Creating a Financial Plan for Two
Creating a plan with your partner can be beneficial to your finances and your relationship. Money is an essential and emotional part of life. Combining finances can feel like a big step and it’s not one to take lightly (even if you’re getting married). By reading through our quick guide, you’ll learn some pros and cons of sharing accounts, creating a budget for two, when to make purchases together and helpful communication tips.
Pros and Cons of a Joint Account
A joint account is different than say, adding your partner to an existing bank account. A joint account can be established by two people who are married, domestic partners, roommates or whatever the relationship may be. Both people must provide SSN, birthdates, and a photo I.D. when opening the account. (Necessary information will vary by banking institution. Be sure to ask your banking representative what you’ll need.)
Pros and cons will undoubtedly pop up along the way, but these should get you thinking:
- PRO: Transparency between the couple
- PRO: Potential for better communication
- PRO: Secure; two pairs of eyes on the account
- CON: Could be troublesome if relationship ends
- CON: Entering account with unequal debts/assets
- CON: Could be difficult if it’s the only account you both have
To avoid uncomfortable or stressful conversations, discuss all pros and cons with your partner before creating a joint account and as soon as they arise afterwards.
Budgeting for Two
If you’ve followed our previous advice then you most likely have a monthly budget that helps keep you on track. When considering combining finances and accounts with your partner, you should adjust your budget accordingly.
Things to consider when adjusting a budget for two people:
- Are you splitting bills equally or by a percentage of your income?
- Who will be responsible for getting the bills paid every month?
- Will you tackle debts (ex. student loans) together or individually?
- What are your values, goals, and feelings around money?
- How will you react when your partner makes a purchase without discussing it?
When making a budget for more than one person, there are more factors to consider. Talk about money, income, debts, bills, etc. with your partner on a regular basis so that you’re always on the same page.
Short and Long-term Goals
Whether or not you’ve decided to create a joint account together, you should definitely talk about finances and define your short and long-term goals both together and as individuals.
Short-term goals may include paying off credit card debt or medical expenses, saving up for a new car, or looking for a new job that has a higher salary.
Long-term goals may include deciding how much and how often to set money aside for an emergency fund and savings account, how much to contribute to retirement accounts, saving for a mortgage down payment or starting a family.
Whatever your goals may be, make sure to discuss a plan of action together—even if you’re tackling some things on your own.
We don’t mean the occasional gas station candy bar or afternoon coffee. We’re talking about bigger purchases that will more greatly affect the both of you such as paying off a large debt, buying a car, or opening a line of credit.
If you’re thinking of making a purchase, consider this:
- Is the interest rate better together or separate?
- Are you approved for a loan by yourself?
- Can you be approved for more money if you apply together?
- Can you handle the monthly payment alone? Have you created a payment plan together?
- How will this purchase affect your budget and goals?
If one of you already has a lot of debt but needs to make a purchase, it might make sense to purchase together or as a co-signer or co-borrower. When combining finances with your partner, you want the both of you to succeed. However, your finances and money goals should be balanced so that one person doesn’t feel as though they’re doing all the heavy lifting.
Money is one of the most common reasons for disagreements within a relationship. To prevent misunderstandings from arising (they still may come up from time-to-time which is normal), always be willing to have open and honest discussions together. Talking about money is necessary if you both want to stay aligned financially.
Here are a few important tips to help with communication:
- Set clear expectations and boundaries
- Make decisions together
- Talk about debts and assets often
- Discuss spending and saving habits
- Describe your relationship with money to each other
- Have a plan for big life changes before they happen (buying a home, having kids, going back to school)
Talking about money can be difficult especially if you’ve never talked about it together before. To benefit your finance goals and your relationship, practice patience and understanding with each other and talk about money on a consistent basis.
Sources: Forbes, The Balance, MoneyUnder30