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The Key to Successfully Merging Your Finances with a Partner, According to Experts
There is no right way to manage finances in a relationship other than maintaining open communication.
Entering the next phase of a relationship can be exciting, but when it comes to the financial side of your life, experts suggest having an honest conversation about money before you pack up and move in with your partner.
A couple’s financial life begins when they become a common-law couple, whether or not they have a joint bank account, said Steve Bridge, a consulting-only financial planner with Money Coaches Canada. The time it takes to achieve common-law status varies by province.
“Joining accounts isn’t 100 percent necessary to have a successful financial partnership, but 100 percent openness is,” he said.
Bridge and his fiancée don’t have a joint account yet, but he said, “We know what the other person earns, what they’ve saved, and we also know that we’re working toward common goals.”
There’s no one right way to manage finances in a relationship other than keeping communication open. But money conversations are a progression in any relationship — while they shouldn’t happen on the first date, they also shouldn’t wait until big decisions are made, like tying the knot or moving in together, said Bruce Sellery, CEO of Credit Canada.
“There’s a conversation you need to have if you’re thinking about getting married… (or) if you’re thinking about having kids,” Sellery said. Conversations can progress from planning vacations together during the dating stages to talking about bills and splitting costs when moving in together, he added.
Every couple has their own way of dealing with money, Sellery said.
“Some marriages work where there’s a 50-50 split, some marriages work where expenses are connected to income,” he said. While the most common way is to pool finances and spend collectively, some couples stick with a ‘yours, mine and ours’ system, Sellery added.
To find the approach that works best, Sellery said a couple should choose a method based on their values, which also accommodates temperaments like spending and consistency. If it’s too difficult to decide, he suggested consulting a personal financial advisor or life coach for a neutral take.
Couples who successfully manage their finances usually have a predetermined system in place, said Jason Heath, a certified financial planner and advisor at Objective Financial Partners.
“The ones that tend to struggle are the ones where no one is sure who is paying or who owes who, and that can lead to challenges.”
Heath said most of his clients choose to pool their finances.
“There is a definite benefit to combining your finances completely because then it’s a true union of all things,” Health said. “It allows you to manage your finances more efficiently.”
For example, if one partner has debt and the other has savings, it will be much easier to pay off the debt, he said, since the couple will share living expenses and other day-to-day expenses. In some cases, the couple may decide to pay off the debt together as a family.
But it can get complicated if one partner doesn’t disclose the debt early in the relationship to find a common solution, Heath added.
“If you go into it with your eyes wide open and think, ‘Hey, this is my financial situation,’ and then you decide you want to stay together and combine your finances, it’s a lot easier … than telling someone everything on your wedding day,” Heath said.
But before you jump into a long-term relationship, Bridge warns of red flags, such as secrecy or controlling behavior.
“If there’s secrecy — (ask) ‘Why the secrecy,'” Bridge said. “If you’re hesitant to ask, maybe there’s not 100 percent trust or safety around that other person — that’s a sign of a bigger problem.”
Gambling, shopping or substance addictions and lying can also harm the financial stability of a relationship, and it’s important to figure this out as soon as possible, he added.
One of the telltale signs could be hidden in a partner’s credit score, Sellery said.
“You should share that credit score because it will shed some light on some things about their past that they may not have told you,” he said.
While merging your finances may seem like a big change, Bridge suggested taking a smaller step and creating a joint budget or cash flow to track where your money is going.
“If a couple can do that, it’s an absolutely fantastic start to a union,” he said. “So in an ideal world, I would have people create a joint account — their primary account or parent account.”
Bridge said it’s also important to talk about debt, income, savings, investments, real estate and family situations when making decisions about whether to save money — and it doesn’t have to be an overnight decision.
Regular money meetings or gatherings at regular intervals, such as weekly or monthly, can help form good habits and make talking about money easier over time.
“It really comes down to communication,” Sellery said.
This report by The Canadian Press was first published July 30, 2024.
Ritika Dubey, Canadian Press