Money can often be a cause of conflict within the most committed relationships. It is rare that two people will share the exact same spending habits, attitude towards savings or investing, and long-term financial goals.
So what is the best way to handle finances in a relationship?
Devising the split
The first and perhaps most difficult question to ask is whether you think that all shared expenses should be divided equally in a relationship?
There are many factors to consider. Chiefly, your comparative incomes, attitudes towards financial independence, and what you actually pay together.
Should relationships be 50/50 financially? Not necessarily. A 50/50 split might work well for a couple where both people earn a relatively similar wage, but this could be particularly damaging to a couple who are not.
Ask yourself and each other: Would you be comfortable living extravagantly whilst your better half is struggling to come up with their half of the rent? This would only lead to resentment.
The fair division of your finances is something you both need to discuss in depth and keep on reviewing based on changing situations. Do not feel guilty opening up the conversation and pushing back on an uncomfortable arrangement.
It is important to stress that one size doesn't fit all and different couples should approach their finances differently.
How should couples manage the money division?
Once you have decided on the division, the hard part is over. How couples then choose to manage their finances ultimately falls into one of three categories:
1. Split everything. No really, everything. Open a joint account, pool both your salaries and use this for every expense.
While a 50/50 split may seem like the most romantic option, it is not for everyone. Do not feel bad if this does not appeal to you.
This will work for those who are aligned on nearly everything. This includes financial goals, attitude towards savings and what they spend their money on.
Joint accounts should not be undertaken lightly as both parties are equally responsible for debts/ liabilities and it could affect your credit score. Before committing to this approach, you may want to consider starting with the next:
2. Join forces but keep your financial independence. In this approach, you and your partner open a joint account for every bill/cost that you are both responsible for (Rent, gas, electric...).
You will both contribute to the joint account based on your earlier discussion on division of finances (50/50, 70/30 etc). It may help to use an app like Money Dashboard to calculate your total shared expenses and savings goals.
Then you will each have your own personal accounts to spend independently. What happens here does not impact your partner’s spending and will not impact their credit score.
This approach works when couples value a bit of independence whilst enjoying working together elsewhere. This is a popular option for couples with overlapping but perhaps not perfectly aligned attitudes and aspirations for their money. For example, where one person is heavily into investments but the other person is not interested.
3. Keep everything separate. With this approach, you deal with bills on a case by case basis. This works for those who value financial independence, or perhaps feel their financial situations are too complicated or inconsistent for the other options.
This approach requires a lot of careful communication. Talking about money, shared bills and budgets can be awkward, but you must power through it to make this work. You and your partner should also not be opposed to monthly bill-reviews. Again, Money Dashboard can help. You can both track spending with the app and also tag expenses as joint, or for later discussion.
Whichever way you decide to split your money, there are some overriding principles to ensure both parties remain content:
Establish a joint spending budget and track it. If you and your partner have decided to do any kind of joint account, you will likely want some kind of oversight of joint spending. Money Dashboard’s detailed spending breakdown can help with this.
Sit down every few months, or on whatever basis you deem best, to review the numbers. Could you be spending less? Are priorities changing? This is a good opportunity to communicate any concerns about your budgets or make agreements for new expenses, kids, debt and retirement goals.
Avoid debt. If you have any joint debts, you are both equally responsible for paying them off. Creditors will not take into account a non-equal split agreed between you both. So if your partner falls behind payments, you are in equal danger of a bad credit mark. To avoid resentment, discuss and agree on a payment plan before committing to debt that can’t be avoided.
Create a joint emergency fund. Save together for the unexpected. This will create less pressure down the road should you need emergency repairs or someone loses their income. For more information on how to build an emergency fund, read here.