In my last blog I gave you ground rules for getting started with coupling your finances. It all begins with a conversation. Once you have shared with each other the true state of your current financial situation, you can create a plan to merge the two. And, of course, begin your happily ever after journey.
I’ll walk you through two different scenarios that offer approaches for what will work best in your specific situation. The first scenario is if you’re moving in together after having been living and working independently for some amount of time. The second situation is typical if you’re getting married and starting your adult life together without any real financial history.
Scenario One – More than Just A Roommate
If each of you has been on your own for even a short period of time you’ve probably got your own bank and credit accounts. To begin coupling your finances, keep these but open two new joint accounts: one for checking and one for saving.
Now, what to put in them? Create your joint spending plan. Use a worksheet like this one:
Skip the top part that shows income and taxes. Keep your solo expenses separate. Build the spending plan with your joint living expenses. Enter rent, utilities, food, and all the other items you’re going to be sharing. Simple enough, right? Well, for the most part, if you’re crazy enough about each other to want to live together you should also already know a lot about each other’s living and spending habits. Some of the items don’t really require discussion but others do. Moving to a new place together definitely involves discussion and negotiation. Price, location, and type of living space are the biggies here. For groceries, are you going to have a Whole Foods or a Walmart food budget? Does one partner eat twice as much as the other? And, what about dining out? Dining out too much is one of the most common budget busters so decide how much you’ll be cooking and how often you will be eating at restaurants or getting take-out. Basic cable, deluxe 800+channel cable, or dish? Internet? Negotiate and practice give-and-take as you price out your list of joint necessities. This is the amount of money that needs to go in the checking account each month. Based on what you figured out about each other in your money talk you might each put in half or not. More than you can afford? Go back and whittle away where you can until you can reach agreement.
Remember the savings account I told you to open? Use this for the funds for big purchases like trips you want to take together or furniture.
Give your spending plan 3 months to work. Return to it monthly to assess what is going well and what needs tweaking. You can keep going indefinitely with this yours, mine, and ours approach or you can transition to the ‘all in’ approach spelled out next.
Scenario Two – Mates for Life
This is the easy one. If you have nothing and your new mate has nothing, you put your nothings together and you’ve got the beginnings of something. Did that sound like nonsense? Let me translate. When you are starting your financial life together you don’t have to worry about any financial messes and you get to make the decisions jointly. This will pay off in a big way down the road.
Open one checking, one savings account, and one credit card. Use the sample spending plan available at the link above to build your plan from the top down. Start with income, be sure to add funding for each of your Roth IRAs and general savings and keep working on the different categories until the income equals the outgo. Just like the previous scenario, certain categories will require negotiation but honestly, what is there in life that doesn’t?
Whether you fit into Scenario 1 or Scenario 2, you’ll need something to track your plan. Once you’ve got one you think works, look at using an online tool like You Need a Budget (YNAB). to track your spending together. Plans break down when the budgeting burden falls on one partner so make sure this is treated as a joint responsibility. Don’t let resentments build over money; track the spending, make adjustments as needed and you can stay in sync with your sweetie happily ever after.
And, what if, for some unforeseen reason the happy times end? Check back in a couple weeks for my next blog; I’ll give you advice for minimizing the financial damage in the event of a bad break up.
As always, let me know your thoughts and comments. If you’ve got a suggestions that worked for coupling your finances please share them!