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Handling Money as a Couple
How do two separate entities, that is, a newly formed couple, blend their previously separated financial lives?
Certainly it is not an easy endeavor. However, even if a couple ultimately decides to have separate accounts, this is a conversation that needs to happen.
And conversation is the key word. So many times couples have real problems when it comes to managing their finances together.
Some would argue it is one of the main causes of marital discord. The secret is to communicate.
Talk to each other.
First, find out the answers to these questions:
Do we want to combine our money?
Although many couple decide to keep their money separate, most choose to combine funds.
This actually makes things somewhat easier than trying to determine who pays for what when incomes are not equal.
Combining money also adds to the “We're in this together” feeling. Keeping two accounts can give each individual more of a sense of freedom, although generally two accounts are not enough.
Couples choosing to keep funds separate often open a third “house account” from which to pay bills, etc. If you choose to go this route, be sure to think proportionally and not expect the person with the lower income to contribute the same amount as the one who earns more.
What do we need to spend our money on?
Think rent, mortgage, utilities, student loans, gas, food, etc. Be knowledgeable about what these figures really are.
Other items are insurance such as life insurance or a long-term disability policy. Obviously, homeowners and auto insurance will fall in there, too.
What do we want to spend our money on?
Do the two of you like to travel, go out weekly, shop? Often disagreements occur with this category.
You may want to buy a $4 coffee every day on your way to work, but might be forced to think again when your better half points out the $1000 yearly expense incurred by such a habit. Be willing to compromise.
How will we approach saving, retirement, investing?
As most everyone knows, the earlier you start to save for later the more you will end up saving.
What portion of your income as a couple will go into savings accounts, investments, individual retirement accounts (traditional or Roth)?
Once you have come up with a figure, it is a good idea to “pay yourselves first,” that is have this amount immediately taken out of your paychecks and directly deposited elsewhere.
Once the ball is rolling, crunch some actual numbers. Figure out your household's total income.
Determine the amount you spend on monthly bills. Look at your combined debts. Make up a budget that you both can stick to.
A working budget is the key tool in financial planning. Be sure to include the following categories: housing, food, automobile, life insurance, debt repayment, entertainment and recreation, savings and investments, medical/dental, and, of course, miscellaneous.
Keep track of everything you spend – save receipts, keep your checkbook log up-to-date, talk to each other about recent purchases made by credit card.
Last, but by no means least, try to stick to the budget you created together.
Communicate about all things financial. Be flexible. Be willing to tweak your budget making adjustments as necessary. Know what is going on with your money.
This is a guest post by Jeff Rose. Jeff Rose is an Illinois Certified Financial Planner™ and co-founder of Alliance Investment Planning Group.
He is also the author of Good Financial Cents, a financial planning and investment blog and he is currently working on his first book entitled Soldier of Finance.
You can see more about his mission at the same-titled blog Soldier of Finance.com. You can follow his updates on Twitter: @jjeffrose.