Money can often be one of the most difficult topics to discuss in a relationship, however, the ability to have an open and honest conversation about your finances is crucial for couples that want to have a lasting commitment to each other.
Disclaimer: Before we dive into this article it is important to note that the below information contains general advice only, not personal financial advice. Before you take any action it is important to consult with a qualified financial adviser or mortgage broker who can appropriately assess your unique situation. For a discussion personalised to your needs, reach out to us here!
Let’s Strip it Back
Money is a deeply personal topic and has very often been cited as a leading cause to couples splitting up. In many societies and group settings, talking about money can be considered a taboo topic, however, this should not stop you from having a serious chat with your partner about your financial circumstances, and how you each like to spend and manage your money.
Let’s start by delving into why this is such a sensitive subject in the first place. We know that money plays a pivotal role in our lives and many people make major life decisions based around money e.g. what job to choose, where to live, which school to send the kids to, etc., so why is it difficult for some couples to have a frank conversation about it?
After advising many couples, we have observed common reasons to be fear of judgment, social conditioning, and unhealthy money habits that lead to stress and a natural instinct to avoid talking about the problem. People also tend to equate money with particular values, such as, security, power, or success, and it’s very common to adopt our parents’ financial mindset and money habits without assessing whether they are productive. All of these factors can lead to misunderstandings and incompatibility if couples don’t put in the effort to actively and openly talk about money.
Many external research studies show that the earlier you start discussing your finances with your partner, the better. In particular, the Australian Securities and Investments Commission (ASIC) emphasises the importance of understanding each other’s general attitude to money, and being able to clearly articulate your short, medium, and long term financial goals together. Doing this will help you build a strong foundation for both your relationship with each other and with money.
1 ) Understand Your Money Mindset
The first step in achieving a calm and rational money conversation is to understand that you and your partner may very well have differing views on how to manage your savings and spending. For example, you may prioritise saving cash while they prefer to invest extra money in the stock market; you may want to go on a nice vacation, while they would prefer a new family car. It’s not uncommon for your financial goals to be different, especially if you have never talked about money together before. Approaching this conversation with an open, understanding mindset is integral for the conversations to be a success, and compromise is likely needed on both sides.
Before having this conversation together, it is worthwhile having a moment of reflection by yourself to evaluate your own money habits, preferences and goals so you can clearly explain what they are to your partner. We previously published some helpful articles to our blog which could assist you in working out some of these things – Building Good Habits for Everyday Financial Success. Even after you have done this, you and your partner may still be struggling to navigate this topic on your own. Our experienced advisers are more than happy to act as an objective third party and help guide you in this discussion, to ensure both perspectives are heard and a productive outcome is attained at the end. Remember that in a committed relationship, this conversation will need to happen regularly as things are constantly changing, which may impact your broader goals.
2 ) Complete a Financial Health Check
See where you both stand financially
It is always important to know your state of financial health. Aspects that contribute to your overall financial health are your income, your assets, your debt or liability levels, your regular expenses, if you have a budget, and your superannuation fund (technically also an asset). This article on starting your Personal Financial Journey we previously published on our blog can help prepare you for this step.
There are pretty high chances that you and your partner have different incomes, asset values, and debt levels. Maybe one of you budgets and the other doesn’t. Once you are both comfortable with being honest about the state of your respective financial situations, sit together and make a list of where you both stand in terms of:
- Income (if you have multiple sources include them all);
- Your regular expenses;
- Your budget;
- Your assets, including your house and car;
- Your Super fund balance and any investments you hold; and
- All of your outstanding debts and loans.
This level of honesty can often be the most daunting, difficult step in the process. If you and your partner have been able to have this conversation, celebrate it as a win!
3 ) Decide on Your Goals
The next step is determining your goals. Consider the next 5, 10, 20 years of your life. How do you want to live it? Do you want to travel every year? Do you want children? How many? When do you want to retire? Do you want to live overseas, or perhaps build your own dream house? Have you thought about investing in shares or real estate?
All of these questions could have a significant impact on your financial future and may take some time for you to think about. Try to be as detailed as possible and set S.M.A.R.T goals – they should be specific, measurable, achievable, realistic, and have a timeframe in which you want to achieve it. A common downfall we see with our members is trying to jam pack the next 3 years of their life with ambitious financial goals (which can be unrealistic) and not having a longer term outlook for their future (don’t forget you need money to retire!)
There is a chance you and your partner won’t have the same goals, and that is okay, it’s important to agree on the fundamentals first. At this stage, the greatest benefit of having a financial adviser on your team is receiving expert guidance around what is realistic and achievable, as well as helping you prioritise your goals.
4 ) Structuring your cash flow
After discussing your money habits and joint financial goals, it’s time to structure your cash flow in a productive manner that you are both comfortable with. There are three different methods of approaching, and managing this.
The first is to have joint accounts for everything including earnings and expenses. This method can be great for couples that want to keep it simple.
The second is to have your main accounts joint, and discretionary spending separate. This provides a level of autonomy over your personal spending whilst still having joint accounts for ease of paying bills and saving towards common goals.
Lastly, you may be most comfortable with having everything or most accounts separate, and only creating joint accounts for specific expenses and goals. This option is great for couples that are still early in their relationship, or couples that have very different outlooks on money management,
This part is very personal to each couple and it’s important to know that you have options. Just because your parents or your friends do it a certain way, doesn’t mean you have to do the same!
5 ) Moving in Together?
Making plans to move in with your partner or share finances can be a very exciting process. As with many big changes in life, this can come with some level of stress, however, knowing your financial responsibilities can make your life together run more smoothly.
There are so many financial aspects to consider when moving in with a partner, and it is best if they are had upfront. Here are some topics you may want to run through together before you make this commitment:
- How will you split the grocery shopping?
- How will you split the rent, or the mortgage repayments?
- Who pays for what utilities? (Think water, electricity, internet)
- Are you going to purchase brand new furniture, or up-cycle second hand items?
- Are you going to want to pay for a cleaner, weekly or fortnightly?
- How energy and water efficient are your appliances?
- How often do you run your washing machine? (if your appliance isn’t very water or energy efficient this could rack up the utility bills!)
It is important to be clear with your partner about what you are comfortable with, and to find compromises that work for you both.
6 ) Always Be Honest
Stay honest with your partner about your finances. If an unexpected expense comes up, be open about it. If you decide your goals have changed, communicate it. Budget not working for you? Sit down and discuss it with your partner. A financial journey is a constant evolution, and it is good to check in with each other along the way.
7 ) Consider a Binding Financial Agreement
If you have pre-existing assets (e.g. property, an inheritance, investment portfolio, etc) that you wish to protect in the unfortunate event of separation, consider setting up a binding financial agreement with your partner. Although this may not be an easy conversation, this is an important part of discussing your finances as well. Some people may find this process to be helpful in solidifying a healthy foundation to the relationship.
ASIC outlines a financial agreement as an “agreement [that] sets out how your assets and money are divided if your relationship breaks down. It also explains what financial support you or your partner gets.” Note that you do not need to be married to have a binding financial agreement set up.
It is important that you seek legal and financial advice before signing this document. If you find this prospect daunting, we are happy to help out in the capacity of financial advisors.
Interested in further research? Check out the ASIC’s MoneySmart website.
Consider seeking a financial adviser before taking your next step…
We hope you found this article informative. The team at Pursue Wealth are on hand to answer any questions you have. Whether you are in the position to begin the process of combining your finances, or you and your partner want an objective person involved in your discussions, our team is always happy to have a chat! Book in a 15 minute consultation with our dedicated team here.