You might not mind spending $100 on a new pair of shoes, but your partner might consider it a major splurge. Or maybe a person has a higher risk tolerance when it comes to investing.
Money issues are a common source of arguments between couples. That’s why it’s important that both people feel included and comfortable when making a budget and financial plan.
The first step to successful financial planning as a couple is to start talking. Put all your financial cards on the table. Yes, it can be uncomfortable, but you need to have a clear understanding of everyone’s financial situation to establish a sustainable budget. This means talking about things like: income, debt, spending habits, savings goals and credit scores.
Mark Reyes and his wife Jessica Willison had their first money conversation a few months after they met.
“We had an honest discussion about how money makes you feel, who do you trust with money, and what kind of financial situation are you in, including debt and income” , said Reyes, senior director of financial advice. on the Albert personal finance app.
But those conversations about money shouldn’t be a one-time thing. Set up regular date nights where you discuss finances, review the status of your goals, and make adjustments to your plans.
Know your numbers
The first step to creating a budget is knowing how much money is coming in and how it is being spent. This means tracking all of your expenses (yes, all of them) for a few months.
You can do the work manually by creating your own spreadsheet and adding income and expenses or using apps, like Mint or Honeydue, who log into your accounts and can do the heavy lifting for you.
Tracking spending will give insight into each person’s spending habits and can also help identify areas to cut back on, if needed.
To merge or not to merge
There are three common approaches when it comes to budgeting as a couple: merge everything together and share all income and expenses, create a joint account to which both people contribute for shared expenses while maintaining separate accounts , or keep everything separate and split the bills. .
Reyes and his wife have a joint account where they pay for combined expenses, like their mortgage and food, and also have separate accounts.
“We also like to have control of our individual finances,” he said. “I use my personal funds to buy stuff for my car,” he said. “We have personal accounts, so we don’t feel weird or guilty about using our joint account for ourselves.”
For couples who decide to opt for a joint account for joint expenses and separate individual accounts, Jerel Butler, founder of Millennial Financial Solutions recommends using salary as a proxy for determining contribution amounts. For example, if a person earns 60% of the total household income, they would contribute enough to cover that percentage of the total common monthly bills.
If there’s a big gap in income, sharing the expenses fairly could lead to problems later, said Sophia Bera, a certified financial planner.
“A lot of people decide to split things 50-50 and realize a few months later that it’s not working,” she said.
You and your partner don’t all have to have the same savings goals. There can be common goals, like buying a house, and more individual goals, like clothing or hobbies.
The key to achieving these milestones is to be specific: what is the goal and do you want to achieve it?
“There may be different goals, but have the conversation and document the goals to ensure spending habits stay in line with short- and long-term goals,” said Mary-Charles Nassif, financial adviser at Edward Jones Financial.
When it comes to saving for common goals, like a wedding, Bera suggested a joint savings account and a joint checking account that can be used for regular household bills.