Wondering how to manage your finances in marriage? Finances undoubtedly place immense pressure and strain on relationships. Do you have a healthy relationship with money and your partner?
Financial issues are responsible for a quarter of all divorces, which illustrates the weight of financial concern on relationships.
This blog suggests five actions that can help to construct a stronger and more transparent financial relationship based on trust.
If the topic of finances is continually avoided and not addressed in a relationship, then the consequences can be grave, for all parties concerned.
Why do people find it so hard to say the M-word? In fact, one of the UK's well-known high-street banks is leading with this theme in their TV advertising campaign that will hopefully serve as a catalyst for starting some purposeful and effective conversations.
Whether you are committing to your childhood sweetheart, settling down with a partner you have met later in life, or you have had experience of previous relationships; being compatible financially is crucial to any solid relationship. It is important to decide early on how you are going to manage your combined finances as you embark on your future together.
Here are five useful tips.
1. Set your financial priorities together and review them regularly
Choose a time where you will both feel calm and comfortable to give this conversation the time and attention it deserves. Simply sitting next to each other (rather than opposite each other) can also act to encourage a feeling of collaboration when discussing sensitive subjects such as finances.
Try to practice empathy, have the maturity to restrain your ego and relinquish the need for control in conversations of this nature. Adopting a collaborative perspective rather than an individual one will encourage more open and honest communication regarding your expectations, hopes, goals and anxieties.
Consider and list what is important to both of you; for example, if one of you feels strongly about buying your own house, but the other wants to save for retirement, ultimately this conflict needs to be resolved, even if it means compromise from both parties.
Are you a natural saver, who may be viewed as a 'cheapskate’ or risk-averse, compared to a natural spender who takes pleasure in shopping and buying? These differences can fracture a financial relationship, and so compromise and common ground needs to be sought.
Be honest with each other about what you are bringing to the relationship as financial infidelity can destroy long-term relationships.
Build healthy money habits; agree on a regular schedule for sitting together to review your finances so that the chance of any nasty surprises rearing their head is reduced. Try to make this easy and fun.
2. Agree on joint and/or separate bank accounts
This is a very personal decision, but one of the most important ones to make and there are benefits and pitfalls to both choices. Some people believe that having entirely joint finances strengthens unity and trust; whereas others feel that having some of your own money to spend as and when you wish can increase autonomy and reduce future conflict around money.
There is no right or wrong answer to this – choose the option that ultimately fits best with you both.
This decision doesn’t have to be set in stone either; if you begin with everything joint, but later feel you need a bit of breathing space, then speak up, review this together and change it if you feel necessary.
It is likely that this situation will inevitably change over time anyway. For example, if one of you loses a job, takes a pay cut or changes career path at some point, or even leaves their job, then the current arrangements will need revisiting, at some point.
Everything should be fine while you are both alive, but what about the death of a partner? If each of you has your own account and no joint accounts, then significant issues could arise in this instance.
It makes good sense to understand the legalities surrounding access to a bank account after someone dies. This link will be helpful.
Agree to keep your main account in joint names, i.e. the one that pays all the bills and direct debits. Then you can have individual accounts for other spending, but it is crucial to discuss and explain to each other the reason for having them.
3. Aim to live debt-free together
Many couples today tend to live with debt, as the norm – favouring borrowing and loans to acquire the things they need or want over saving for a new car or the latest shiny gadget. This doesn’t mean debt is the right way to do things.
Make plans to pay off existing debt, even if it was built up by your partner. Ignoring the problem will not work because debt does not disappear and even more significant is that you can now affect each other’s financial future.
Debt is corrosive, and in these times of low-interest and low inflation, you can check credit card terms on this website. Rates range between 19.9% APR to 63.9% APR. Paying off mortgage, credit card or store card debt is a major step to long-term wellbeing.
One of you may be better off than your partner. One of you may be debt-free, the other may have borrowings. Consider only from now on, your combined picture and agree between you what is the best plan of action moving forward.
4. Balance debt with saving
It is easy to say – when living month to month – that there is not enough money to save. Yet if you make the decision early on in your relationship to save a specific percentage of your income, it will enable you to manage your budgets and build up a contingency fund.
A useful tip is not to save what is left over at the end of each month. Instead, turn this concept on its head; set your monthly savings target, save it as soon as you get paid and learn to live on what’s left.
The earlier you start saving for your retirement years, the easier it will be to support the lifestyle you aspire for when it comes to your retirement.
Try to agree on shared goals; this could be for an exciting holiday or retirement savings. The key is to talk to each other about why you feel emotional about achieving it. Essentially, understanding leads to openness and transparency.
5. Keep track of where your money is going
This is not about pointing the finger or feeling like 'Big Brother’ is watching you. Financial security depends heavily upon you knowing your spending patterns well. In doing this, budgeting and sticking to it will be easier, and this will help you stay on track with your jointly agreed financial priorities.
When you think of your general day to day spending such as eating out, daily ready-meals, expensive holidays, treats, expensive coffees and pastries, gym and Pilates classes – it all adds up.
Not all of your spending has equal value, and this is critical. Priority is paying the mortgage, the rent, the utilities and food bills. Money left over is for the other pivotal aspects of your regular life, including savings. Any excess could go towards the 'naughty but nice' list, so create your wish list together.
No matter how much you plan and discuss money, there could still be things in life you cannot control, which can lead to challenging times. At least when this happens, you are working from a solid foundation and not just making it up as you go along.
Money issues lead to stress and tension and are, therefore, not an optimal state to resolve a difficult financial dilemma.
Taken to the extreme, if you cannot come up with a solution, then a legal agreement may be an option. This can feel cynical, and your partner may perceive this as off-putting. Yet if either of you has children from an earlier relationship, it may seriously be worth considering a legal agreement as an option to protect your merging families should anything go wrong.
At Capital, we are here to support you and your family through what can be considered awkward conversations about finances. If you would like to speak to one of our experienced Chartered financial planners, please contact us.