Of all the relationship milestones a couple goes through, choosing to merge the finances is one of the biggest. Discussing and eventually sharing your attitudes toward money takes a fair amount of time and open-mindedness, particularly if you’re used to being your own boss when it comes to spending and saving.
As independent financial advisors, we have a unique perspective on the process. Here are a few things you’ll want to keep in mind as you approach this next big change together.
There’s no ‘right way’ to do it
Everyone has a slightly different idea of what ‘merged finances’ really look like. For some couples, a complete merge where all incomings and outgoings travel through a single joint account feels right while, to others, maintaining separate accounts along with a shared ‘household account’ feels like a more attractive option.
There are so many different ways to approach this, but you need to be on the same page – and open about your reasons for wanting to merge finances. Differing incomes can make things more complicated, particularly if you don’t share the same views on spending vs. saving, but it’s likely you’ve already worked through how you share responsibility for the usual household expenses. If not, that’s the best place to start.
It’s important to keep in mind that you’re likely approaching this from two very different starting points. Plenty of studies have demonstrated that our attitudes toward money are heavily influenced by the example led by our parents – how they approached debt, disposable income, and other (potentially) controversial considerations. It may take some time – and a few compromises – before you start seeing eye to eye.
Also, remember that how other people choose to share their finances (or keep them separate) doesn’t need to have any bearing on your decision. If it works for your household, then it works as well as it needs to.
You’ll want to get on the same page when it comes to long-term considerations
When you’re merging your finances, it’s tempting to fixate on the immediate demands: rent or mortgage payments, bills and direct debits, trips to the supermarket, and other routine expenses that you are now going to share. But remember that merging finances is a much bigger undertaking than the immediate future – it’s about aligning your financial goals and agreeing to cooperate when it comes to the bigger questions, like investing and pension planning.
Working towards those big goals takes many, many years of saving and shrewd investments – ideally, on the advice of an independent financial advisor who knows how to create a strong, weatherproofed portfolio.
If you defer these conversations to the future, it could be a lot more complicated when you do decide to start thinking about your long-term goals. It’s much better to discuss these things now and start actioning those ideas as soon as possible.
How are you going to protect your plans?
You know what they say – even the best-laid plans go to waste. Unfortunately, when a financial plan suddenly (and often unexpectedly) becomes infeasible, the importance of a backup plan tends to be only too eager to make itself known.
Whether one of you earns significantly more than the other or you both contribute equally to the household finances, any contribution without which you’d be in a perilous financial situation needs to be protected.
Income insurance, critical illness cover, and even life insurance all offer that vital protection against worst-case scenarios, but you’ll want to talk to your financial advisor about the best products for your situation. While they also represent extra monthly expenses that will need to be factored into your shared budget, a little each month is almost always preferable to the alternative.
Ensure your eyes are open to the ways your interests as individuals are (or aren’t) protected
When you’re taking on a big new commitment together, the last thing you want to do is think about a potential scenario in which it all goes wrong. For any couple, it’s tempting to wave away any concerns about a potential break up or divorce – because, really, why would you want to discuss an outcome like that?
But it’s best to be pragmatic, even if it’s an unpleasant conversation. The good news is, once you’ve had that discussion, you don’t have to consider it in the same detail ever again.
Unmarried couples – which are sometimes referred to as common-law partners, although it’s important to realise that this isn’t a legally recognised term – aren’t protected by the same laws that apply to couples who are legally married or in a civil partnership.
This means that, even if you’ve lived together for a very long time, you are not protected against your partner emptying the joint account when you break up. You are also likely to be impacted by your partner’s credit score until you are no longer financially linked.
If you are legally married or in a civil partnership, then any disagreements or poor conduct (such as emptying the joint account without permission from your partner) will need to be considered by the court.
Again, it’s not something any happy couple wants to think about, but it is far better addressed now (and never needed) than put on the backburner and suffer as a result.
It’s best to set aside time for talking about money
You and your partner will need to have plenty of conversations about money over the years. It’s essential for maintaining good financial health, and avoiding any resentment or disagreements from quietly building up between you. But it’s important to keep in mind that there’s always a time and place for money talks, and plenty of times and places that are far from ideal.
Here are some tips for talking about money with your partner:
Don’t make it a surprise
There will be plenty of times when the thought of money comes into your head, but that doesn’t necessarily mean that ‘right now’ is the best time to give voice to those thoughts. It may seem a little formal to agree on a particular time to have that discussion, but it’s a lot better than realising you’ve sparked a 45-minute debate at 9 pm on a Sunday. If you’re both in the right mindset to have this conversation now, then go ahead, but don’t take a ‘ready or not’ approach to money talks.
Do your best to avoid the conversation from devolving into an argument
Arguments over money happen…a lot. It’s understandable that this is one of those topics that couples frequently knock heads over, but it doesn’t have to be that way – and it’s a lot more productive (financially, and for your relationship) if you can work out ways of avoiding those clashes.
Opposites attract, and it may be the case that your partner has very different expectations when it comes to spending or saving money. It can be stressful to see a much lower bank balance at the end of the month than you were expecting – or to feel like you’re being held back from spending money you’ve worked hard to earn – but there is always a way to talk openly and sympathetically about these feelings and, eventually, find a compromise together.
Save any big, overarching topics for your financial advisor
You don’t have to come up with all the answers on your own – and, in plenty of cases, it’s best not to. We have the knowledge and experience to offer much-needed foresight and impartiality.
See it for what it is: a happy milestone
Very few people enjoy talking about money – particularly with their significant other. One study found that 62% of couples who admit to arguing with one another have had disagreements over money, and it consistently ranks as one of the biggest stressors adults face.
But talking about money doesn’t have to be a negative conversation. In fact, keeping things productive and positive is the best way to make sure you’re not only making the right decisions but also making decisions that you’re both happy with. It’s a great way to minimise the risk of future disagreements about this exact subject.
Merging your finances is a big task, and it shouldn’t be done on a whim. If you go into the process with your eyes and minds open, you can see it as a happy step forward for your relationship, and a big moment that will impact your shared future for many decades to come.
Remember that you don’t have to approach this alone – and, for most people, it’s a lot better to work with a financial planner who can ask (and help you answer) the most important questions. Get in touch with us today to find out more about how we can help you navigate this new stage.