremely easy.
By Joseph Reinke, CFA