According to The Beatles, money can’t buy you love but as many people will attest, money can certainly destroy. Paul McCartney was always the Fab Four’s hopeless romantic.
But as couples across the nation prepare to profess their undying devotion with flowers, wine, and a candlelight dinner, the internet will again be awash with articles about how most couples have money troubles and how this is a high contributor to divorces rates. They will focus on solving the problems so that you can avoid fighting.
Yes, becoming a couple amplifies financial outcomes. If you both come into a relationship with bad money habits, together the negative numbers will just be bigger. But in the spirit of true love, let’s think about the positive? Coming together can create a financial powerhouse. Two diversified incomes with one set of life expenses. A chance to combine talents and energy and create a brighter financial future. Becoming a couple has huge financial advantages over being single, but there are things to consider.
Understand Your Personality
Like snowflakes, no two people are the same. When you are coming together have an open “no judgement” conversations about money. One person might be a spender, the other a saver. Perhaps one of you came from a wealthy background, the other not so much. The point of the exercise is not to label, it is to understand how the combined talents can be leveraged. Managing household money over time is work, just like doing laundry. Inevitably one person in the relationship will be better suited or more interested to take lead on doing the money work. But the approach is “for the team” and all decisions are made together respecting each unique personality.
Model Your Cash Flow
Budgeting doesn’t work. Life happens and throws off even the best laid monthly budgets. And today, access to credit and various forms of payment are so prevalent that tracking everything to the last dollar is tough. But as a couple you must understand what comes in and what goes out. A simple cash flow model that lists all sources of monthly income and expenses is critical. This will be the basis of your financial decision making together. And full disclosure, all financial history is out in the open when you are a couple. If you still have student debt, get it on the cash flow model.
Shared Accounts
As a couple you are sharing your life, so you better have shared banking accounts. All resources are pooled, all expenses in the open and all dreams made together. You are a team so there are no egos, no powerplays if one earns more than the other. You are pooling all life resources – your time, your energy and your money. Side accounts for fun money and anonymous gift buying is fine, but the main financial traffic is combined.
Emergency Fund
An emergency fund is a financial backstop. The dividend is peace of mind. When coming together as a couple this should be a priority. If you are building a house, then an emergency fund is the foundation. Amounts vary, as a couple you decide on what suits your situation but the ability to cover 3 to 6 months of expenses is a good guide. Put your funds in a low-risk investment or savings account that at least earns enough return to cover inflation. Once you have saved enough to cover your expenses in an emergency, your fund should grow at the pace of inflation so future purchasing power is not eroded.
Shock Absorber
Having a monthly cash flow model is an important tool to guide your money choices. Monthly budgeting doesn’t work, or the stress of staying exactly on budget isn’t worth it. Have a financial shock absorber that can be dipped into or added back to depending on monthly variations. This is of particular importance for those on a variable income or participating in today’s gig economy. It is a barometer or gas gauge that tells you as a couple when you are over or under spending. The account for this could be a savings account or a line of credit. The shock absorber is not a crutch, it is a tool that protects the more critical parts of your financial picture like your emergency fund and long-term investments.
Shared Goals
Balancing the monthly accounts is the housekeeping aspect of your financial life and is critically important to avoid racking up debts. Coming together as a couple opens the opportunity to dream together about what kind of life you want down the road. Long term planning is the investment part of your finances. Everything starts with a seed, and contributing monthly to your investments are the seeds that will grow over time. As a couple, share your dreams and come up with a plan. Look at your sources of future income, perhaps one or both of you has a pension, and then set a contribution rate to your investment account together. A general rule is 10% of net income.
When starting a financial life together it is always best to start young before you develop individual money habits. Starting young lets two people come together and essentially create a financial picture that is truly theirs. However, if coming together later in life you can still create a financial powerhouse. Just put all your cards on the table upfront and be willing to merge the best of your habits. Being a couple has the enormous benefit of combining resources under one roof, it does not have to be a financial battleground that ends up in divorce. Be a team, enjoy each other and the simple pleasures in life. Money can’t buy you love but letting your money build together can deepen an already beautiful relationship.
