So, love has blossomed and you think you’ve found the perfect partner – but are you financially compatible? Understanding each other on money issues can go a long way to making or breaking a relationship.
Money is already a tricky subject for many people, but adding the difficulty of a relationship into the mix can be completely overwhelming.
We’ve spoken to relationship expert James Preece to get his top tips on how to make your way smoothly through the tricky terrain of money and love, and Emma-Lou Montgomery, associate director at Fidelity International on advice to ensure your finances flourish as a couple, as well as financial experts to get their tips on how to handle money as a couple.
“Whether you’re married, living together or just getting to know one another, it’s crucial both parties understand each other’s finances and know-how they view money management,” says Emma-Lou.
“Being open to discussing the long-term financial plans you may have, and vice versa can save having a lot of issues further down the line.”
How to handle money as a couple
Money is not exactly a “cute” or “fun” topic of conversation, which is why it so often gets ignored for far too long.
“Money can be one of the biggest causes of arguments between couples,” relationship expert James Preece says. “It’s not something they think about in advance, so it can come as a bit of a shock if they aren’t in sync with spending/saving.”
This is why James advises that you have the conversation as soon as possible. He’s not talking about bringing up your bank accounts on the first date, but rather when you move in together. James says: “You need to work out exactly who is paying for what and what your limits are. Set your boundaries and limits as early as possible.”
This will help avoid any unpleasant surprises further down the line.
If you’re older, it’s likely you’ll both have accumulated some assets along the years, but you may have some financial baggage too. Don’t keep this information secret. Jamie Jenkins, a life savings expert at Standard Life, says: “Tell each other about any debts, as well as your savings and assets.”
Recommended: 10 ways to avoid falling out with friends over money.
Set financial priorities and goals as a couple
Once you’ve opened the money can of worms, it’s time to get smart about it.
James’s advises: “Make a list of short-term and long-term financial goals.” This means that you can work out how much as a couple you want to spend or save.
Once you’ve figured out what each of your priorities are, you can then meet in the middle. “You might want to save for a big holiday, so you both have to be in agreement to plan towards that,” James says.
Make money positive and rewarding as a couple
Money is a dry and decidedly unsexy subject, and if you’re saving up for something big, it’s easy to let that take a toll on the relationship.
That’s why James says: “You still need to remember to make time to date each other. There’s nothing worse than having to save all the time with no reward.”
So even if you are saving up for something big, make sure you remember to put aside a little money for you both to do something fun now.
How to balance income and spending
Unless you have some kind of insanely perfectly balanced relationship, chances are you and your partner won’t be earning the same amount. If there is a large disparity between earnings, this has the potential to put a strain on the relationship.
No partnership is the same, so it’s something you have to figure out for yourself. “If one of you is earning a lot more than the other, then it might seem fair that they pay a bit more towards the bills,” James says. “They might not always see it that way as they could resent paying more when they work more. In this case, you need to negotiate and discuss other matters such as household chores.”
Put away enough savings for a rainy day
Not to sound too ominous, but James says: “Circumstances can change at any moment, therefore it’s wise to set away some money in a bank account.”
James explains: “That way you’ll be covered in an emergency or if you urgently need cash. It’s better to do this now rather than face the huge problems it could cause to your relationship and happiness.”
Work together to improve your credit score
One in six (15%) UK adults say they have been negatively impacted by their current partner or ex’s credit history, according to credit checking firm, Experian. When couples apply for a joint financial product, such as a loan or mortgage, their credit reports are likely to become ‘linked’ – a key part to better understanding how to handle money as a couple.
If your partner has a more positive credit history, it could mean lenders view your credit application more favourably, potentially meaning better lending rates. But if they have previous bad debt, the way they manage money may be considered in assessing whether you can keep up with repayments. James Jones, head of consumer affairs at Experian, suggests learning how to manage credit and debt together and being honest about what’s realistic. “Remember everyone earns different amounts, so what’s achievable for one may not be for the other,” he adds.
And if it doesn’t work out and you and your partner decide to part ways, remember to ‘disassociate’ with credit reference agencies, to ‘uncouple’ your credit reports in the eyes of lenders.
Carefully consider joint accounts
While there are benefits to combining your cash, there are also pitfalls to watch out for. Kevin Pratt, a consumer affairs expert at MoneySuperMarket.com, says opening a joint account should not be done lightly. “The convenience of having a single account that can take care of shared bills is a great benefit, but there are potential pitfalls,” he says. “For example, what if you’re the sort of person who keeps a close eye on every penny, but your partner is more carefree with their spending? What if it’s the other way round – would you be happy with your other half scrutinising everything you buy?
