Laura reviews money rules for couples who want to avoid common pitfalls and have a healthy financial life.
Laura reviews money rules for couples who want to avoid common pitfalls and have a healthy financial life.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
Have a money question? Send an email to money@quickanddirtytips.com or leave a voicemail at 302-365-0308.
Find Money Girl on Facebook and Twitter, or subscribe to the newsletter for more personal finance tips.
Money Girl is a part of Quick and Dirty Tips.
Links:
https://www.quickanddirtytips.com/
https://www.quickanddirtytips.com/money-girl-newsletter
https://www.facebook.com/MoneyGirlQDT
https://twitter.com/LauraAdams
If you're part of a couple, figuring out how to manage money together can be challenging. Often, couples move in together or get married, and discussing finances is an afterthought. Ongoing, open communication about money is critical for the success of your relationship and finances.
This post will review eight money rules that happy couples follow. While there's no one-size-fits-all approach, I'll share how my husband and I have managed money together for decades. You'll learn tips for sharing a healthy financial life and avoiding common pitfalls as a couple.
Welcome back! I appreciate you joining me for Money Girl episode 880! I'm Laura Adams, an award-winning author, female finance spokesperson, money speaker, founder of The Money Stack, a Substack newsletter, and host of Money Girl with over 43 million downloads.
If you're getting value from the free content we love creating, subscribe and consider submitting a 5-star rating or review on your podcast app of choice! If you have a question about money for the show, leave it on our voicemail at 302-364-0308. You can also send an email and sign up for the free Money Stack newsletter at LauraDAdams.com.
8 Money Rules for Happy Couples
Use the following eight rules to ensure you and your partner or spouse have as much financial success as possible.
1. Know your partner's financial history.
Building and maintaining trust is essential whether you're a new couple or considering taking your relationship to the next level. That should include knowing each other's financial histories, such as your income, debt, and credit.
The good news is that even if your partner has less-than-perfect credit, it doesn't hurt yours. However, qualifying for a joint credit account, such as a mortgage or car loan, could be more challenging.
Reviewing your credit reports using a free site like Credit Karma is an excellent place to start. Your reports list every credit account you've opened for the past ten years, even those you've paid off or closed.
Credit reports also show if you've paid accounts late or have legal issues, like a bankruptcy, lien, or account in collections, which significantly hurts your credit scores. However, credit reports don't show information like your income, bank balances, or retirement accounts.
2. Only merge money once your relationship is long-term.
In general, I recommend managing money as a couple. However, I only recommend it if you're 100% committed and plan on staying together long-term. That's because if you break up, unraveling your financial lives can be very complicated.
For example, if you have a joint bank account, both of you own it and can withdraw all the funds at any time. If you cosign loans and credit cards and your partner doesn't pay their fair share, the lender will hold you responsible. I'll talk more about the risks of sharing debt in a moment.
The bottom line is that if you're uncertain how long your relationship will last or have concerns about merging money with someone else, please don't do it!
3. Create financial goals together.
If you decide to merge money as a couple, defining and agreeing on your financial goals as a team is essential. For instance, what do you want to achieve over the next few years and the long term? You may want to plan a vacation, buy a home, start a family, or retire early.
Many couples have different money personalities, such as one being a good saver, always thinking about the future, and the other preferring to spend more, living in the moment. So, it's vital to acknowledge your financial tendencies and figure out how to meet somewhere in the middle so you're both happy.
REAL ALSO: 7 steps to achieve your financial goals faster
4. Agree on a spending plan.
]Once you identify your money goals, consider how you'll pay for them and handle expenses as a couple. My husband and I share everything, so our income goes into one bank account, and I pay all our bills from that account.
However, some couples may want to separate their incomes and certain expenses. In that case, splitting bills 50/50 may seem like a good strategy, but it may not work if one person earns much less.
In that case, you might divide household expenses by percentages to make things fairer. For example, if your partner earns 35% of the total household income and you make 65%, you could pay 65% of the household expenses.
However, if you go all in and merge your finances as a couple, like I do, you won't have to worry about dividing expenses. Paying bills from a joint account makes life much easier. However, as I mentioned, I only recommend merging money if you're in a 100% committed relationship.
5. Understand the risks of sharing debt.
When you cosign a credit account, such as a credit card, auto loan, or mortgage, you assume equal responsibility. That means if one of you fails to pay a joint debt on time, you're both legally responsible for the entire debt, not just half of it.
A cosigned account appears on both of your credit reports. That means you can both build credit if payments get made on time. Or, late payments will hurt both of your credit scores. So, if you cosign a credit account, be sure payments never fall through the cracks.
An increasing number of unmarried couples are buying homes. While that makes housing more affordable, it could hurt your financial future if things don't go as planned.
For instance, what happens if you disagree on managing the property or if one person has a financial hardship and wants to sell out? What if your romantic relationship turns sour and you break up? These kinds of issues need to be worked out before you commit to buying real estate as a couple.
You'll need to consider whether you have equal money for a home down payment and whether you want to be responsible for a mortgage. To get approved, each mortgage applicant must show ample income, job history, and credit scores.
If one partner has low income or poor credit, the other could be the sole mortgage applicant. Remember that you're not legally responsible for repayment unless your name is on a mortgage. Being named on a property deed indicates ownership, but that isn't the same as having financial responsibility for a mortgage.
If you buy a home and are not married, you have the following legal options for ownership:
Although married couples can own property as tenants in common or joint tenants, they have another option:
RELATED: Tips to minimize credit damage after a late payment
6. Know the spousal IRA rules.
If you're married and file taxes jointly, both spouses qualify for an IRA, even if one of you doesn't earn an income. A spousal IRA allows income from a working spouse to fund a non-working spouse's traditional or Roth IRA.
For 2024 and 2025, if both spouses are under 50 with a household income of at least $14,000, you can each contribute up to $7,000 to an IRA. If you're over 50, the maximum contribution increases to $8,000 each.
7. Communicate openly about money.
Even if your financial goals as a couple are aligned, a key to long-term success is communicating regularly. Unfortunately, many couples only talk about money after problems arise, which is the wrong approach.
Instead, set a time each month or quarter to chat about your budget, debt, income, and plans for the future. That will help you iron out any wrinkles in your relationship and ensure you're on track to achieve your goals. My advice is to be open-minded about changing strategies and setting new guidelines if the way you manage money as a couple isn't working.
8. Get help from a financial professional when needed.
Even if managing money is a breeze for you and your partner, it's often wise to get help from a financial pro, such as a financial advisor, retirement planner, tax accountant, estate planner, or real estate attorney.
If money is causing problems in your relationship that you can't work out on your own, speak with a therapist or couples counselor who can help you find solutions. Yes, professionals cost money; however, getting good advice usually pays off.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
Money Girl is a Quick and Dirty Tips podcast, and I want to thank our fantastic team!
Steve Riekeberg audio-engineers the show. Brannan Goetschius is our director of podcasts, Holly Hutchings is our digital operations specialist, Morgan Christianson is our advertising operations specialist, Davina Tomlin is our marketing and publicity associate, and Nathaniel Hoopes is our marketing contractor.