Cohabiting and managing money together
When in a serious relationship, managing money can be a tricky subject – Do you manage your money jointly or separately? The answer to this depends on how you as a couple view your money. You may prefer to keep it private, save up a lot or spend a lot. Money can often be a reason a couple separates, so try to stay on top of the finances.
Usually, a couple either share everything, share part of the responsibilities or just keep their accounts separate. Sometimes the higher earner will provide money to the other as an ‘allowance’. Of course, there will be smaller aspects which need to be decided on, but these are the four main ways you can manage money in a relationship. Regardless of the option you follow, you should talk about your spending patterns together and try and agree on compromises.
Financial products you could use
If you create a joint account, then your income will be combined and expenses can be sorted out quite easily. A joint account allows you to both have equal control on your money, which simplifies budgeting, but there is much less privacy with this method. If you have very different spending patterns then this may cause disagreements. Agreeing to have a spending limit can help protect your money, by ensuring that if either of you want to complete a larger purchase, your partner must agree to it beforehand.
If you decide to share responsibilities, you could create a joint account for bills and still use your own personal accounts to pay for individual desires. This is a good way of budgeting as you still pay bills together, but maintain privacy, which is often desired for Christmas and Birthdays. You will need to establish which bills you will pay for from the joint account, and how much you each pay into it – will it be equal, or will it depend on your individual salary?
If you want to keep your earnings separate, the bills will need to be split depending on each cost. Although not as easy to make payments as when using a joint account, if you plan clearly and communicate a lot then you should be able to avoid most issues. Again, you must decide how to divide each bill between you, and remember to be considerate to your partner – if you overspend, they will need to help you out.
Usually, the allowance option is used when one of you does not earn money, as a result of looking after children for example. In this situation the main earner could transfer a certain amount each week to their partner’s account. Decisions must be made on what that money is supposed to be used for, and precisely how much is enough to avoid the need to keep asking for more money. This option is normally the most sensitive, so it is important to make sure you are both comfortable doing this option. You need to avoid acting as if the money is a favour, because the partner is doing a job, just a job without payment.
Honesty and trust are key
There are several other important aspects to consider. If you open a joint account with a partner who has a poor credit rating, this can look bad for you later on. Be honest with each other about your credit history, because you can avoid problems in the future by keeping your accounts separate.
Trust is crucial to a successful joint account – failing to correctly handle your responsibilities can result in debts or overdrafts.
Cost boundaries are also recommended to limit ‘reckless’ spending, and establishing the levels of independence you both have is also a good idea to help avoid disagreements. Being equal is an important part of this process; neither one of you should have total control of the finances, even if one of you has no interest in managing money.
You can test out a joint account by creating one without an overdraft facility and entering small amounts of money for a few months. You can try paying for bills with it to improve your understanding of how it all works, and then make a decision on whether to completely go for it.
You need strong levels of trust with any joint account, but this is especially true for joint savings accounts, particularly if you have a large amount of money saved. Only open a joint savings account if you have had a successful time with a joint account. You should create a rule which says that you must both agree before any of the money can be withdrawn.