Sharing the gain and the pain: managing finances as a couple
Money is one of those things that can spark off arguments in any relationship. So it makes sense to try and organise your finances in a way that’s likely to lead to the least discord.
How you do this is a tricky question, as it will depend first and foremost on the nature of the relationship.
For those who have been together for years and are living together a closer degree of financial integration may make more sense than it would do if they’d just started seeing each other!
Let’s assume for the moment that you are sufficiently settled together, that it makes sense to think about sharing some of the ins and outs of household finances.
Here’s six key steps and tips to consider:
1. Be careful with credit ratings
Living with or marrying someone who has a bad credit score will not affect yours – but opening a joint account or a mortgage with them will, the Money Advice Service warns. If one partner has a poor credit rating, it may be worth taking steps to improve it before jointly applying for products or putting accounts in both names. See our tips on boosting your credit score here.
2. How much do you want to integrate?
Between the two extremes of keeping your financial affairs totally separate and sharing absolutely everything through joint accounts, there is often a happy medium to suit both partners. For instance, you are probably sharing fixed monthly expenses like mortgage or rent and household bills. You need to discuss whether to put these accounts into both names. And separately whether you want to set up a joint account to service them.
3. Be clear which account is for what
Many couples decide that a joint account makes sense for some things: you just have to be clear with each other what those things are. Housing costs (rent or mortgage payments) and household bills (including gas and electricity, water, broadband, home and car insurance and council tax) are a good starting point.
It should be relatively straightforward to calculate what the average monthly outgoing is for those. But what about grocery shopping, and nights out together? Some might think it makes sense to use the joint account for these; others might decide it muddies the waters too much.
The more aligned your spending habits, the more smoothly spending from a joint account is likely to go. Many couples decide that nothing that isn’t fixed bills should come from the joint account and find another way to share costs like groceries. That’s fine. Those who decide to get a joint credit card should be very clear on what it’s ok to use it for (e.g. holidays and emergency household repairs).
4. Decide if you want to share equally and do the math
In most relationships between two workers, the salaries will differ. Do you in any case want to split outgoings 50-50? Can the less-well-paid partner afford that? Or if the salaries are balanced 60-40, do you want to share your fixed monthly outgoings 60-40? Be careful that what you are paying into a joint account covers the outgoings, so you don’t get caught in the red. It can be a good idea to add on a buffer of something like £50 a month each to avoid this, and then you might build up a handy surplus too. Also check that the dates of your various outgoings tally with when your salaries are paid, and when you pay your shares into the joint account. It might be possible to change some bill payment dates if necessary.
5. What about saving?
Joint finances are not all about budgeting and spending – it could be that you want to save together too. If so, be clear what the savings are for. If you don’t have a specific goal, then agree on what sort of emergencies, if any, the savings can be used for. Or set a timeline - i.e., “we’ll put a hundred pounds a month each into this account for a year and then decide what we want to do with it”.
6. Choose the right products
The current account market is increasingly competitive and it should be possible to find one that pays decent interest on credit balances, and comes with other perks. Just make sure you don’t have to have your salary paid directly into it (unless you want to!). Even if not, many have a minimum amount that must be paid in each month: check that what you will both be paying in exceeds this. If you are going to save, decide whether you just want to build up a surplus in the joint account, which might be tempting if it pays good interest – but also it might be tempting to dip into it for treats. A less accessible savings account will help to resist such temptation, although you might find you get a better rate with a regular monthly savings account.