Congrats, you’re engaged!! Or you’ve decided to take your relationship to the next level and move in together!! No matter where you are in your relationship, if you are planning for a long term future then it’s important to start thinking about your finances. According to CNBC, finances are the leading cause of stress in a relationship. Don’t let money get in the way of the happiness between you and your partner. Knowing how to talk about money with your partner can be difficult, but before you combine your finances with your soon to be husband or wife, you need to have an open and honest conversation.
How to Start the Conversation
Brace yourselves…having the money talk could be one of the hardest things you will do as couple. The conversation may highlight bad spending habits, poor debt management or a lack of financially planning for the future. The sooner your face your financial shortcomings with your partner the easier it will be deal with the issues together. The key to starting the conversation is to begin with the facts, which means it’s time to show them the money.
When having the “talk”, I would suggest starting with your income. Knowing how much you have coming in every month will allow you to begin thinking about budgeting for joint expenses. Jot down on a sheet of paper or input the following information into a spreadsheet.
- Get your last 2-3 paystubs to determine your monthly income
- Gather all your bank statements and add your total cash in checking and savings
- List any bonuses or significant payments you expect to receive in the year
- Record the balance of any retirement, stocks or other asset accounts
Next, you want to list your expenses. When combining separate households, there are bound to be some overlap with monthly expenses. Living under one roof will allow you to save money from duplicate household bills like electricity, water and rent. Companies like Liberty Mutual, offer discounts for their customers when insuring multiple cars or properties. Use the savings wisely, like towards a larger living space, or in a high yield savings account for a rainy day.
- Make a list of every monthly recurring household bill i.e., rent, electricity, phone, car, insurance, etc
- Calculate how much you spend on variable bills each month – groceries, gas, shopping, entertainment, etc.
Finally, you need to write down all of your debt. Deciding to combine your finances when one or both partners have significant debt is not ideal, but may be inevitable. Between student loans, credit cards and other liabilities, debt free may not be an option. The key to being successful when discussing money with your partner is FULL disclosure. Be up front and honest, list all of your debts so you and your partner can decide how to tackle it.
- List All of your credit card balances, the corresponding interest rates and how much you typically pay each month
- List any student loans, mortgages, home equity lines of credits and their corresponding interest rates
What to Discuss
Now that you have a clear picture of your finances, it’s time to review all the information you and your partner compiled. It is important to realize that your significant other may be in a better or worse situation than you, but the key is to be patient and understanding when comparing your lists.
There may be a few areas of discussion after you’ve digested all the info. Do either of you carry high credit card balances? You may want to inquire about the debt and establish a plan for paying it off. Do either or you have a sizable income with little or no debt and low expenses, yet there is a lack of savings? Find out where the majority of the money is going. It could be an expense or a bad financial habit you may not have realized.
Understanding the spending and saving habits of your partner will give you both better insight on who should be responsible for paying the bills and assist with budgeting accordingly each month. Creating a solid start is the key to having a sound financial relationship with the person you love.
Starting the conversation is only the first step, be sure to check out the next post: Tips on Managing your Daily Finances as a Couple
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