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The most memorable life lessons for me, are usually from my own screw ups. And most of them have something to do with money and marriage.
When it comes to combining finances, the biggest mistakes I’ve made, aren’t from things I’ve done, but things I didn’t do.
Moving in together is a big transition. You’re deciding whose couch to keep, and whose bedroom set is in better condition.
What’ll we do with my Jamaican wood carvings and your stuffed animal collection?
Compromising on most things is fairly easy. It’s a one-time decision.
But combining finances isn’t a one-and-done deal. It’s a living, breathing, decades long decision making process that encompasses trust, honesty, and compromise all rolled into one.
But there’s a way to make it easier.
Are You Money Compatible? – Getting Intimate Takes Time
When my future fiancee and I were considering moving in together, we went to dinner one night to talk about it. It seemed like the right thing to do.
Living together was a huge step, and we didn’t want to approach it lightly. We wanted to discuss what we envisioned for us as a couple, for each other, and make sure we were on the same page.
What I didn’t see then, but do now, is that sitting down over stuffed flounder and a bottle of wine isn’t enough time to figure out whether you’re “money compatible”.
Wouldn’t it be nice if it were as simple as doing the door test?
Maybe the door test showed that she was considerate, but unfortunately it’s just the tip of the iceberg. Understanding someone’s life experiences, and how they influence his/her feelings about money, takes time.
Time to understand things like:
- What are their values, and their non-negotiables in life?
- How do they feel about things like borrowing vs saving?
- What does he/she consider “must haves” in their life?
- Are they future focused, or more of a live now, pay later personality?
And most of all, does this jive with how you feel?
Understanding someone’s core values comes with living through shared experiences, and that takes time.
What seems like an innocuous argument over whether to buy a new couch, could be an indicator of bigger things. Things like control issues, and whether you’re able to talk, compromise, and come away happy, or feel like you’ve just been steamrolled.
Till Debt Do Us Part – Making it Work
Getting to know someone and realizing you share similar visions for the future is an exciting time. But combining finances to build the life you want can be rocky without working out a plan you can each live with.
Dave Ramsey likes to say, “financial success is only 20% money knowledge, and 80% behavior“.
So what can you do week in, and week out to make sure that 80% happens?
Use a System You Both Know and Understand
Whether it’s a paper notebook, a spreadsheet or an app, pick a way to track expenses you both understand and can use.
It may be easier initially, to combine finances and work out categories on paper. But once you’re zeroing in on a budget, and you’ve opened accounts for short-term and long-term savings, it might be easier to view everything in one window.
We’ve used the free app, Personal Capital for awhile because we can see everything from our net worth to this week’s budget. The advantage of using it isn’t to move money around, in fact you can’t do that.
But it’s one of the only apps that enables you to see a snapshot of your entire financial life on one screen. Everything from checking to saving, any investments like a 401k or a Roth, combined with your debt. The ability to monitor your net worth any time you want is really valuable.
Here’s a rundown on 5 other free money apps you might want to check out.
Have Regular Money Dates
Suddenly combining finances can get hairy quickly unless you’re each familiar with your combined income, what bills you pay, and what, if anything, is left over. Just keep it simple.
- Pick a time when you’ll have 20-30 minutes without any distractions.
- Bring your budget, your planner, and maybe even some wine and snacks.
- Review whether your budget is on target, where you can cut back, or maybe celebrate a win.
Sitting down regularly is especially important if one person usually handles bill paying. That can be a stressful task if you’re living close to the edge, or you’re paying off a lot of debt. It’ll ensure you’re working together.
Here are 4 areas you can start with:
1. Talk about Goals
One of the great things about having a partner is the accountability you have. Not to call each other out for mistakes, but to keep your mutual goals alive.
Are you both planning to move or buy a house in 3 years? Take a trip to Europe, or maybe complete a degree? Your weekly meetings are a perfect time to talk about any setbacks, or celebrate your progress.
And keeping your long-term goals alive will make a lot of the short-term decisions – like purchases, a lot easier.
2. Discuss Your Budget
It’s fine for one person to assume the chore of writing bills, and maybe even updating the monthly budget. But you’ve gotta talk about it. Regularly.
I can say from experience, that when one person assumes most of the responsibility for paying the bills, and the other is either disinterested or kept in the dark, it’ll lead to tension and resentment.
Even with the most fine-tuned budget, irregular costs will come up from week to week, so it’s helpful to strategize together.
But the bottom line is, if you share similar goals, you should each have a say in how you’re achieving them from week to week.
3. Talk About Saving
It’s easy to focus on the big bills, and let savings slide down the list of priorities. But actually, saving should be the first “expense” on your budget. Adopting the habit of paying yourself first, without fail, will help in two ways:
- It’s one of the fastest way to achieve financial independence.
- Having some available cash will help you to avoid charging unexpected costs on a credit card.
Maybe you can’t dedicate 10%-20% to savings yet, but sitting down regularly is a good time to strategize. You might discuss where your money leaks are, how to budget weekly paychecks, what your next purchase will be, or how much you can each spend without any explanations. Or you can kick around some ideas to bring in more income.
4. Put Safeguards into Your Budget
It’s understandable to spend several months working out a budget, whether you’re single or combining finances with a partner. It’s a relief to finally gather all your expenses and begin to feel more control.
But there are two kinds of expenses that you’ll also want to plan for, because they can each sabotage months of effort:
- Emergencies – Expenses that need to be paid for right away. Things like a car repair, a broken clothes washer, or emergency travel. Emergencies have a major impact on your life and need immediate attention.
- Irregular Expenses – These are non-emergencies, but nonetheless, they need to be paid for, and they’re probably not in your budget. Things like a quarterly water bill, a child’s school or sports expense, or a gift. They’re also things you’d like to pay for, but don’t have the cash, like a home improvement or a vacation.
Both of these types of expenses are the biggest stumbling block in getting your budget to work. We all have them, and they’ll keep coming.
A budget will work it it’s used for predictable expenses. The ones you plan for. Since emergencies and irregular expenses make your budget unpredictable, they need be paid for separately.
Here’s how we were able to setup an automated emergency fund, and how we setup a few sinking funds that accumulate money for irregular expenses. They’re both simple to setup, and are a huge help in getting your expenses under control.
Things May Never be Perfect – But Compromise is Key
Money has always been one of the biggest sources of arguments in relationships, but people tend to deal with the issue in the same way that caused the friction in the first place.
By not talking about it until it’s a problem.
At that point, it’s hard to have a relaxed discussion.
Robert Orben said, “If you can laugh together, you can work together.” So maybe the door test is an amusing way to see that someone’s enthusiastic about coming together.
But coming together is just a beginning. Staying together, and remaining happy, committed – and successful, means finding ways to work together that you’re both happy with.
Having common goals will help, but when life throws it’s curve balls at us, we’ll need to adjust and refine our goals. And the only way to do that, is through regular, open communication.
How do you combine finances? Have you hit upon a system, or certain habits that works well for you?