Relationships are harder and more complicated than ever before, and not just socially but also financially. The old precedents about “who pays for what” and “how do we split the rent” no longer apply as younger generations forge new paths in developing their own finances and futures.
The primary goal of this discussion is to encourage you to discuss your financial plan with any current or future roommates, friends or significant others you may have. If you want to share your life, or your living space, with someone, you are going to need to make sure you can take the journey together financially. For the sake of brevity, we are going to approach this subject through the lens of a romantic relationship, but these same principles can apply to platonic relationships as well.
In her podcast Prosper Well with Nicole, Nicole Middendorf, an author, wealth adviser and certified divorce financial analyst, says that the first date probably isn’t the best time to approach the subject, but you should know more about the financial situation of someone that you are seriously considering sharing a future with. You should know about:
- employment history
- credit score
- financial history
- amount of savings
- amount of debt
- if they take financial risks
- if they have a retirement plan
- if they will be able to meet future financial needs
- if they're a spender or saver
- their beliefs or values regarding money
But be prepared to answer all of the same questions you are asking. Try to be tactful when you bring it up, too.
Once you have all of this information (and decide that you still like this person), you have a few options about how to proceed. They each come with some pros and cons, though.
Shelby Evans and André Kissel are getting married in October! Right now, they have separate accounts and split the expenses of their shared rental home. Because Shelby makes a significant amount more than André, they agreed that she would pay a larger proportion of the rent, but they both split the cost of utilities evenly.
PROS: As individuals, you both have checking, savings, retirement accounts, credit cards and debt.
"I like being able to buy random things without feeling guilty that it’s in a shared account,” says Shelby. “So when I want to buy food or makeup I don’t have to disclose that I took money out of our shared account.”
“I feel awkward about having that awkward conversation of having to ask if something is OK to purchase, which might make her feel guilty about telling me ‘no’ and might make me feel less financially secure about making less money,” says André.
“We don’t like spending each other’s money on selfish things,” they say.
CONS: However, separate accounts come with their own shortcomings. Separate accounts can lead to frustration and forgetfulness as you try to communicate how to split the costs. If your partner isn’t as financially responsible as you, the door may be open for you to pick up their financial burden if they can’t afford their share of the expenses, which may lead to resentment.
“I don’t like ‘Hey, this is what you owe me’ conversations,” says Shelby. “It’s not about getting the other person to pay it, it's more about being difficult about keeping up with everything.”
“The constant back and forth is frustrating, because I have some bills and she has others,” says André. "Venmo requests about repaying bills we’ve accidentally already paid are frustrating too.”
Once Shelby and André tie the knot, they plan on merging their accounts so that it's easier for them to make automatic payments. They plan on setting aside fun money for themselves, but because they are both very financially responsible and have a very healthy communication style, they don’t struggle to tell each other what they are buying anyway.
PROS: A shared account can make it easier to pay for shared expenses, like rent or a car, when you have all of your finances pooled together in one place. It also helps couples accomplish their shared goals, like starting a business or owning a home, more easily.
“I feel like if we had all of our money in one account, it’d be easier to figure out where the money is supposed to go,” says Shelby. “That’d be the easiest thing for paying bills for the things that we share, and we wouldn’t have to worry about making it ‘even.’”
CONS: However, without proper communication, it can be hard to keep track of expenses, Middendorf says. Resentment can also build up if one partner consistently spends more than the other. It can also be hard to keep expenses private.
“Another con with a joint account to consider would be surprises for birthdays,” says André. “If we had specifically just one shared account, I wouldn’t want something popping up that gave away surprises.”
“Leave it to André to find the romantic reason for it,” says Shelby.
BEST OF BOTH WORLDS.
The good news is that you do not have to choose one or the other. You can have it both ways! Many couples opt to share an account for shared expenses, but they also have separate accounts for their own expenses. You should still discuss things you plan on spending money on with your partner, but that’s more for the sake of having a higher level of trust with one another as you build your lives together.
“Because of the dramatic difference in our incomes, we think it would be good to have a separate bills account where we could pool our finances based on our incomes, but then have our own personal spending accounts so that we don’t have to have awkward conversations,” says André. “It isn’t awkward to ask each other because we are committed to each for life. It would just make it easier I think to have a separate account for bills."
Ultimately, it is important to have the conversation with your partner about what the healthiest course of action would be for your specific financial situation. Money should not be a taboo topic in a serious, potentially lifelong relationship. Communicate what your needs are, listen to what their needs are and try to come up with a solution that works the best for both of you. What works best for one couple might not work for another.
“There is not one single system or setup that works perfectly for everyone,” says Middendorf. “The most important thing is figuring out what works best and most efficiently for you as individuals and as a team.”
Communication is Key
Before they got their own place, Shelby and André used to have additional roommates. When it came time to pay rent, they would Venmo their portion of the expense to their roommate who had already had their bank linked to the landlord.
“Communication is key and if any complicated situations arise, try to remain cool-headed to try to avoid any unnecessary conflict,” says André. “ You should communicate your needs to not only your roommates but to your landlord.”
Shelby and André have been fortunate enough to have respectful roommates who have honored their portion of the rental agreement, but they also have heard horror stories that support the idea of having a written agreement for handling expenses, when roommates are … less than respectful.
THE MONEY TALK
Steps to follow during this important conversation
1. Sit down with your partner and discuss what your incomes are, as well as your debts. Be as transparent as possible in this discussion and try not to be judgmental.
2. Figure out what you want to keep separate and what you want to combine.
3. Determine what goals each of you want to accomplish financially and prioritize them together.
4. Determine the cost of other goals that you want to achieve, like starting a family.
5. Write down an agreement on how you want to approach your finances. You can amend this together at any time, but it's good to have it down in writing.
If your partner is unwilling to negotiate finances that best fit both of your needs, perhaps that is a sign that you need to reconsider your relationship. No one person should have complete authority over both partners’ money. It should be an equal partnership.