- Moving in with a significant other isn't just a big emotional step — it's also a big financial one.
- Four common mistakes couples make at this stage of life are not having a relationship agreement, not creating a spending plan, not communicating about finances on a regular basis, and not setting financial goals together.
Living with a romantic partner is a big step emotionally, legally, and financially. No matter if you just moved in together, got engaged, or married, money is a leading cause of disagreement for couples.
In this post, I'll help you set important expectations and avoid common financial mistakes that could trip up your relationship.
1. Not having a relationship agreement
While it may not seem very romantic, having a formal relationship or cohabitation agreement can be the best way to make sure you and your partner are on the same page.
Couples who plan to marry can create a prenuptial agreement, or prenup for short. Many couples who don't plan to get married opt for a nonup. It's a similar document that explains how your assets and debts will be handled if your union ends.
But prenups and nonups can include a variety of issues like who will pay what bills and be responsible for certain household chores. They should also outline what will happen to your home, leases, pets, and financial accounts if you break up, or if one of you needs to relocate for work, or gets sick or dies.
Having clarity on these "what if" questions and potential future financial and legal issues is especially important when you're not married and you buy a home together or plan to have kids together. Unmarried couples don't get as many legal protections as married couples. So, it's even more important to have key issues in writing, including a simple will and estate plan, when you don't plan to tie the knot.
If you don't take the time to discuss the day-to-day issues of living together, it's a missed opportunity to make sure moving in together is a good idea in the first place and to set up your relationship for success. And if you do end up parting ways, having an upfront agreement allows you to break up in a thoughtful and caring way.
Having formal agreements may seem like a lot of work right now, but they can avoid a lot of stress in the future. You can create a relationship agreement from scratch or use a template at a DIY legal site like LegalZoom or Rocket Lawyer.
2. Not creating a spending plan
How you're going to share expenses, such as housing, utilities, insurance, and food, can be tricky. It might seem like splitting all costs down the middle is the best option. But dividing what you pay by percentages may be fairer if one person earns significantly less than the other.
Couples also need to consider if they should merge their personal finances by creating joint accounts, such as checking, savings, and credit cards. Mingling money is a big step because it has far-reaching legal consequences and affects both of your credit scores.
When you're in a committed relationship, all financial decisions should be discussed and shared equally. It doesn't matter if only one person works, or if one person earns much more than the other. You should decide as a couple how to budget, how much to save, how to prioritize debt, whether to buy a home, and so on.
Uniting everything makes managing money easier because you have fewer accounts and administrative tasks to handle. Plus, working as a team is the best way to overcome challenges and to accomplish your shared long-term financial goals.
But the downside to tying a financial knot with someone is that untwisting it can be a real nightmare if the relationship ends. Joint mortgages, credit cards, and bank accounts can be very difficult to separate even with a formal court-ordered divorce decree.
Another problem is that some couples may never agree on certain issues, like how to create a spending plan or how much debt they should carry. Maybe one person is a die-hard saver and the other is a wild-eyed spender. If you're certain that your financial philosophies will never jive, it may be wise to split up your finances—or at least a portion of them.
One option is to have joint checking and savings accounts but to also have individual accounts. It's a "yours, mine, and ours" approach where one or both people contribute to the family pool, but each maintains a separate account to manage themselves, without the other person looking over their shoulder.
3. Not communicating about finances on a regular basis
Communicating regularly and honestly about money is the best way to improve your financial health and stay on the right path. You might set a stress-free time to talk on a weekly or monthly basis about following a spending plan, paying bills and debts, and your financial goals. Maybe it's while you take a walk or go out for a nice dinner together.
If one partner brings financial troubles to a relationship, he or she may want to hide their money mess. This can be true especially if the other person is doing great, financially speaking. After all, who wants to be judged?
If you're the one with a money mess, remember that a serious relationship or marriage is a true partnership. If you're holding back information about income or debts, that's the same as lying.
When you're in a committed relationship, I recommend putting every detail about your finances on the table. Your significant other should know how much you earn, the taxes you pay, the balance of every debt, bank account, and investment that's in your name.
If talking about money with your partner seems too difficult, or it causes you to end up in an argument, you may need to speak with a couples counselor for help. Financial troubles only get worse over time if you don't tackle them as a team.
4. Not setting financial goals together
While talking about money and potential problems is certainly the first step couples should take when moving in together, you should also set financial goals together. For instance, if one dreams about retiring early to sail around the world and the other wants to work as long as possible and settle in the mountains, you'll need to reconcile those differences.
If you have major differences in how you handle money, don't ever think that by moving in together or getting married that you can change the other person. Someone who is reckless with their finances or doesn't care about paying bills on time isn't likely to change their tune very quickly, if ever.
Many people need help creating a financial plan, so don't hesitate to use a professional, such as a fee-only financial advisor. Check out sites like the National Association of Personal Financial Advisors at NAPFA.org or the Certified Financial Planner Board at CFP.netto find one.
When you're a committed couple, it's smart to strategize and organize your life in unison. You can accomplish much more together than you ever could apart.
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