Modern Money Management for Couples
If you’ve taken the plunge and you’re living with your partner or spouse, new living arrangements mean new responsibilities -inevitably including financial ones. While it can be daunting to discuss money, you need to do it to ensure a happy, long relationship.
In light of the fact that a recent study has shown 18-34 year old’s are the least adept at managing finances, this is more important than ever. More than any other generation, Millennial overdraw bank accounts, pay rent late, and have trouble paying medical bills. However, they are also set to inherit more than any other generation from their parents. Once they do, it’s critical that money be managed responsibly.
With changes in technology, social norms, the workplace, and the world, Millennial couples will have their work cut out for them. Here we’ll discuss how some things have changed, some remain the same, and how you can navigate it all with your loved one.
Changes in Money Management
In many ways, modern family units are different today than they were 10 or 15 years ago. Household roles have changed, including the role of the “breadwinner”. Traditionally, men were the single source of income and often had the final say on how that income was spent. But in recent years, women have come to make up more than half of the workforce in the US. Responsibility for managing finances has shifted to both partners in most of these cases, and that is bound to impact those relationships. Regardless of how you watched your parents manage their finances, you and your spouse should communicate honestly to figure out what works best for you.
For instance, if you are terrible at managing money and your partner is great, divide out those responsibilities. Or if your spouse can’t stand balancing your checkbook and you don’t mind doing it, then you should do it. If the relationship is one where both people agree to a designated money manager, this can work just as well as other methods.
For most people, however, a reciprocal shared relationship system works better. This is where the money is managed together by both people in the relationship.
On average, Millennial now command an astonishing sum of around $4 trillion in annual spend – more than any generation before. Millennial are spending differently, too; while previous generations saved up to purchase a house and relied more on available pensions than their company 401k, Millennials and those younger tend to rent houses or apartments and opt to travel more. The average working person today starts investing in their 401k at the age of 22. Tuition and student loan debts are also at all-time highs. Changes like this make it even more vital to diligently handle personal finances, both as an individual and as a couple.
You must be open about how both of you act with and respond to money matters. If you have a previous credit history, it needs to be laid out in the open. If you have student debt, credit card debt, or even big financial plans and dreams for the future, it needs to be shared. It will impact future decisions and moves and communicating up front will make the two of you more prepared to work on it together.
Talking in detail about finances in a dating relationship must be handled with care. Typically, it’s best practice to go into detail once it’s been proven to be a committed relationship, whatever that may look like for you. Once you get to the point where conversations must be had about paying joint expenses, here are some talking points to get you started.
Income, Expenses, and Debt
Before you being, knowing what you have already is important. What do each of you make annually? How stable are your jobs? Is there a promotion and pay increase on the horizon, or did COVID cause a pay cut? Do one or both of you own a house, a car, or other assets? Are you invested in stocks or a 401k? Figure out your combined total annual income. That will give us a place to start.
After combining your income, do the same with your expenses. The average age of a new car buyer today is 53. People younger than that tend to buy used to save money. They also tend to rent their homes. Do you rent or own your major belongings? How much do you spend on clothes, shows, and eating out each month?
If one or both of you have debt hanging around, do you have a plan to get rid of it? What are you paying in interest? What loans do you have and how long are their terms? How much are you paying on them each month? Do you have any credit cards with outstanding balances?
Debt can impact many of the future decisions you will make. From getting a car to a mortgage, debt management needs to be the main priority.
Once assets, expenses, and debts have been established, we can look at other factors that may impact them going forward.
Life Events and Future Goals
Talking kids can be daunting for some couples, especially early on in the relationship. However, it is a critical conversation to have with your significant other. Especially today, having and raising children is not a cut and dry as it used to be.
In the past, it was the expectation that once a woman had children, she would quit whatever job she may have had to stay home and raise the kids. With more women in the workforce today than ever, it’s critical that you talk to each other about goals in life. If children and careers are things both of you want, can you afford daycare? Who will pick them up and drop them off? Does a job change need to happen to free up time for one of you? If one spouse decides to pause their career, how will you budget on one income?
Having children and a career – or transitioning to one salary, if you decide to stay home - is extremely doable with the right planning. If you’re at a place in life where these decisions are in your near future, Education First has a Wealth Management Team that can help you have these conversations, crunch the numbers, and come up with a plan that works for both of you.
You and your spouse should also consider your dreams and lifestyle for the future. Do you want to own a business someday? How often do you want to travel and where do you want to go? Does one of you want to go back to school? What does your dream home look like and how much might it cost? Do you want to be able to pay your kids’ way through college or pay for their weddings? Would you like to retire early? Believe it or not, those are expenses you should talk about and plan for now.
Accounts and Budgeting
It’s extremely likely that if your parents are still together, they have a joint bank account. 28% of Millennial married couples are opting to keep their accounts separate – more than double the number of Gen X and Baby Boomers. If you opt to keep separate accounts, will you be able to access one another’s money? Whose account will rent or the car note come from? How often will you check in on each other’s spending, if at all? (Hint: we really recommend that you do.)
If you do go the more traditional route and merge your accounts, whose bank will you use? How many accounts will you have? How will you budget for “fun” money? What is your plan if one of you over-spends? How much will you save?
Something that has held up against the test of time is the Rule of Thirds. In theory, if you apply the rule of thirds to your income and expenditure you should be able to live comfortably. The rule of thirds is a method of managing your finance whereby you categorize your spending into three distinct sectors.
The sectors are outgoings, disposable income, and savings. Outgoings are the ones you totaled up previously, including your bills, rent, and general living costs. Disposable income is the money you have for luxuries and enjoying life, including money kept aside for holidays and days out.
Finally, savings are the amount put away for a rainy day. This can be placed in instant access savings accounts, long-term accounts, or invested in some way.
Budgeting for the year and keeping track of it together each month is a good way to ensure financial pitfalls can be avoided. Meet regularly – preferably just before pay day – to discuss where you stand, any major expenses that may be coming, and how you’ll handle them when they do.
The Bottom Line: Communicate
Then and now, the foundation of any strong relationship is built on communication. Without it, no trust can be built, emotionally or financially. Make sure you have open communication dialogue about money regularly, to ensure a long-lasting relationship.
If you need help with your family finances, Education First should be your first stop. We are an expert credit union serving the Beaumont area. Contact us here and let us help to get your finances in order, to give your relationship the solid foundation it deserves.