You’ve fallen in love with that special someone. Yay! Congrats! A lot of it is going to be great stuff like going out to events together, making dinner together, and planning your future together. However, you can’t forget about one of the most important things you need to do together. Your finances.
Money can be a difficult topic for some couples to discuss, but you need to do it. If you’ve both been good with your finances it should (hypothetically) make things a lot easier for the both of you. Still, you’ll find that some couples have no idea what the other person’s money situation is until it’s too late. Don’t put yourself in that position. Sit down and have the tough talk.
What should a couple talk about in regards to money and finance?
1- Who’s money is it? Mine, yours or ours? This can be a touchy subject for some people, but you need to clear the way early on so you can avoid mishaps. Just because someone says “I do” doesn’t mean they want to share everything with you. It would be wise to figure this out as soon as possible to avoid problems down the line.
Each couple is different. Some will pool their money together and share all the expenses, while others will split everything evenly and pay for their share from their own separate account. It can get more complicated than that, like a couple that agrees to share all necessary costs like housing, water and electricity, but then each person is responsible for their own extracurricular costs.
The point is, you need to have this talk early on so you know where you stand. You don’t want to be guessing who should be paying this bill or who should be paying for that meal. Sit down with your partner and figure it out. Yes, it can be hard, but you need to do it.
2- You need to let each other know about your financial situation. Do you have a lot of credit card debt? What about student loan debt? Everyone needs to be on the same page here so you know what each person is dealing with. It does no good to hide your debt from your partner. It can be a hard thing to do to bring up that you owe thousands because you were foolish with your money when you were younger, but the two of you should know what you’re dealing with.
It’s also important to disclose everything because it will make it easier if you come across it sometime in the future, like when you’re applying for a mortgage together for your new home. What if you haven’t told them about how you filed for bankruptcy a few years before you met him? What if you’re hiding some debt that they don’t know about? All of this can make it more difficult for the two of you to get the loan so you need to plan for it in advance. Do it now and you’ll have less headache later.
3- Once you’ve finished talking about your debt you should then talk about your investments. Hopefully you both have low debt and a lot of investments. Yahoo! But, you still need to talk about them. Even if you are both doing great it’s important to figure out a plan together so you can succeed in realizing your financial goals.
Maybe you’re planning to buy a house one day together, or maybe you’re saving for your future kid’s education. Whatever it is, you need to both need to be on the same page. Talk about your 401K investments, your stocks, mutual funds, and IRAs. Hopefully you have all of these things and you just have to allocate your investments wisely.
What is “allocating your investments wisely” mean? Well, it just starts with the basic stuff. You need to be sure you’re diversified between the two of you. You hear it all the time, “diversify your investments”, so how do you do that as a couple?
Well, as a couple, let’s say you both own Google stock. Now, between the two of you, you have twice the amount of Google stock and that makes your shared portfolio together less diversified. “But I don’t want to share my money and that doesn’t matter to me” Well, that’s all fine and good, but you’ll likely do better if you at least “shared” the diversification responsibility.
Instead of owning double the amount of Google stock, why not one of you instead own Apple as a hedge. Assuming both of your portfolios are already well balance, then getting into the same sector with a competing stock would be smart. If one of you doesn’t want to sell their entire Google holding then you can both sell half and you can both buy Apple.
4- Work on your budget together. Figure out what all your expenses are and put them into a spreadsheet. Now list what each of you are making in income and this should give you a better idea of how you’re doing. It’s important that the both of you know where the money is going and where it’s coming from. If you don’t want to share it evenly, fine, but don’t leave the other person in the dark about it. That isn’t healthy to your relationship or your finances.
5- Get your beneficiaries, TOD (transfer on death), POD (payable on death) in order. Usually couples will name each other as beneficiaries on investment accounts, bank accounts, retirement accounts, and life insurance policies. Get that all in order as soon as possible so you don’t have to worry about it.
Love and money don’t always go hand in hand for couples, but it’s important that the both of you are engaged in the process. Be honest with your money and how you feel about it and your relationship will thank you for it.