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It has always puzzled me how people will share the most intimate details of their lives with strangers, yet will not share the most basic financial information with their partner. My husband and I recently sat down with a young couple, Daniel and Erica. They both had the look of young love in their eyes. Being married myself, I remembered how this look faded when we had some time to settle into the realities of married life.
My husband, apparently determined to hurry the “reality” process, asked the couple about how they will handle money when they are together. After giving us a “deer-in-the-headlights” look, they both answered the question. Daniel responded that he hated any kind of debt and he was willing to sacrifice to become debt free in about a year. At the same time, Erica responded that she was okay having debt as long as they could manage the monthly expenses. After they both stopped talking, they looked at each other in shock, achieving my husband’s goal of giving the couple a reality check.
To quickly diffuse what looked like the beginning of an argument, I mentioned that there are no right or wrong answers, only the best answer for you and your partner. I encouraged the couple to sit down and determine what their financial lifestyle will look like when they are together. A financial lifestyle is how you and your partner will manage money, handle debt, buy stuff like cars and homes, and set and execute goals like retirement and college planning. Whether on purpose, or by day-to-day decisions that add up over time, we all have a financial lifestyle.
I encourage you and your partner to have a “money date.” This is a period of time that is set aside, undistracted, to focus on your finances as a couple. The money date should focus on discussing the logistics of your financial lifestyle. To get you started, each of you should ask and answer the following questions:
Is the money coming into the household considered “Yours, Mine, Ours, or a Combo”? How do you and your partner view the money coming in? Will you have two separate accounts, one joint account, or a combination of separate accounts for personal spending and one joint account for household bills?
My husband and I have transitioned through all of the possible combinations. Initially, we had separate accounts, but after struggling to figure out how to account for joint bills, we eventually got a joint account for household bills. As time went by, we got tired of getting a bunch of statements in the mail and decided to consolidate all the accounts into one joint checking account for spending and another joint account for savings.
During the first month of joint bank accounts, I almost pulled my hair out. I had a hard time tracking our expenses. We then established ground rules, such as giving ourselves each a personal allowance and setting limits on how much we can spend on joint expenses before we have to discuss the purchase. This ended a lot of heated discussions (my southern way of saying fights worthy of WWE) about spending money.
Keep in mind, the best answer for you and your partner is the answer that will keep the harmony in your household. If you decide to keep the finances separate, consider using the same bank. That way, funds can easily be transferred from one account to another to cover household expenses.
Daniel and Erica decided on the combo approach. They had a separate account for personal spending and a joint account for household bills. They also agreed to consult each other if either one plans on spending more than $50 from the joint account and any spending out of the joint account will be accompanied by at least a text to their partner.
How will you manage the spending? Will you use a budget to help you manage your finances? If so, how will you budget?
Both Daniel and Erica said they wanted to budget, but each had very different ideas on how to budget. Daniel wanted a strict budget, down to the penny. However, Erica wanted a loose budget, based on major life events like an exclusive sale at Macy’s shoe department. They had to meet somewhere in the middle.
Daniel and Erica started the process of working together by creating a budget for the household expenses and added categories for fun and entertainment. They also decided to have weekly “money dates” to review their spending and discuss upcoming expenses. They agreed that any spending out of their separate accounts was personal and did not need to be discussed. Erica felt better because she could spend her personal money as she saw fit without having to discuss her spending with Daniel. Conversely, Daniel felt better because there were set boundaries around personal and household spending.
One thing to note: choose the best budgeting tool for both of you. Initially, Daniel used spreadsheets, but Erica felt left out and did not track her spending. This left Daniel feeling frustrated. I suggested they look for a budgeting tool that would work for both of them. They decided on an online program with an app they can access from their smartphones. Now, both Daniel and Erica feel much more at ease when discussing their personal spending budget.
Who is responsible for paying back debt incurred before you met and while you are together? Will you consolidate all debt and tackle it together with joint income, or will the debt be separated by who incurred the debt and only that person’s income will be responsible for the payments? This can be especially tricky when the debt is one person’s as in the case of Daniel and Erica.
Daniel had almost no debt, and Erica had a student loan and car payment. Initially, they only used Erica’s income to pay down the debt, but they were making little progress. Using this DebtBlaster calculator, they determined that they could pay the debt off significantly quicker if they used their combined income, so they decided to consider all debt joint and tackled the debt together.
Like I’ve said before, there is no right or wrong answer when it comes to how to approach your debt. The most important thing is both you and your partner agree to work on the process until you find the best solution to tackle your debt.
What kind of relationship will you have with debt in your household? How do each of you feel about carrying debt and what does your debt load look like when you are together? Some are fine with low-interest rate debt since they can make more in the stock market. Others are uncomfortable with the risk debt carries if an unexpected event like a job loss or illness occurs and don’t like having any debt. So during one of your “money dates” decide if you as a couple will live debt-free, or only have debt with low-interest rates that you can manage.
If you decide to get out of debt, you also need an agreed upon plan. My husband and I were both debt adverse, but we had very different perspectives as to how to pay off debt. I probably would have lived in a van to get debt-free, but my husband actually wanted a life. We learned to meet in the middle. We agreed to budget our lifestyle expenses and to focus the rest of the funds on getting out of debt with ground rules like establishing no new debt.
Daniel and Erica decided that they wanted to be debt-free and to focus on getting rid of the high-interest rate debt first. They would then slowly work on the low-interest debt like her student loans until they were out of debt. Listen to your partner and compromise to come up with a plan.
These discussions are tough, but the earlier you have them, the less potential there is for conflict. My husband and I did not have these conversations early on. Thus, we fought about money and struggled until we learned that we can get so much further towards our goals by working together.
