Tying the Financial Knot

Tying the Financial Knot
by Jill Jacinto
September 02, 2016
This article was written by Jill Jacinto, one of Career Contessa's mentors, who specializes in working with millennials on their careers. Book a one-on-one session with her to discuss your own professional route. 
When you decide to take that next big step with your partner—whether that's moving in or walking down an aisle—it's easy to ignore the financial complexities. Well, don't. 
You are in a loving relationship, and you've decided to take it to next level: living together. You might think the biggest challenge will be navigating Ikea on a Saturday, but you'd be wrong. Or maybe you're taking it to the ultimate "next level": getting married. Sure floral centerpieces and first dance songs seem important now, but the real challenge comes later. Money. We often hear that money causes tension in many relationships—in fact, it's often the cause for demise. Here's how you can learn the right way to combine finances and communicate effectively.

If you are moving in together

What's the Rent?

Forget about the area and focus on what both people can afford. Set reasonable expectations and budgets and remember that relationships are built on compromise and communication. I spoke to relationship expert Dr. Ramani Durvasula who said, "Sit down and construct a budget together—an honest budget—before the move in takes place. Putting it down on paper can force some of the necessary conversations. Some people may be afraid that their debt may put a partner off or thwart the relationship—if you have a plan to pay it down now is the time to share it, but starting a relationship from a place of "hiding something" —is not the best way to go!"

How Will You Split It? 

Remember that open communication is key to this type of step in your relationship. If someone makes more money—are they able to put more into the rent? How will this make the other person feel? What about household expenses - will you get internet, cable, Netflix? What about the upkeep of the apartment? Will you create chores or will someone want to hire a cleaning lady or send out your laundry? Does someone Seamless religiously and the other cooks? Always think of your significant others feelings when discussing these types of matters. Understand that you may have grown up in different types of households—there is no right or wrong way. Do you really want to have a fight about making the bed or the way your toilet paper hangs? 

Have The Talk—About Credit

Dr. Durvasula also recommends knowing one another's credit scores (you might need to know that before applying for apartments) and also what their monthly and annual salaries are and if they are steady or variable. These might seem like deeply personable things to share with someone but you are moving in to do just that - share your life. If one person works freelance and has 1 client that suddenly fires them, can you afford to make up the rent until the next client comes along? "There are FEW issues more important to discuss openly and plainly than money before getting married - it is deeply unromantic and in the bliss of the moment, no one really wants to get into the nitty gritty. But since financial issues are often what bring a couple to its knees down the road - ensure you are on the same page," says Dr. Durvasula.

Don't Forget That Money Is Not a Reason to Move In

If moving in together has begun to get stressful, remind yourself why you are moving in to begin with. If the answer is to save money or convenience then you are not ready to take this step. You should move in with someone because you love them, respect them, see a future together and want to spend as much time with them as you can. If an issue arises, practice working together to solve it.

If you are getting married

In these days you might have already been living together before you got engaged and might have crossed a few budget conversations off your list. However, even if you live together you will discover that money seems to be a common thread when you are planning a wedding and thinking about your future as a WE as opposed to a ME. Why is that? Well, for the first time you are truly committing to the fact that you are in it for the long haul with someone other than yourself. I had the opportunity to chat with Megan Speeth, CFP®, Vice President of Fidelity Investments, Berkeley Investor Center who advised, "When you get married, you tie a financial knot that you have to keep strong throughout your lives together. Whether a couple decides to combine their finances before or after the wedding is a personal preference, but it’s important to be open with one another about money and your goals for the future. One of biggest challenges that many couples face when it comes to investing and planning for the future is making it a priority to talk about it – and not just one time, but on a regular basis.   We often see a convenient division of labor – one spouse manages the day-to-day budgeting, the other may take charge of the long-term investments.  Maybe one spouse is more interested in investing; maybe one spouse has less time.  However your family chooses to manage your finances, it’s critical that you work together to map out short and long term goals, and talk through how your investments can help you achieve them. Even if you’re not directly managing your investments, it’s important to be aware of what accounts you have and how they are invested."

Before you tie any type of financial knot Ms. Speeth has provided an outline for couples who are about to get married and want to out their finances on the table.

6 Steps to Combining Finances

  1. Make a list of all income, assets, and debts - including credit cards and loans that you each bring into the marriage
  2. Decide how you will own assets - whether jointly or individually. Credit scores can also play a role in this decision process and how you want to manage or address future purchases/debt
  3. Decide how and what you might consolidate - from debts to investments, see whether it makes sense to simplify by combining some accounts
  4. Plan your spending and saving together - particularly if you have different ideas about how much you should spend. Make agreements up front about day-to-day spending, as well as big ticket item purchases
  5. Undo your debt - it’s common for one spouse to come into the marriage with more debt or to have different opinions about how much debt is okay. Tackle your decisions together and pay off debt as soon as possible to free up more money to save for future goals
  6. Start a budget - while budgeting isn’t especially romantic, doing so can keep your marriage “in the green rather than red.”  To get started on your budget, list all income sources, day-to-day expenses, and discretionary expenses. If you need some help getting started, here are some budgeting guidelines that can help.
Whether you're signing a lease or a marriage contract, you are making a commitment to the person you love. Lead with respect, curiosity, openness, communication and compromise. Money doesn't have to be a stressful note in relationships. Don't ignore your finances. Bring them to light and solve any fiscal problems together as a team.
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Do you have questions about your own combined finances? Hit us up.