This first of a series of articles focuses on financial matters for couples planning to move in together.

Whether you have had roommates before or come from living alone or with family, living together with a person with whom you have a relationship is a big step. And, while it is fun to build a home together, you must consider some financial aspects in advance to ensure that you do not run into snags or strains later.

Being open about your financial situations

It is important for both people in a relationship to understand each other’s financial habits and obligations. If one or both partners have credit issues, eventually, this will affect the household. Being honest may be difficult but will help you manage better overall –both your expenses and your expectations-. It is a clever idea to share credit reports with each other and talk openly about any financial issues that you have. It will also help you create a realistic and pragmatic budget.

The budget

You can start with a simple budget of your income and expenses before you look at housing. Look at your combined monthly income. Then, write down your individual expenses (phone contracts, subscriptions, student loans, debt, etc.), plus your allocations to savings and any investments. Add it all up and calculate how much you will need for shared household expenses: utilities, food, rent, insurance, and so forth. This will help you determine where you stand and what you can afford together. Later on, and if you wish to draft a full household budget, we recommend you try our blog post on creating a

full budget.

To share or not to share accounts

This is one of the toughest decisions to make, and one to make with your eyes wide open. If you or your partner has had financial difficulties that you currently deal with, you have two options:

• To maintain separate accounts, and one of you gives the other money every month for the shared finances –food, rent, utilities-.
• To join accounts and manage it from a centralized perspective.

As a compromise, you could maintain separate accounts while you settle into a shared financial system. Then, if you find that managing everything as a single household works for you both, you could consider a joint account.

Using a 50/30/20 plan

An effective way to start a joint household plan is using the 50/30/20 breakdown of after-tax funds:

• Fifty percent goes to musts. This includes rent, utilities, food, insurance, and everyone’s minimum monthly debt payments.
• Thirty percent allocated to wants. This includes things that you do in your free time, hobbies, concerts, and going out.
• Leave twenty percent to being smart. Being smart allocates money to paying down extra on your debt, and to saving for the future.

  

While this may seem overly simplistic, it helps people acquire healthier financial habits and understand the importance of frugality. Note: frugality does not mean saving, saving, saving. If you want to learn more about this, check out our blog Eight financial habits everyone should master by age 30.

How to split expenses

While the most obvious way to split expenses is 50/50, it may not be the most realistic, or the fairest. Example: one of you makes a significant amount more than the other and you split everything halfway. At the end of the month, one of you has a significant amount of disposable money to save, the other has no money.

If your respective incomes are similar, a halfway split is the solution. However, when the situations are decidedly uneven, we would suggest that each one contributes proportionately to the household expenses. You do that using each person’s after-tax income in proportion to the household income. Then, as each person’s situation changes, you can redraft the contributions to home expenses accordingly.

Rainy day fund

We recommend that you agree upfront to saving up a rainy-day fund equivalent to one month combined income that you save for household emergencies: things break, and people often must travel suddenly for a family emergency. Life happens, and it is nice to agree to have guilt-free money available.

Goals

Once you have the more difficult aspects out of the way, it is time to talk about your goals. Financial goals are a good method for understanding where you are in life, what you want now and, in the future, and how you will go about accomplishing it.

For example: one of you may want to live life to its fullest and does not plan to buy a home. Maybe the other one agrees; or they would like to buy a home because they are a sound investment for resale later. It is better to talk about these things and find a middle ground where to start your lives together.

Keep talking

Are you ready to start house or apartment-hunting? If so, we at OAS FCU wish you the best in your new life together and would like to leave you with one tiny bit of sage wisdom: Open communication is the key to lasting relationships. That includes talking about financial matters.