The Benefits of Talking About Money in a Relationship
Submitted by Holly Welles - Holly Welles is a freelance writer with a focus on finance and real estate. You can find more of her advice on her blog, The Estate Update, or keep up with her writing on Twitter.
(Contributions are guest opinions only and don’t reflect the opinion or endorsement of Money Fit by DRS, our staff, client or other interested parties.)
Open Communication Can Create Lasting Rewards
People in relationships quickly learn the benefits of open communication when it comes to sharing your life with another person. Whether you've discussed cohabiting, marriage, or simply becoming an exclusive "item," talking tough issues now saves you arguments later.
One of the biggest discussions you need to have now? The money talk. Even though the prospect probably excites you as much as a dental appointment, your partners' financial habits impact your life. They can even affect your credit and ability to buy a home or car in the future.
Here’s why it’s important to be open about money, and how you can achieve this in your own relationship.
Determine Whether Your Future Goals Mesh
When you're basking in the glow of new love, it's easy to overlook red flags, including those pointing to a disconnect over money matters. But the way you manage finances impacts every aspect of your life, including the romantic part.
For example, maybe your current goal involves paying down your student loans while saving a down payment for a house. You've wanted a farmhouse in the country for as long as you can remember.
Your partner, on the other hand, prefers urban life and the maintenance-free tenant lifestyle. They prefer to spend their money on current experiences like going to sporting events and concerts over saving and paying down debt.
This might not matter during the getting-to-know-you stage — in fact, you might adore the way they spontaneously buy tickets to Miami for the weekend. But when you begin planning your life together, your opposing values will create hassles.
Learn How They Manage Debt
The way your partner manages debt impacts your ability to secure a loan in the future should you choose to wed. Even if you do not get married, companies often consider total household income and expenses for certain types of loans.
You might feel embarrassed fessing up to your past debt, especially if financial hardship led you to borrow more than you can comfortably repay. Put your partners' feelings and needs first, however. They may not like hearing that you have credit card debt to worry about, but they'll like it even less when you apply jointly for a mortgage later and get rejected.
Protect Your Future Credit Rating
Do you believe you've found the one? If so, you need to initiate the money conversation to protect yourself well before you start picking out china patterns.
Your partners' credit rating impacts your own. If your spouse takes out a new credit card in a community property state, for example, you become joint and severally liable for the debt even if you never charged a single dime.
Establish Who Pays for What
If you decide to live together at any point, you need to split living expenses. But even if you aren't ready to move in together, revealing income disparities makes date night more equitable. It's hardly fair for your partner to expect you to treat them to a fancy date if you're barely earning enough to afford ramen during the week — especially if they're making six figures and driving a Benz.
If you do decide cohabitation makes sense, you can divide expenses in several ways.
The joint account method: All income gets deposited to one joint account that pays the bills. This method boosts transparency but can prove troublesome if one of you is a spendthrift and the other craves to save. This is also mostly used by long-term or married couples.
The yours-is-yours, mine-is-mine method: You keep everything separate and split the bills 50/50. This works well if you've suffered financial hardship due to past relationship woes but can lead to feelings of mistrust.
The income-based method: If you earn $36,000 a year and your partner earns six figures, this method can work. You each pay what you can realistically afford — for example, your spouse pays rent while you manage the electric bill.
The hybrid method: Of course, you can combine these methods. For example, you might open joint savings or checking to save for major items like a home or vacation, but maintain a separate account for your daily income and expenses.
Protect Your Partner from Financial Emergencies
If you share household bills or plan to, you need to ensure your partner won't suffer financial hardship in case of your death. You and your partner might do well to secure life insurance early in your relationship. Why? The older you grow, the more your premiums increase — locking in a lower rate while you're young and healthy makes sound financial sense.
Spare Yourself Future Fights
Finally, few couples enjoy arguing over anything, least of all money. However, money remains the number one cause of arguments in relationships and results in countless divorce actions each year. Divorce itself can prove messy — and expensive. Discussing the tough issue of finances upfront can help preserve the life of your relationship down the road.
Having the Money Talk Early Saves Major Headaches Later
Few people like discussing money matters. If you asked people if they'd rather talk money or undergo root canal surgery without anesthesia, many would probably opt for the knife. Yet talking about financial matters early in your relationship keeps it healthier over time and spares you unexpected economic crises.