Couples fight more about money than anything else. You and your partner could be totally compatible in every way, but sparks can still fly when it comes to money. Getting on the same page financially can be tough. To make things easier, talk about a few important topics when the relationship starts to get serious.
Down the road, you might be surprised to learn your partner's financial habits or history. Knowing this information in advance can help you prepare for possible disagreements. It might not prevent fights completely, but you'll at least know what you're getting into. Plus, being prepared is a must for reaching your financial goals. Here are a few questions to ask to get the conversation going.
What's The Debt Situation?
Unless you take out a loan together, or you cosign something for your partner, you're not responsible for any debt acquired before the relationship until you're married. The bottom line is that, before you're married, your partner's individual debt, unless your name is attached to it, is their own. But that doesn't mean it won't affect your relationship. It could affect your budget, savings goals, and even some milestones you might share. When things start to get serious, and you have your first money discussion, ask about each other's debt. Try to answer the following questions:
- What is the debt repayment plan, and how long will it take to become debt-free?
- If you marry, will the debt remain separate, or will it become a joint responsibility?
- How will individual debt affect your joint expenses or budget?
- Will the debt keep you from making large purchases together? Taking trips? Starting a family?
Some of these questions might seem a bit much if you've just started to get serious in your relationship. Maybe you live together, but you're not ready to think about starting a family yet. You should definitely go at your own pace, but be sure to address these questions as the relationship progresses.
What's Your Credit Score?
Credit history is similar to debt. It remains individual — when you marry, your credit histories are not combined. But one partner's poor credit history can affect things like buying a house, getting a car loan, and even renting an apartment together. You should know where each other's credit stands so you can make optimal financial decisions.
Review each other's credit score and report. And here's what you should glean from the info, according to CreditCards.com:
"If one person has a horrible credit score and the other has pristine credit, you probably want to keep those separate and work with the other person to correct the things they're challenged with," adds Glass. The best scenario, however, is to take the time to build up each other's credit before you tie your financial future together, experts advise.
It's a general guideline, but they add that the "good credit" spouse should probably take out the mortgage and other lines of credit. You want the person with the more favourable credit score and history to apply. Otherwise, one partner's poor credit could mean you get higher interest rates. If marriage is on your horizon, some financial experts even suggest postponing it until both partners' credit is healthy.
Of course, if there are any foreclosures, bankruptcies or unpaid debts, you definitely want to disclose that information too. These can have a big impact on financial events down the road.
How Much Do You Make and Spend?
When things get serious, it generally means you start sharing parts of your life together. That's why it's incredibly important to know your partner's money habits when the relationship progresses. You'll probably starting sharing bills, rent, restaurant tabs, holidays and all sorts of other shared expenses. Both of your money habits could affect these joint expenses. You should know what's coming in (how much they make) and what's going out (how much they spend).
If your income or money habits are very different, it helps to know this sooner rather than later. This way, you can prepare for any issues. Sit down together and share the following:
- Spending habits: Review recent purchases and expenses. Get a feel for how you both spend. How is your spending similar? How does it differ? How might those similarities and differences affect your goals and your relationship?
- Income: How much do you each have coming in? How will this affect your budget? If you decide to get married, how will it affect your taxes?
- Money "philosophies": Learn how you both view money. Do you spend every chance you get? Is your partner overly obsessed with saving? Learning how your views differ can help you foresee any potential issues down the road.
- Budgeting habits: Does your partner avoid budgeting? Then maybe you should manage joint expenses. Maybe you both budget, you just budget differently. Knowing these habits can help you devise a plan that works well for each of your habits.
- Savings goals: If you or your partner has any individual savings goals, you'll want to learn about those. Like debt, you may have to budget around them.
These bullet points will also help you decide whether to keep finances separate or combine them. For example, let's say your habits are pretty different. You might want to explore the idea of keeping a joint account for shared expenses and separate accounts for individual expenses.
Even if you're not yet at the point in your relationship where you're considering combining finances, this conversation is necessary. It will be easier to get on the same page later, whatever you decide.
What are Your Long-Term Savings Goals?
Depending on where you're at in your relationship, you might discuss any shared long-term goals that require money. For example:
- Taking trips
- Moving to a new city
- Buying a home
- Starting a family
- Saving for retirement
You'll want to share your individual long-term financial goals too. For example:
- Going back to school
- Switching careers
- Paying off debt, as mentioned
Knowing both your individual and shared savings goals can help you build a better budget together. You also know what to expect down the road.
Retirement probably seems like a hefty topic that's far off into the future. But if you're thinking about being with your partner for the long haul, you'll want to know their retirement plans. Maybe they haven't started saving, and you'll have to work with them to play catch-up. Maybe neither of you have started saving, and you need to figure out how to start together. The point is that your goals — or lack of goals — could affect each other if you're sharing a future together. Know what to expect so you can both plan accordingly.
Money isn't a terribly romantic topic. But it's better to talk about finances now than fight about them later. While slightly boring, these conversations help you prepare for your future possibilities together. Learn about each other's habits now, and it will be easier to get on the same page down the road.