Financial Budgeting And Planning For Couples
It's been said that a couple that plans together, stays together. When it comes to your money, it’s important that both of you are on the same page so that there aren't any surprises down the road. Financial conversations help couples set financial priorities, communicate with each other about money issues, and avoid conflict over finances later on in their relationship or marriage.
Conversations around money can be uncomfortable at times, so here are some things you can consider to help you get started on creating a financial plan with your partner.
Set a specific time to talk about finances.
You may be surprised to learn that a lot of people don't talk about money with their partners. In fact, according to an April 2018 survey by NerdWallet, more than half of Americans (55%) said they don't discuss their finances with their spouse or partner.
This can lead to big problems down the road: If you're not discussing your financial goals together, how will you know if they align? And if one person is making all the decisions and assuming responsibility for paying bills while the other doesn't have any idea what's going on, resentment will inevitably set in--and it might take years before either one decides to speak up about it.
To prevent this from happening at home, make sure both parties are involved in setting up rules around money management and decision-making processes so everyone knows where they stand at all times.
Compare your financial habits, strengths, and weaknesses.
You can't make a financial plan without knowing where you're currently at. So, first things first: it's time to compare your financial habits and priorities. Do both of you have a good understanding of each other's financial situation? If not, grab a pen and paper (or open up Excel) and start jotting down some notes about how much money comes in each month, how much goes out each month, and what the big expenses are like (i.e., mortgage payments or rent). You'll also want to look at how much debt each person carries--are there any student loans or car loans that need paying off? Next up: goals! It's important for partners who don't share the same goals when it comes to saving for retirement or buying houses together later on in life; otherwise, there could be some tension down the road if one person wants more cash than another does. Finally, let's talk about priorities: Are there certain savings goals that matter more than others (like paying off student loans)? When do these become top priorities versus secondary ones?
Good Questions To Ask:
Do both of us have a good understanding of our current financial situation? If not, what else do we need to learn about our finances?
Are our goals clear enough so we can work toward them together? If not, how can we make them more concrete so they're easier for both of us (and anyone else who might be involved) to understand and commit to achieving together as a family unit or partnership?
How do our priorities line up with each other's--or are there differences that could cause conflict down the road if left unaddressed now?
Take an inventory of your assets, debts, and insurance.
The first step to creating a financial plan is to take an inventory of your assets, debts, and insurance. Write down all the money that's in your bank account, as well as any investments or retirement accounts you might have. Then add up how much debt you owe on credit cards and other loans. Finally, list all the policies that are protecting you in case something goes wrong (health insurance, life insurance).
A good way to organize this information is by writing it down on a spreadsheet or charting it out on paper so that it's easy for both partners to look at their finances together.
Discuss what makes you each feel financially secure.
When you're creating your financial plan, it's important to consider what makes you feel financially secure. For some people, that might be having a certain amount of money in the bank and knowing they can pay their bills if something unexpected happens. For others, it could be being debt-free and having no outstanding loans or credit card balances. Your partner may have different ideas about what makes him or her feel secure than what matters most to you--and that's okay! When talking about this with each other, try not to get defensive or assume anything about why each person feels differently about his or her own situation; instead, strive for an open dialogue where everyone gets heard equally.
If one person is more concerned with having savings than paying off debt and another doesn't care as much about saving up for emergencies but wants his or her student loans paid off ASAP (or vice versa), those differences will impact how each person approaches their financial goals together as a couple.
Set a budget and agree on big-ticket purchases.
Together, you should create a list of priorities and discuss the pros and cons of each one. For example, you may decide that buying a house is more important than taking an expensive vacation this year; or you may decide that saving for retirement is more important than paying off student loans as fast as possible (although both are reasonable goals). Discussing this together will help ensure that both partners feel confident in their decisions--and can help keep each other accountable if something comes up later on in life!
Create a budget that feels aligned for both you and your partner to ensure you’re both aligned on what money is going where. This way as you’re building up to the big-ticket purchases, you can map how long it will take to reach those goals.
Talk about whether you want to keep your finances separate or merge them.
If you want to keep your finances separate, that's fine. But, if you do decide to merge them, make sure that both of your credit scores are as high as possible and that neither one has too much debt or negative accounts on their credit report. You should also agree on a budget--and stick to it! If one person spends more than the other (or if they spend more than they earn), it could create problems down the line.
If you decide on separate accounts with separate budgets in mind, then each person should still work on improving his or her own credit score so he or she can get approved for better financial products like loans and mortgages down the road.
Talk about whether one of you will take more responsibility for the finances than the other.
Once you've talked about your goals and priorities, the next step is to get clear on who will take responsibility for what. If one of you is more financially savvy than the other, it makes sense that they would handle more of the day-to-day financial tasks. But this doesn't mean that person has to do everything--they can delegate some tasks as well!
Here are some questions to ask yourselves:
Who will manage our budget? (This could be either partner.)
Who will pay the bills? (This could also be either partner.)
Who will handle investments?
Who will manage retirement savings?
Discuss what to do if one of you loses a job or experiences another major disruption in income.
It’s important to be prepared for any unexpected expenses or major disruptions in income. Having plans for these situations will save you in the long run.
Here are a few more things to consider:
What would you do if one of you lost a job or experienced another major disruption in income? How would that affect your financial plan, and what steps could you take to prepare for it?
What would happen if one of you received an unexpected windfall--like an inheritance or lottery winnings--and wanted to use it for something other than saving or investing? Or perhaps someone gave you money as a gift, but now they want their investment back after five years instead of ten. How should these situations play out in terms of planning for retirement and other goals?
We hope this article has helped you understand the importance of financial planning with your partner. It's not just about getting your finances in order; it's about building a foundation for your relationship and making sure that both of you are on the same page when it comes to money matters.
*The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.