Whether you’re in a new relationship or you’ve been married for decades, you might be wondering the best way to manage money as a couple. The truth is, many of us come into relationships with vastly different views on how money should be managed. But, when you’re in a partnership, it’s important to understand each person’s views about money, each person’s weaknesses when it comes to money, and each person’s strengths so that you can make a solid money-managing team.
Here is a step-by-step guide to managing money as a couple
Step 1: Tell All Your Money Secrets
This will probably be one of the hardest conversations you will ever have. But, in order to be fully committed to managing money as a couple, you have to tell each other your money secrets. This includes telling each other how much debt you have. Let each other know how much you spent on your car, whether or not you owe a friend money, what your credit score is, and what you’ve done to better your financial situation thus far.
If you don’t know your credit score or the exact amount of debt you have, this might be a good time to look it up together. The most accurate credit score and the one most lenders use is a FICO score. You can purchase the right to access your credit score or some credit cards offer this as a perk (check your credit card’s benefits to see if this is included as one of yours.) You can also get a ballpark credit score by using free services like Credit Sesame or Credit Karma. While this won’t be 100% accurate, it’s a simple, free way to get an idea of where you stand.
Sometimes when couples have these tough money conversations, they have it after they get married. This means their spouse might be learning for the first time that their partner has significant credit card debt or student loan debt. That’s what makes this conversation challenging for many couples. Of course, if you’re not married yet, this is the ideal time to discuss finances. Even though it might not be a pleasant conversation, this is the very first step to create a solid financial plan together. Only when you have all your money secrets out in the open can you move forward on your path to becoming a financially healthy couple.
Step 2: Explain What You Learned About Money as a Child
What we learn about money during our childhoods affects us for the rest of our lives. Some of these lessons are good, and some of them are damaging. What we hear about money growing up and whether or not our parents managed their money well has a profound impact on our money management abilities in the future.
So, sit down with your spouse, and tell each other what you learned about money as a child. Did you learn that debt was okay, or did you learn that that was to be avoided at all costs? Did you learn money was scarce or that it was abundant if you worked hard enough? Did you see your parents struggle to pay their bills or did you always feel secure?
The answers to these questions are important because as a family unit, you have to decide together what lessons you’re going to bring forward in your lives and which you’d like to leave behind. If you have children, it’s important to work together to decide what you want them to know about money so they can grow up to create their own financially stable homes.
Step 3: Share Both Short and Long-Term Goals
Even though money conversations are sometimes difficult, a great way to inject fun and lift your spirits quickly is to share both your short and your long-term goals for your finances.
So to give an example, maybe some of your short-term goals include buying a house or traveling to Europe. Or, maybe you want to start a family or add another child to your family. Short-term goals include anything you hope to accomplish in the next one to three years.
Anything beyond that is considered a long-term goal. Your long-term goals are important milestones that seem far off like saving for your retirement or investing your money for the future. Long-term goals might also include saving for your children’s college education, buying a vacation home, owning your first investment property.
When you discuss your short and long-term goals with your partner, you can see which ones you have in alignment. You also might learn new things about your partner like places they want to travel or goals they want to accomplish that you never even knew about.
This type of conversation brings you closer together, and it really helps to establish what you’re working towards. Having this list of goals will also help you in moments of conflict when someone wants to buy something or spend money on something that the other disagrees with. If it doesn’t fit in line with your joint short and long-term goals, that’s a good reason to convince your partner not to pursue it.
Step 4: Create a Budget Together
In order to achieve both short and long-term goals, you have to have some type of plan. You can call this a financial budget. You could call it a spending plan. It doesn’t matter what the name is so long as it involves you and your partner sitting down together and deciding where your money is going to go on a month-to-month basis.
Make sure to include your set bills like your mortgage, insurance, utilities, car payments, and more. Additionally, if you have debt, discuss how much you’ll allocate to paying it down. Also, don’t forget to pay yourself first by transferring money to a savings account as soon as you get paid. That’s a surefire way to ensure you can reach those short and long-term goals quicker and make your financial dreams a reality.
Try to meet monthly to discuss this budget and make a plan for the following month. Assign one person to track spending throughout the month so you can stay on track and adjust as needed. (Typically, one person in the relationship really enjoys keeping up with the budget and the other one doesn’t.) Make it a point to have regular, casual discussions about your budget as the month goes on so each person has awareness around your joint spending. Then schedule a formal sit down once a month to track your progress.
Step 5: Decide on Joint or Separate Accounts (or a Combination of The Two)
You might have already discussed this, but if you haven’t, decide on whether or not you will have joint or separate accounts or a combination of the two. When you’re meeting regularly to discuss your household budget, it will help to know what type of arrangement is best for you when it comes to your checking and savings accounts. There is no one right way to do this. Having a joint or separate account comes down to an individual couple’s preferences. But, just know that you have many different options and should be very clear about what is right for your family. You can start with joint accounts and then separate them later. You can also start with separate accounts and then join them in the future. There’s nothing that says you can’t change the way you manage your money as your life changes and your income grows. What’s important is that you decide on one method and work together to achieve your goals by communicating regularly and remaining open and vulnerable when it comes to financial discussions.
Step 6: Decide How You’ll Celebrate Your Wins
Because deciding to cut back on your spending or pay down debt might not be the most fun conversation ever, you can also decide how you’ll celebrate your wins. Talk to your spouse about what fun things you will do when you pay off a certain amount of debt. Decide what you will do when your savings account finally reaches three months of emergency savings. Think about the top three places you want to go when your vacation savings account finally reaches $2,000 or $3,000.
Ultimately, talking about the fun things in life will bring you closer together as a couple and will definitely help you stay motivated as you work hard to pursue financial independence.
Step 7: Forgive and Adjust as Needed Along The Way
Budgeting is not perfect. There will be challenging times. You and your spouse will disagree, and there might even be a lot of tension – especially during budget meetings. That’s normal, and it’s to be expected.
So, forgive each other, and adjust your budget is necessary. When things get hard as you navigate managing money as a couple, remind yourself why you’re working together on your finances to begin with. Usually, it’s because you want to create a better life for yourself and your family.
Remember, celebrating your wins and keeping your short and long-term goals in perspective is a great way to move past any difficulties you might experience along the way. Keep in mind that if you do work together and become financially independent one day, you can create a legacy that you can pass down to many generations.
In other words, managing money together today is not something you’re doing just for you. Responsible money management can positively impact many generations, so it’s always worth it keep open communication, work together to manage your finances, and take it seriously.