Navigating Money Together: A Guide to Financial Planning for Couples
Ready to take the next step in your relationship? Whether you’re moving in together, getting married, or simply looking to build a more secure future, an important part of that journey is learning to manage your finances as a team. Money can be a source of stress and conflict, but it doesn’t have to be.
In this guide, we’ll explore practical strategies, communication tips, and actionable advice to help you and your partner build a strong financial foundation and achieve your shared dreams.
Why Financial Planning is Essential for Couples
Money disagreements and financial stress can strain a relationship. Financial planning is not just about budgeting and saving; it is about understanding each other’s values, setting joint goals, and working together to build a secure financial future.
- Establish Financial Goals
It’s important to determine financial goals and work toward a shared vision that allows them to create a solid financial plan.
- Avoiding Conflict
By setting clear expectations from the beginning, it’s possible to reduce stress and minimize financial friction.
- Building Trust and Transparency
By being open and honest with each other about your incomes, debts, and spending habits, financial planning can strengthen a relationship.
- Planning for the Future
With a well-thought-out plan, couples can set aside money for their goals, plan for life’s unknowns, and make sure they can meet their financial plans.
Benefits of Joint Bank Accounts
There are several advantages of a joint bank account, especially when it comes to managing household finances and creating a budget. It simplifies paying bills since all the money is in one place, making it easy to track expenses and ensure payments are made on time. This also eliminates the need for one partner to pay back the other, streamlining the financial responsibilities of the household.
Joint bank accounts can also strengthen your sense of partnership, especially for unmarried couples. By merging their money, couples move from an “mine” to an “ours” mindset, creating a feeling of teamwork and mutual security. This shared financial foundation can make it easier to work toward common goals, such as saving for a home or retirement.
On the other hand, joint bank accounts aren’t the best option for all couples. According to a Bankrate study, the percentage of married couples with separate bank accounts is 62%. This figure includes totally separate accounts and a combination of joint and separate accounts.
For some couples, maintaining separate bank accounts provides a greater sense of financial independence, which can be appealing for those who prefer to manage their money without consulting a partner. This arrangement also protects each person’s finances, particularly if one partner has significant debt from before the relationship.
Lastly, separate accounts can simplify things if the relationship ends. Since there are no joint bank accounts to divide, both partners can walk away with their own money, avoiding the often complex process of splitting up a joint account. This can make a separation financially cleaner and less stressful.
Should You Merge Your Finances?
This is always a debated topic, and there is a lot of information about whether or not merging finances is a good idea. There are a lot of strategies that couples can follow when deciding whether to combine finances or not.
There are pros and cons for both joint bank accounts and keeping separate accounts. It’s also important to investigate the rules and regulations of your state to see what happens in the event of a divorce or separation.
How to Merge Finances
It’s not as difficult as it might seem. Start with a complete list of the accounts and credit cards held by each partner. Take a look at the fees, rewards, and interest rates on each account and decide which accounts to move forward with.
From there, you’ll need to visit your credit union or other banking institution to have your spouse’s name added to the account. He or she can then set up direct deposit into the account or bill pay out of the account.
Keep all accounts open for a few months until you see that everything is running smoothly, at which time you can close out the unnecessary accounts.
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Common Questions Couples Ask
Having joint bank accounts is only one area where couples question how to merge finances. From debt to retirement, there are several other conversations couples need to have before they make a final decision.
How Can We Pay Down Debt?
No doubt, each partner will come into the marriage with some debt, whether it be student loans, credit card debt, or a mortgage on a home they already own. It’s how you work together to pay off this debt that makes the road ahead a smooth or bumpy one.
Start with any high-interest loans. If you can make an extra payment each month, the extra money can be applied to your principal. This, in turn, will lower your monthly payment in the following months. If you can afford it, consider using savings to pay off the loan.
Also, consider consolidating any loans you may have. If you or your spouse is already a homeowner with some equity in the home, consider using a home equity loan to consolidate your debt. The funds you borrow on a home equity loan can be used to pay off multiple debts, leaving you with a single low-interest loan.
Can We Build Retirement Savings as a Couple?
Retirement is another area where finances cannot be merged completely, as merging retirement plans isn’t typically an option. In fact, the keyword in IRA is “individual.” However, there is an option available that allows your income to build up an even bigger nest egg.
Spousal IRA rules allow a husband or wife to contribute to the other’s IRA. Spousal accounts provide the same benefits and follow the same rules as regular Traditional or Roth IRAs. To take advantage of this rule, you must file a joint tax return. An individual can contribute a maximum annual amount of $5,000 ($6,000 if you’re over the age of 50) to their IRA.
A spousal IRA is not a joint account, as the funds in the account become the property of the person who is the account holder. This is a great way for a stay-at-home parent or a spouse with a small income to have a retirement plan established in their name and assets secured for their future, and for a couple to establish a larger savings on just one income.
Can We Merge Credit Scores?
A commonly asked question is, when you get married, do your credit scores merge? Unfortunately, credit scores cannot be combined when you get married. Your credit score is yours and yours alone. So the bad news is changing your last name doesn’t make a history of bad credit disappear, but the good news is your spouse’s past credit problems won’t bring down your score.
But here’s where merging your finances after marriage can help your credit. For example, if your spouse doesn’t have much of a credit history, hasn’t taken out any loans, and doesn’t have a credit card, adding them to your credit card account can help build up their credit score. There are two ways to go about this:
- Authorized User
Ask your credit card company to add your spouse to your account as an authorized user and issue a second card. When bills are paid on time, your spouse also gets the credit score benefits. However, if things go astray, the original account owner is the one liable for all charges.
- Joint Account
You can also turn your credit card account into a joint account. With this option, the credit card company will want to review your spouse’s credit history before approving the joint account. With a joint account, both parties are responsible for the charges, no matter who made them.
Money conversations can be tough. Take control of your money as a team with Diamond. Contact our staff for tips on financial planning for couples.