Money can't buy you love, but it sure can put your warm and fuzzy feelings to the test. Nearly a third of American couples report that money is a major stressor in their relationship, and money arguments are the strongest predictor of divorce, regardless of income. Whether you have a newfound love or a longtime partner, I guarantee that creating a harmonious approach to saving, spending and investing will help keep your relationship strong.
Talk the Talk
The challenge is to broach the subject of finances in a constructive, supportive way.
No shame, no blame. You both most come to the conversation with an intent to seek common ground. Nobody is one-hundred-percent right or wrong.
Listen. Really listen. In my opinion, that's a true manifestation of love. I am not suggesting you must ultimately agree with what your partner is saying, but if you don't learn how and why he or she thinks (and spends) a certain way, you can't expect to understand each other.
Respect the emotions. No matter how much wealth we all have, we all have money baggage. When I was a financial planner, figuring out asset allocation strategies and nailing down insurance was the easy part. The tough part was getting to the emotional underpinning of my clients' approach to money. Yet only when they faced those emotional truths could they start to build lasting security. Appreciate the emotional factors driving your partner, and vow to bring an empathetic, not judgmental, tone to your discussions.
New Love? Know the Score
For years I've been advising new couples to share their FICO credit scores early on -- a suggestion often met with groans and eye rolls at how utterly unromantic I am. But credit scores provide valuable insights into how a relationship might play out. New research has found that the higher your score, the likelier you are to form a committed union.
Of course, a bad credit score doesn't spell doom. It should, however, spark conversation. Does your love have a complete disregard for responsible spending? Or did he or she have a financial crisis due to a layoff, illness or even a steep learning curve (about, say, how student loan repayment works after college)? A person who has learned from past struggles and is working to regain solid financial footing is to be admired.
My Rule of Three
I'm a big believer in a three-part system for controlling your money in a way that benefits both of you. Here's how it works:
Mine: I wish all of us enduring love. But in the event that you and your partner someday go your separate ways, having your own financial identity is crucial. You should have your own checking account and at least one credit card in your name only.
Yours: Same goes for your significant other.
Ours: You also need a joint checking account, a joint savings account and a joint credit card or two. Pay the month-to-month household expenses from the joint checking account, and put all household spending on the joint card. Once those bills are paid each month, and assuming all your savings and investing accounts have been funded through automatic deposits, divide any money left over and send it to your individual checking accounts. Those separate accounts are how you keep the peace. You must respect that each of you is free to spend (or save) your individual stash however you please.
Just Moving In Together?
If you're not ready for a lifelong union, here's how to split household costs.
Step 1: Add up your combined monthly take-home pay.
Step 2: Calculate each person's monthly take-home pay as a percentage of the combined total.
Step 3: The percentages in step 2 are the respective percentages of household costs each of you should cover.
Example: You make $5,000 a month. Your partner makes $3,500. Your combined income is $8,500. Your share of that is 59 percent ($5,000 ÷ $8,500), so you should cover about 60 percent of the shared household expenses.