I was delighted to see the response we received for our recent blog post entitled “Starting Your New Financial Life Together.” Thank you. It seems to be a popular subject for many so we have decided to continue on that financial life journey for new couples with two new blog posts. It will also be the topic of conversation for our appearance on Rogers TV later this week where I will discuss money management techniques for newly minted couples. This post will probe deeper into financial life management strategies for new couples that continues beyond the planning stages. Actually living those strategies. A future post will focus on the corresponding relationship success strategies for living your new financial life together.
Whether you formally tie the knot or not, the adages “For better or for worse” and “For richer or for poorer” carry the same message for new couples. This is what most of us promise to our partners. But unfortunately, many couples today can’t seem to survive either richer or poorer due to poor money management skills. Some couples stick with their own individual way of managing money, which may or may not mesh with their partner’s. Others may take the responsibility all on their own shoulders or shove it onto their partners instead. Some partner’s financial habits can cause all trust within the relationship to be a distant memory. As a new couple, how can you prevent these tragedies from happening in your own relationship?
There is definitely hope, but you need to act early. In fact, financial management can actually be a rewarding way to bond with your loved one. Here are steps to take and tips to make sure you get on the right track for a lifetime of properly managing your joint finances. Managing your own money can be challenging enough. But incorporating your new partner’s finances can be overwhelming. In other words, don’t expect to be an expert right away. The two of you have some things to work out and should take plenty of time to do so. Follow these steps one step at a time so you and your partner can easily get accustomed to healthy financial habits.
Start Talking About Finances
As we previously discussed in the planning stage, it’s best to do this before you formally get together. If you have not, discuss finances with your new partner as soon as possible. You’ll need to go over what accounts you have and how much debt you carry. You’ll also want to be clear on how you expect money to be handled. A sample strategy for this is to let your partner know if you expect him or her to discuss purchases over $100 with you first. Make sure each person has a good understanding of where you stand financially as a couple and each other’s expectations.
Write Down Goals
After you have determined your baseline financial status, discuss your long-term financial goals in-depth. For example, do you plan to retire at a certain age? Do you want to get out of debt and accumulate wealth? Agree on goals such as sticking to a budget each month or becoming a one-income family if one parent will stay at home with any future children. Make sure to write all of your goals down and review them periodically. You’ll have a much better chance at success.
Discuss Bank Accounts
Again hopefully this has already been a topic of discussion about your banking arrangements. There are both pros and cons to opening a joint bank account or to maintaining your individual accounts after you’re together. You can even do both. Combining accounts can simplify your finances and may help breed trust. Moreover, it may be especially valuable when one partner chooses to take on more household or child-rearing duties than the other and as a result there is inequality in income. Some level of independence may be preferable to you both, though it can also make it easy for you or your partner to hide certain purchases or spending habits. Given the high percentage of breakups, keeping separate bank accounts can provide you some measure of protection should your partner decide to “take the money and run.” Discuss this at length with your partner to make sure you’re both comfortable with whatever you decide.
Build an Emergency Fund
Life can get in the way and the best laid planning goals can be adrift at the beginning of your new financial life together. If you don’t already have an emergency fund, make this a top priority. An emergency fund is money that is set aside in case something expensive happens unexpectedly, such as a lost job, family illness, natural disaster, or a major home repair. Aim to save 6 months worth of your household expenses in case the emergency is that you have no income. Building an emergency fund should be a priority because it will bring financial security and protect your relationship in case disaster strikes.
Design a Budget
As we have mentioned, one financial life goal is to ensure that you remain within budget each month so you don’t go into debt, limit how much you’re allowed to spend in certain monthly budget categories, such as food, dining out, and entertainment. Start by reviewing your joint expenses over the last few months to determine how much you’ve been spending and if you need to bring that amount down. Then, establish dollar limits per category that you create according to your after-tax income. Don’t forget to allocate for unexpected or irregular expenses, such as routine car maintenance or doctor’s appointments. Your budget may be a work in progress, so don’t worry if you have to make adjustments, especially over the first few months.
Track Your Budget
The best budget strategies are only part of being successful. It’s just not enough to just make a budget. You need to make sure you stay within your spending allotment, track it and adjust accordingly as your situation, expenses, or income changes. One very effective way to stick to your budget is to use the envelope budgeting system. People have seen this strategy employed by experts David Ramsey and Gale Vaz Oxlade. This is perfect for young couples who typically have lower incomes and must be careful not to overspend. Another approach is to design a spreadsheet that tracks all your spending and totals it up at the end of the month. We recently met with a new couple and when we brought up the concept of developing a cash flow worksheet, the wife informed us that she had this well in hand and readily available in Excel we could use. It was awesome to see.
You can also make use of certain debit and credit card tools that will breakdown your expenses per category. Each month your bank and credit care statements can be your personal audit list of expenses. What you spent and where? Of course, you just need to ensure you’re paying off your credit card charges each month. Try out a few different methods and do whatever works best for you and your partner.
Weekly Money Meetings
One thing that really helps you stay on track is the concept of weekly money meetings. During your meetings, discuss how your budget looks for the month, if you have any upcoming bills to pay, how you are doing with our financial goals, and anything else that is related to money. Its also a good opportunity to extend this to discussing relationship issues. This will be covered in a future blog post on the subject. These meetings are a great idea because they strengthen the communication in your relationship as well as our level of trust. You will always know where you stand financially and that your both doing your best to keep that on solid ground. Setting aside time to talk also helps you to stop worrying about money because you will know that money matters will be dealt with.
Save for Retirement
Whether you’re married or not, you need to make sure you are set financially for the long haul. This means you need to save for retirement now. If you work for a company that offers a group retirement pension or savings plan, put in the maximum amount allowed to take advantage of any company matching, or at least contribute as much as you can afford. If you have an RRSP, try to put in the maximum amount every year if at all possible. But even if you can’t max out these accounts, even putting $50 in a month will help you over the long term. Because of compounding interest, time is just as important as money when it comes to growing your retirement fund, so don’t delay.
Getting and Staying Out of Debt
Debt can be damaging to any one person, but it is a double threat when you come together as a new couple because two people may now be responsible for paying the money back. Start your new financial life together out right by eradicating debt and not racking it up again. Work out a plan with your partner on how to get out and stay out of debt.Living a debt-free life is not only healthy for you financially, but it is also healthy for your new relationship together.
It’s on the later point that most new relationships have challenges out of the gate on their new financial life together. A lot of people can be self-educated and resolve their issues together. It’s amazing as to the depth of great information available in books and online. If not, it is better to seek help then to just ignore the issue and procrastinate. Problems magnify and in time can seem insurmountable. Obtaining the the assistance of a Financial Life Planner is a step in the right direction. We engage with new couples in all stages of their financial lives. Don’t be afraid or embarrassed to reach out. It’s just part of Keeping Life Current.
