Do you know that one of the top five reasons for divorce, according to research in the US, is financial problems? When there are tensions in a couple’s finances, it affects many other areas of their relationship. That’s why these steps to improve your finances as a couple is important.
Financial intimacy for couples remains a very important topic. It’s important to take your household finances seriously, figure out common ground and form a big picture.
In reality, a bad financial decision or habit by one party can cause problems for the house. For instance, in most developed countries where credit cards are common, you would want to know what your partner’s credit record and credit score is, you also want to know about your partner’s understanding of finances, what are their dreams, retirement plan, financial burdens, etc. this conversation is best had before marriage.
Below we share ways couples can build a strong and united front in their finances and, in turn, reduce avoidable stress in their marriage; it’s important to note that for couples, everything starts with having open communication.
Couples and Money: Improve your finances in 6 steps
When we hear about many financial issues in marriages, we wonder why it’s the case. One foundational cause is differences in the financial stories of each partner in a marriage.
How you grew up and your understanding of money while growing up go a long way in shaping your view on finances, money personality, your money habits, and also your financial health
Let’s imagine a couple, Jake and Ashlene are about to get married. Jake grew up in a poor home where they didn’t have much money and had a lot of debt. Money to Jake, growing up, was a taboo topic, and when it came to money, all he saw from his parents were money fights. This made Jake financially illiterate. Jake grows up and eventually starts making money, and because of how much he lived in want and poverty, he decides to get all the things he never had growing up, which leads him to incur more debt.
Ashlene, on the other hand, grew up in a financially capable and stable home where money talks were open and associated with having a good time and financial literacy was high. As a result, Ashlene learned how to manage money early and maintained good financial habits while growing up.
From Jake and Ashlene’s story, we can see how two people with two entirely different financial stories bring different financial habits to a marriage union. Jake and Ashley will have some problems if they don’t sort out and establish a good plan.
It’s important to understand your partner’s history and habits to improve your finances as a couple.
Discussing your personal finances can be very uncomfortable, especially if you have made bad financial decisions in the past or have financial secrets you have kept from your partner.
Still, this conversation must be made and requires complete transparency from both parties to improve your finances.
You can start by sharing your credit score, credit reports, and any assets and liability or side hustle you may have. You would also want to review spending habits and monthly household expenses.
As mentioned above, the financial story of each party can give more perspective on each partner’s understanding and habit towards finances and also help them and the other partner understand the decisions that were taken in the past.
It is common for a partner to discover bad habits in their partner’s history during these conversations. However, this is very manageable so long as both parties are on the same page on how they prefer to engage the issue and manage their household finances from now on.
This is also a foundational step to improving your finances because you can’t move forward without determining your current situation
Now that all the records of both parties are on the table, it’s time to get a firm grip on your finances as a couple, and the first thing to do is to access your current situation as a couple.
It's important to understand your partner's history and habits to improve your finances as a couple.
First, you would want to write out all the incomes of both parties to determine your household income. You can get your gross and net income through your employment contract. Also, write down all side hustle incomes or property income that either of you may have.
Next, note down monthly expenses that you have, like rent, mortgage, food and groceries, clothing, home supplies, entertainment, Tithing, donations, home and vehicle maintenance, car payments, and so on.
Your expenses mustn’t exceed your income.
Alongside all incomes, state all assets both parties own, including houses, cars, retirement accounts, jewellery, etc. Make sure to review and adjust, if necessary, the insurance you have on these assets,
Next, write down all debts you may have incurred beforehand and their interest rates. Student loans, bank loans, auto debts, credit cards, and more should be written down also.
The next step is calculating your net worth, which is total assets minus total debt. The aim is to continuously increase the gap between what you own and what you owe. The more you own assets and the less you owe debt, the higher your net worth is.
Once this is done, you both will have very clear and valuable information on the state of your finances and can now make a plan that suits you both based on the current situation of your finances.
Although you stated most of your expenses in the step above, I am certain that a couple of expenses will be left out and affect your total expenses. This is where tracking comes in.
Take a notebook and write down all your expenses in a month or two; you can do this with mobile apps like Mint and YNAB. I love using spreadsheets to track my expenses. After two months of tracking your finances, you might be amazed at how you spend money and get insights into what you could cut down on. Then, analyze your collected data and cut down expenses where necessary.
Now use this new information to make a budget; this is the best way to get ahead of your finances. We have already established that each partner can have different spending habits. Hence, it is very important to keep track of the expenses and make a budget.
Now that we have sorted out the finances and have a good idea and understanding of where the finances stand, we will start financial planning on how to grow wealth together as a couple and aim for financial independence.
A few building blocks can help improve your finances and give you a good chance to build the life you want.
Establishing a household finance mindset is one of the most important things to do as a couple, and this means having the mindset that we have one income which is a combination of all income sources and from all parties, and expenses are done from that.
How you and your partner decide to operate these depends on what works best for you. There are three ways to do this
Other types of accounts to set up as a couple.
Besides savings and spending accounts, we suggest other accounts that help secure your finances below.
Emergency fund: Just as the name implies, this account is set aside for emergencies like medical emergencies, unexpected layoff from work, and other emergencies.
Investment account: Having an account set aside for investment for retirement is very beneficial and can prove to be very profitable in the long run. Investing helps you put your money to work and build wealth.
Savings plan for children: Be it for college or otherwise, setting apart a savings account for the children is another account to support them when they are of age.
Consider Protection: This involves life insurance, health insurance, keeping financial documents safe, estate planning, etc.
As you begin to get a handle on your joint finances, it’s time to consider and set short and long term common goals.
The idea here is to bring our different financial goals together, which reduces money issues, increases financial stability, and creates an exciting financial future.
For example, do you plan to acquire a home together, pay off credit card debt, travel to another country, or have a business plan you have always wanted to start? All these dreams are valid and worth discussing.
With this point, we choose which goals are viable as short or long-term goals and place them according to priority. Usually, setting a goal would entail both partners working hand in hand to meet it. Consider cutting down on expenses to set aside extra money to save.
You can also consider side hustles that can add extra cash to your income, giving you a better chance to meet your goal. Finally, while saving for your next trip or home, always prioritize paying off debt.
Now that the financial plans are set, you both would have to select one person who would primarily be in charge of the books; I’m guessing that the above conversation would reveal who should be put in this position.
The other partner should also be informed from time to time about the finances. Set quarterly or monthly dates to have honest discussions about the family finances and make adjustments where needed.
Further Reading
