Your financial goals, budgets, savings, and debt can all be managed at your fingertips with DECU’s Digital Banking. But what happens when your single life changes and you combine economic households? Your finances undergo a transformation too, and this week the DECU Daily is here with tips on how to merge financial forces when two become one.
Communication and Compromise
In a landmark survey of more than a thousand people, the fine folks at Ramsey Solutions asked respondents to tell them about personal finance attitudes and behaviors. They sharpened their focus on how couples communicate and relate to each other over money.
Nearly half of the folks in the survey (47%) said their debts cause stress and anxiety, and 60% with debts say they worry about money every month. Among couples with consumer debt, fully 41% admit that arguments over money are their number one source of conflict, and for those who do fight about money, their average combined debt is a whopping $30,000.
Meanwhile, according to the survey, money isn’t even in the Top-5 Reasons to Argue for debt-free couples, and only 25% of debt-free respondents say they ever argue about money at all.
Survey results repeatedly demonstrate that a practical approach to resolving debts is the foundation to a successful financial union. Communication and compromise are crucial elements in building a life together.
Taking Steps Together
Couples have three distinct choices for their first financial decision:
- Combine all finances
- Separate all finances
- Hybrid spending
By combining their incomes into one big pot and sharing equally in the redistribution of finances towards fulfilling a common budget, couples who choose this option are committed to sharing equally, no matter who earns more.
Those who keep their accounts separate are more likely to divide bills and expenses equally and assign special payments to each partner. This can be a straight 50/50 arrangement, or it can take into account larger paychecks in light of larger expenses. When one partner already owns a home, the other may contribute a monthly rent payment to share in household budgeting.
The hybrid approach, which may include creating a joint account for shared expenses that each partner pitches into, is a much more practical solution for many folks. Contributions can be scaled proportionally, from each partner according to ability, and allocated towards shared expenses like bills or savings, according to needs.
Whichever of the three account options a couple may choose, they all lay a solid path to the next steps, including budget creation, paying down debts, and committing to clear savings goals.
Like so many other great financial beginnings, a couple seeking to combine their finances should start with a budget. Creating a budget together will provide a framework for avoiding conflict about finances.
DECU has online tutorials for members to help build financial capacity by creating budgets, investing in your future, and setting up a roadmap to financial strength. You can find the link here, and if you are a DECU member registration is free.
Suppose you’ve never worked with online software. In that case, DECU’s Money Manager, a personal financial management tool available to members in Digital Banking, lets you combine the overall picture from earnings to investments together with the day-to-day spending of your personal budget. DECU members can find more info here.
Once your combined budget is created, you should be able to see an approach to paying down what you owe, listing your debts from highest interest rate to lowest, and starting to chip away at them, one bill at a time.
Goals and Savings
With a clearer picture of what is coming in and what is going out, a couple armed with a new budget ought to be able to set some financial goals together. For some, it’s a down payment on a house. For others, it’s a dream vacation. Still more set the simple goal of paying down debt and improving personal credit.
By establishing a set of financial milestones, whether reducing debt, saving a set amount, or simply assigning bills to be paid automatically out of a joint account, couples get ahead in life by sticking to the basics.
Each partner invariably has personal expenses important to the individual but may strike the other as frivolous or unnecessary. Keep in mind that money spent on critical personal items should be a top priority for both, and each of you should have money to spend on things that matter most.
That said, it’s also important to compromise where you can, and accept that your new common dreams have a higher priority than some of your old, individual ones.
So get started on setting goals with the following checklist:
- Set SMART financial goals
- Determine your net income
- Add up your expenses
- Calculate your needed savings
- Divide your shared discretionary spending
Your budget should also include your long-term financial goals, including an emergency fund and retirement. In just a short time, the combined efficiencies of a shared economic household can jumpstart even the slowest savings accounts and open new financial horizons and possibilities for the beneficiaries.
Communicate and Compromise
According to the Ramsey Survey results, couples in healthy relationships communicate more, and a lack of communication about money is among the top reasons for future problems. You can use software to track your money, offer transparency to your partner, and increase your combined efficiency to make it easier to stay on top of spending.
However, suppose you have mutually agreed to combine your finances and agreed to work as a team on the budget. In that case, a secret bank account or an undeclared credit card could be seen as deceitful and unfaithful to your shared goals. Be open, be transparent, and most of all, be honest.
While DECU is not in the business of relationship advice, we do encourage time together in light of your finances. You are both on the same team, so commit to your shared goals and remember why you bothered to join together in the first place. Inexpensive, regular “money-dates” go a long way to foster communication, help achieve financial goals and even find new common dreams.