“There are practical issues as well. If your partner has a poor credit score, yours might suffer as a result of your being associated with them via the joint account. And don’t forget that you’re equally liable if the account goes overdrawn.
“If a relationship comes to an end,” he adds, “the joint account can be vulnerable to one partner simply withdrawing the balance and leaving the other high and dry. It’s easy to see how arguments might develop.” If you want to add an extra safeguard, Pratt suggests talking to your bank about imposing a requirement that every party to the account has to give permission for spending outside normal standing orders and direct debits.
Be prepared when buying a home
David Hollingworth from L&C Mortgages, says: “Buying a house together is an exciting time but also a big commitment, so it makes sense for all parties to fully understand what they are taking on. Mortgage lenders will require that both borrowers are ‘jointly and severally’ liable for the mortgage, which means that the lender can seek full payment of the mortgage from either or both of the borrowers.”
He says joint mortgage applications will still need to be able to meet lender affordability requirements, but being able to pool their income and deposit should hopefully help couples reach their borrowing needs more easily. “Lenders will take account of monthly outgoings as well as income levels when deciding how much they can borrow,” he adds. “Going through the monthly outgoings to have a clear understanding of the monthly budgeting will help when applying for the mortgage, but can also have the added benefit of identifying expenditure that is no longer necessary.”
How to handle money as a couple – making your finances flourish
Here, Emma-Lou shares eight tips for how to handle money as a couple and making sure your finances flourish in your relationship…
Don’t be afraid if one of you is a saver and the other is a spender
In a balanced relationship, having one keen saver and one more comfortable spending (within reason) can be beneficial – if it’s clear who’s responsible for what financially in the relationship. The saver can encourage a healthy attitude towards financial saving goals – be it a first home, an adventure holiday, or just cash for a rainy day. On the other hand, the spender may take on monthly living costs and cover expenses like socialising with friends and family.
Don’t leave your partner in the dark
All too often, couples leave one of the parties completely in the dark over bigger commitments, like savings or retirement plans, leading to misunderstandings and tension.
The money and your financial security belong to both of you, so make sure you both have at least a basic understanding of the state of your finances. It may feel daunting at first, but talking openly about your finances is so important, both when fostering new relationships or maturing in a long-term relationship or marriage.
A key ingredient for how to handle money as a couple is to be honest. Many people hide debts from their partner – often out of embarrassment. But honesty really is the best policy. If you’ve come to the point when securing a joint loan or mortgage makes sense, it’s crucial any unpaid debt or blips on credit scores come to light. A supportive partner will work with you to find a solution. If they’re not up to it, then better you know now rather than later.
Communicate when one of you earns more than the other
Pretending you earn more than you do when you first meet might seem like a good idea, but eventually, the shortfall will become apparent. Communication here is key. Some couples have separate bank accounts, others keep a joint account for household expenses, some agree to split bills equally, some do it in proportion to their income, while others divide up the outgoings, with one person paying the mortgage/rent and another responsible for utility bills, for example.
Don’t let ‘outside’ interests become a source of conflict
It may be that you have children from a previous relationship who need your financial support, or a hobby that requires a substantial financial outlay. If you aren’t open about the costs with your partner when it comes to how to handle money as a couple, these ‘outside’ expenses can become a source of conflict. Be up-front and honest, so you both can ensure you’re able to factor them into your shared budgeting.
Often, keeping a separate pot of money or a separate account for these expenses is a good way to ensure they’re accounted for and covered. Separating them out also means they’re not a constant niggle to your partner. Setting up a direct debit to cover these costs is another way to make it easier.
Discuss your financial future as a couple
For example, if you both want to travel the world later in life, factor that into your finances now to make sure that when you do travel, you can travel in style.
Keep control of your own finances
While it’s good to plan together, make sure you also take responsibility for your own finances – whether it’s by opening a new savings account or contributing more into a pension.
Protect yourself and your partner
Nowadays, many people choose to live together for longer before getting married or without tying the knot at all. However, this can be an issue in terms of your finances. You could consider setting up an agreement to ensure that both parties are protected and assets are divided as you would wish.
Jamie says that while many people put off sorting out a will, it’s vital to keep it up-to-date, as well as thinking about the nominated beneficiaries of your pensions.