You Asked For It
Love and Money
I recently asked Invested Mama readers what “money matter” mattered most to them.
One topic that got everyone a little hot and bothered: How to successfully share bank accounts when you decide to share a bed. Turns out there are so many sides to the money merger debate, it could not be covered in just one post. So this week’s blog is the first in a three part series (I feel so “Peter Mansbridge” as I type this). In part one, we’re going to discuss the logistics. There’s a lot to consider when you decide to couple your cash. Next week we look at the legal implications of merging your money (I’ve consulted a lawyer for that post). And – finally - the dreaded topic of dealing with your partner’s debt. Always, a great conversation to kick off a romantic evening.
If Only It Was Easy…
Before we delve in, let me first say that I believe there is no right or wrong way to divvy up your financial affairs. What works for you, works for you.
But often couples will suffer through a system that clearly is not working for them just because they’d rather bring up the topic of polyamory than discuss who’s responsible to pay the power bill.
Spoiler alert: communication is essential.
I once sat with a client who was in a long term and (by all accounts) committed relationship. Both she and her partner had been married before and both had grown children from previous relationships. They both worked outside the home and had individual pension plans and group benefits. We were discussing the amount of savings she would need to live comfortably in retirement and it was obvious that the conversation was making her very uncomfortable.
“It really depends on whether or not I have to pay rent,” she finally blurted out.
Turns out, although she had moved into his home more than a decade prior and had been contributing to the running of that household ever since, she had never broached the topic of ownership of the property or asked what his plans were for the home if he died before she did. She had no idea if he had a will, insurance or any real concept of his net worth (or potential lack thereof). Furthermore, despite the stress this was causing her, she refused to start the conversation.
We moved forward with the assumption that she would have to pay rent.
I get it. This money stuff can be tricky. No one wants to be perceived as a gold digger. And no one who works hard to carve out their little piece of the planet wants to be taken advantage of by a money moron (a phrase affectionately coined by Gail Vaz-Oxlade, host of the TV series “Til Debt Do Us Part”).
Furthermore, we all come to the table with different skill sets. We were all raised by different people, each with their own unique philosophies and practices around cash flow and finance. And whether we choose to believe it or not, those early experiences have an impact on how we interact with the green stuff ourselves and either blatantly or subtly influence our own spending and saving habits. Some households – like mine – openly talked about budgets, bargains and cash flow. In other homes – like my spouse’s – money was rarely discussed and financial matters were a fiercely private matter.
So why do we expect to come together and flawlessly and instantly be on the same page?
The reality is that not only do we often start out on different pages, we may not even be reading from the same book!
Also, since many of us are staying single longer, we have had lots of time to hone our habits, have likely had many different chapters to our lives and have created very real money identities for ourselves.
And if this is not your first rodeo – like my client - you may have more than emotional baggage that you are bringing to the relationship. Lingering debt from past unions and expenses related to children may also impact the mix.
What if your incomes or net worth are vastly different?
What if one partner choses to be the primary care giver for children and the other the primary income earner?
Who physically takes responsibility for the system once it has been decided upon?
Cards on the Table
You have decided to spend your life (or at least a significant portion of it) with someone. You need to know what you are getting into. And you should give your partner the same courtesy. A May 2013 study by BMO – the BMO Wedding Survey – found that while 98% of couples feel it’s important to be on the same page financially, 62% wish they had spent more time talking money before tying the knot. It’s important to set aside time specifically for “the talk” and be present and honest with each other. It’s not a topic to toss in casually while deciding on where to go for supper.
All for One
Logistically, having a joint account and credit card that everything goes into and everything comes out of seems simple enough. But this does not work for everyone. In my experience, this strategy works best for couples with similar incomes, spending habits and long term goals. To be successful, this strategy also requires that both parties sit together and review the account on a regular basis and be ready to discuss each other’s purchases in a constructive manner. Added bonus: There is something about accountability that makes impulse purchases less likely.
A Three Way (get your minds out of the gutter, now)
More common in recent years, is the three way approach. This is where a couple sets up a joint account for household expenses and keep separate accounts and credit cards for individual expenses and splurges. Each can contribute 50/50 to the joint account or transfer an amount relative to their income level. For example, if one partner makes 40% of the combined couple’s income, that person contributes 40% to the total operating account. This ensures that a relatively equal amount is left over for personal purchases. By having separate credit cards, you are also solely responsible for your own credit history and can maintain some independence and autonomy. Plus you can buy a gift for the other without them tracking it online.
Banking Made Simple
Online banking and automation have changed how couples literally and figuratively “view” their money. Not only does it make money easier to track, there are also plenty of free online tools to help us analyse our spending and our goals. Once you have the talk and decide on how you are comfortable moving forward, it is easy to automate the process and access the information for periodic check-ins.
As with all difficult conversations, I’ve learned that the worst part is often the anticipation. The longer you ignore it, the larger it becomes.
Bottom line: If you or your partner are not willing to share, you probably are not ready to play house either.