How to manage finances with your partner and save the things you can’t afford to lose.
All over the world, there are couples who refuse to talk about money–and many of them end up paying for it.
According to the American Psychological Association, money ranks as one of the top reasons why couples fight and their disagreements can stem from a lack of communication on the subject.
This aversion exists for various reasons. For one, there are cultures that see money as a root of evil. It is known to drive people into heinous acts and is often vilified for that by thought leaders. This discourages people from showing overt interest in it. Also, money is a quantifiable resource. It is an objective but harsh gauge that can be used to estimate what a person can or cannot bring to a relationship. Therefore, to talk about it is to risk making someone feel exposed and vulnerable.
The alternative, however, can be much worse. Couples who don’t talk about money tend to have a poor handle on their finances; this could make them less equipped in dealing with unforeseen problems and it could cause them to fall short in meeting goals and expectations. This could lead to anxiety, resentment and a host of other negative feelings which can ruin an otherwise loving relationship. It may even lead to lasting bitterness, separation and divorce. And in this case, silence, while not “golden,” can be quite expensive.
To avoid this, experts on money matters (like Investopedia) encourage couples to have regular healthy dialogues about their resources. The ultimate goal? Financial stability through budgeting. Budgeting can be the answer for those who want to avoid living from paycheck to paycheck. Financial planning aligns the short-term and long-term goals of a couple. And, having a plan can cover concerns like retirement, inflation and debt management. More importantly, it can lessen strains in one’s personal life..
Is money an uncomfortable subject? Many appear to think so. But, when you’re in a relationship, the discomforts that can come with talking about it can be more palatable than what can happen if you don’t–especially since talk can be literally cheap in this context and there are many ways to do it right.
Be open to communication
Communication is key in dealing with any relationship problem. This is true especially regarding money matters. The finances of one person is different from their partner, so communication is necessary to demystify that.
It is important, however, to sweeten the deal. As mentioned above, money talks can be hard. So if a couple wants to do it, they must pick an appropriate, less stressful time. It will also help if the conversation is framed correctly–presented as an opportunity to improve the relationship and not as a venue to tear each other down.
Assess Current Financial Situation
First, you should know how much money you and your partner have. Look at both the individual and joint income. This will cover all bases. The next step is to list all your fixed and variable expenses like rent, utilities, mortgages, and food.
It is also important to list your assets, investments, properties, and debts. Having your financial papers ready can also help you and your partner figure out your current standing clearly.
Add up all of your income and expenses and see how they compare.
Set Financial Goals
Couples should be open and honest about finances and align values and priorities. This will allow you to understand each other and work toward achieving common goals. These can be divided into three categories.
Short-term goals are the ones you can achieve in one to three years. These also cover emergency funds and money put away for leisure activities like vacations.
Midterm goals will require more money and they will take more time to achieve. These goals are typically set for three to five years; these include big purchases that can affect the way by which a couple lives like a new car, home renovations and the servicing of small debt.
Long-term goals meanwhile are set for a period greater than five years. These included expenses that chart the course of a couple and drastically change the way by which they live. For instance, buying real estate, preparing for retirement, having children and investing in their future and major home improvements.
Create a Budget
Making a budget will direct your income as a couple toward your different goals. The most popular percentage-based budget method is the 50-30-20 plan, which allocates 50 percent to basic needs (since most of which need to be addressed immediately,) 20 percent to savings and debt repayment (which can afford to wait,) and 30 percent for personal enjoyment (which does make life worth living.) Zero-based budgeting is a way of assigning every dollar to an allocation until you have no unallotted cash left. This may also be considered as a good strategy for couples who want to have a good amount of control over all available resources.
Having a budgeting app can simplify things. There are a variety of apps that can help you track spending and bills and manage goals.
Spending smart is part of setting a budget. Identify unnecessary expenses and find other areas where you can reduce costs. Simple practices such as home cooking, using coupons when shopping and canceling unused subscriptions will go a long way.
Your budget is not a fixed amount. Couples should make it a habit to revisit and review their goal progress and adjust accordingly to changes in income and expenses. Set an agreed schedule for updating.
Decide on Joint vs. Individual Finances
Some couples opt for a joint bank account for shared expenses while maintaining solo bank accounts for personal spending. Regardless of the arrangement, it is important to discuss and agree on how to make it work for both of you and your partner to prevent conflict.
Save and Invest
Preparing an emergency fund early on will give you a fallback for unforeseen events such as job loss or medical emergencies. Starting a retirement fund will also benefit you as the fund grows. Review investment options with your partner and consider stocks, bonds, or mutual funds.
Keep an Eye on Debt Reduction
Avoid falling too deep into debt and manage your expenses wisely. Credit cards can be a trap when used sparingly. Debt may be difficult to avoid and there are instances when you have to take on loans. However, there are several strategies to pay off debt. These include paying the smallest amount first, paying the one with the highest interest first, or debt consolidation. Managing your debts means financial stability for you and your partner.
Value What Matters
When dealing with money–whether through earning, budgeting or spending it–people can get so fixated that they forget what “it” is. Money is a means, not an end. It is important to keep this in mind when engaging in financial planning because people can lose sight of what matters.
They can save cash while endangering their health; they can work hard to earn while losing who they’re working for, and they can cling to money while letting go of the things that they’d deem priceless. These are the things that couples should avoid if they want to build a life with someone.
Budgeting is a useful process for people in a relationship. It helps them achieve their goals and aids them in understanding its limits. But they should never forget why they’re using it in the first place: it isn’t necessarily there to safeguard money, it is used to protect and save the things they can’t afford to lose.
