How to handle your finances for a healthy and happy relationship
If you’re in a long-term romantic relationship, whether you’re married or in a civil partnership, you probably have a fair number of joint outgoings and things you spend money on together.
It could be something boring like an electricity bill or your TV licence, or you might be saving up for a holiday, a wedding, or even a new home.
But when it comes to joint spending, what’s the best way to make it work for you both?
As with any part of a relationship, how you manage your combined finances will depend on your circumstances
Better together?
It’s estimated that one in six couples have entirely separate bank accounts as they value financial independence over pooling their cash, according to a study by AIG Life.
For those that choose to share their wealth, some opt to use a joint account for all transactions. Others transfer a portion of their wages into a communal pot while maintaining separate accounts for spending.
As with any part of a relationship, how you manage your combined finances will depend on your circumstances. There’s no right or wrong arrangement, so long as both of you are on the same page.
In the early days of a relationship, managing money with a partner may be more straightforward. But things can become complicated when children come into the mix, and one partner reduces their working hours to provide care.
Suddenly, the once-even playing field doesn’t seem so fair, as one of you suffers a pay cut to provide unpaid childcare.
What’s more, the change in dynamic can raise questions: Are you using a joint account to pay for any spending for your children? Is the parent who has cut their working hours the one who is dealing with the bills that come with kids? Who’s making up the shortfall in earnings?
However you work this out, it needs to be fair to both partners. The best way to do it is to be open and honest, and to keep talking about money – something most of us are not very good at doing.
Family finances can be a feminist issue
There are millions of unpaid carers in the UK, and the majority of these are women, according to Carers UK. Women are also most likely to be “sandwich” carers – looking after young children and elderly parents at the same time. The coronavirus pandemic only heightened this problem, with households across the UK locked down for months, and finances severely stretched in some cases.
In the first lockdown, 16% of women reduced their working hours for childcare or home schooling, compared with 9% of men, according to The Money Charity, while the TUC says 71% of mothers who applied for furlough following school closures had their requests turned down.
The emphasis in these examples is on women, but this isn’t always the case, and it will depend upon your relationship. In any situation, there are safeguards you can put in place to make sure you and your relationship are protected financially.
With any debt you have taken out in joint names, both of you are liable for paying it back
Be your own emergency fund
If you’re prepared to pool your cash, there are ways to protect yourself while you’re at it.
While a joint bank account can often seem like a no-brainer for paying shared bills, the risks might outweigh the advantages.
Living with someone or being married to them will not affect your credit rating alone, but as soon as you open a joint bank account together, you’ll be “financial associates”.
What’s more, the credit record of the other account holder will have an impact on your own score.
This means that if you or your partner applies for credit in the future, the lender will be able to check both of your credit records.
If your partner hasn’t repaid their debts on time or, worse, has been declared bankrupt, it may affect your ability to get credit.
What’s more, both of you are liable for paying back any debt you have – be it an overdraft on a joint current account, a mortgage, a car finance deal, or a loan – if taken out in joint names. This means that even if one person can’t (or doesn’t want to) make the repayments, the other will be responsible for clearing it in full.
A fair way to split your outgoings is to do it based on earnings.
Split bills on earnings
A fair way to split your outgoings is to do it based on earnings. First, add up everything you jointly spend money on. Then look at how much you and your partner earn. Calculate the percentage difference.
If you earn £30,000, for example, and your partner earns £60,000, they earn twice as much as you and therefore could possibly pay twice as much as you do for joint outgoings.
Make sure you also consider joint savings and debt payments and regularly review the arrangement.
It’s not fun at all, and not an especially exciting task to set in the diary. But it can save a lot of anger and resentment from building up.
3 things to do right now...
Draw up a will, if you don’t already have one. If you don’t already have a solicitor, visit The Law Society’s Find a Solicitor website and search under “Family and relationships” to get details of solicitors in your area. Or call 020 7320 5650.
Do you share a bank account with someone that you don’t trust or is bad with money? There are steps that you can take to break the financial link between you, known as a “financial disassociation”. All you need to do is ensure that the accounts in question are completely closed – and any debts paid – then request the credit agencies to have them removed from your credit report.
Sharing an account is a big step, so it could be a good idea to test the water before you go all the way and share everything. Try opening a joint account with no overdraft facility and both contribute a small amount each month. Use the money to share the responsibility for one or two household bills to see how you get on.
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Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.
