An honest discussion about money is essential before you pack your bags and move in with your partner, experts say.
A couple’s financial life begins once they become common-law partners, whether or not they have a joint bank account, said Steve Bridge, a financial planner with Money Coaches Canada. The time it takes to reach that status varies by province.
“It is not necessary to combine accounts 100% to have a successful financial partnership, but 100% openness is,” he said.
Mr Bridge and his fiancée do not yet have a joint account, but he said: “We know what each other earns, what they have saved, and we also know that we are working towards common goals.”
There’s no right way to handle finances in a relationship other than to keep communication open. But conversations about money are a step in any relationship – it should happen before big decisions are made, like getting married or moving in together, said Bruce Sellery, president and CEO of Credit Canada.
“There is a conversation you need to have if you are considering marriage […] or if you’re thinking about having kids,” Sellery said. Conversations can range from planning vacations on first dates to discussing bills and sharing costs when moving in together, he added.
Each couple defines their own way of handling money, Sellery said.
“Some marriages work with a 50-50 split, some work with income-based spending,” he said. While the most common way is to pool finances and spend collectively, some couples stick to a system where money is separated into three categories: “yours, mine and ours,” Sellery added.
To find the approach that works best, Sellery said a couple should choose the method based on their values, and also tailor it to temperaments such as spending tendencies and consistency. If the decision is too difficult, he suggests consulting a personal finance advisor for a neutral opinion.
Couples who successfully manage their finances usually have a predetermined system, said Jason Heath, a certified financial planner at Objective Financial Partners.
“The ones that tend to have difficulties are the ones where no one really knows who is paying or who owes what to whom, and that can cause difficulties.”
More effective pooling
Mr Heath said the majority of his clients choose to pool their finances.
“There is a definite advantage to completely combining your finances, because it is then a true union of all things. […] This allows you to manage your finances more efficiently.”
For example, if one partner has debt and the other has savings, it will be much easier to pay off the debt, he said, since the couple shares bills and other daily expenses. In some cases, the couple may decide to pay off the debt together as a household.
This can get tricky if one partner didn’t disclose their debt early on in the relationship.
“If you approach (the relationship) with your eyes wide open and say, ‘Hey, here’s my financial situation,’ and you still decide that you want to be together and consolidate your finances, it’s a lot easier. […] than doing it on your wedding day,” Mr. Heath said.
But before jumping into a long-term relationship, Steve Bridge warns against signals like secrets or controlling behavior.
“If there’s a secret, (ask) ‘Why the secret,'” Bridge said. “If you’re hesitant to ask, maybe there’s not 100 percent trust or safety in that other person. That’s a sign of a bigger problem.”
Gambling, shopping, drug abuse and lying can also harm the financial stability of a relationship and it is important to discover this as early as possible, he added.
One telltale sign could be hidden in a partner’s credit score, Sellery said.
“You should share that credit score because it will shed light on some things about their past that they may not have told you,” he said.
Mr. Bridge suggests creating a joint budget or cash flow to track where the money is going.
“If a couple can do that, it’s an absolutely fantastic start to bringing (their finances) together,” he said. “Then, in an ideal world, I would encourage people to set up a joint account.”
He says it’s also important to talk about debt, income, savings, investments, real estate and family situations when deciding whether to pool money together — and it doesn’t have to be an overnight decision.
Regular financial appointments or meetings at regular intervals, such as weekly or monthly, can help build good habits and make talking about money easier over time.
“It really comes down to communication,” Sellery concluded.