Essential Money Steps For Cohabiting

It’s a huge step in any relationship.

 

Moving in together is a big commitment to each other and to develop a life together. It’s often framed purely in romantic terms, as a natural development of two people falling in love. But actually, starting to cohabit is a very practical step and it should always be approached with a level head.

 

Living together is an upwardly mobile trend which shows no signs of slowing down, due to factors such as the rising cost of living, scarcity of accommodation in urban centres, and loosening of social standards.

 

A few decades ago, living together without being married was deemed unacceptable by many, nowadays most people would find it unacceptable not to live together before being married – and many do not have any desire for marriage anyway.

 

In the last Census, over 18 million unmarried couples were living together – a figure that continues to increase. That represented a 29% increase from 9 years earlier, and the trend is increasing all the time. Most of these couples are under the age of 35.

 

Forty percent of unmarried cohabiting couples have children, which can potentially make for an even more complicated financial scenario in the event of any relationship difficulties.

GoFundMe explains that the average cost of raising a child to age 17 is over $230,000, and that cost excludes college tuition. Fortunately, there are public and private programs that help people with the cost of child care. As an example, Head Start “promotes school readiness of children under 5 from low-income families through education, health, social, and other services.”

If you’ve had a financial setback, this article can help.

 

Be Practical

 

Although moving in with a partner can be a heady and intense time, it’s hugely important to also be practical – be honest – and take care of your monetary interests.

 

It may not especially pleasant to think of at a time of intense hopefulness, but the reality is that relationships can and do end for a variety of reasons, and you could find yourself in a very bad position if you haven’t taken some simple financial steps at the outset.

 

Moving in together means really knowing a person in a way that you can’t while living apart – and it may not all be rosy. Sure waking up together in the morning and spending cosy evenings in front of Netflix with no-one having to make the trek home is great –  but you may uncover a few domestic bad habits or a questionable taste in decor along the way.

 

Those things you can probably learn to live with, but when it comes to your money health and your financial position, there can easily be a few dealbreakers in there. You need to make sure that you’re on the same page before you sign that lease together.

 

Common Goals

 

Money in and of itself is not inherently good or bad.

 

It’s a tool, and it’s all about how you use it to get to where you want to be in life. Money is not so much about an amount as the value you that you can derive, and how it can enable you to achieve what you want in life.

 

This could be a huge range of things – from saving up to go backpacking around the world for a year, to purchasing and doing up your first house, to starting a family and paying for children’s education, or even setting up your own business.

 

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You will have a dream of what money can help you to do in life, and you need to be on the same page as your partner. As important as having compatible personalities or a physical attraction, is having a set of shared goals and aspirations.

 

Money is cited as the number one cause of fights and stress in a relationship – some are naturally financial risk-takers or like to spend, while others are cautious and prioritise saving. Have an open conversation about your longer-term life aims, as these will map across to the aims you have for your money.

 

When you both work together towards something, that’s when it feels like a true partnership.

 

Check Your Credit Scores

 

It’s human nature to shy away from financial details and difficult conversations about money in the early stages of a relationship, but by the time you come to move in together, you need to be able to talk openly and honestly about the financial facts.

 

Do you make these credit scoring mistakes?

 

It’s amazing how many cohabiting partners are in the dark about each other’s salaries, savings, credit scores and debts. This is information that needs to be out in the open now that your lives and your credit histories are about to become linked in a concrete way.

 

For renting together or if you decide to purchase a home, your financial backgrounds have a huge impact, so you must get the initial awkwardness out of the way and address it. Far better to have a clear discussion than to have awkward secrets emerge at a crucial moment – that way, if there are any problems, you can tackle them together.

 

You are supposed to be a team now! Assess the factors behind any problems that you find. Are they just random poor decisions, or the result of poor financial education? Or is this somehow who is willfully and consistently making bad money decisions?

 

If so, approach with caution and gauge whether they are mending their ways or not. It may make more sense to delay big joint financial decisions until they have managed to get their credit score in shape and pay down some debt than jumping into living with someone who has an irresponsible approach, major debts and no savings in case of an emergency.

 

Decide How to Manage Joint Finances

 

The gap between our expectations of how finances should operate jointly, and those that our partner may have can be considerable, so create a plan for how you are going to manage the household expenses together.

 

• Will you both open a joint account and merge everything?
• Will you keep separate bank accounts but set one up together and pay in a set amount to cover shared expenses like the rent, groceries and utility bills?
• Will you pay 50/50 or if one person earns more will you split proportionally, or will one person cover specific extra expenses?

 

If you don’t have equal incomes, things can quickly become complicated and unspoken assumptions can lead to hurt feelings and resentment. You want to avoid whoever earns less feeling stretched beyond what they can afford, or the higher earner feeling like they can’t treat themselves without feeling guilty.

 

Try to think about the situation holistically – relationships are about give and take, but this doesn’t always have to mean money. People contribute in different ways, but if one person’s expectations aren’t being met, that is where the trouble begins. Both people have to feel happy and confident in whatever solution you both agree.

Sign A Cohabitation Agreement

 

Couples who aren’t married still have far less legal rights when it comes to joint assets and finances than those who are married, so consider protecting yourself with a cohabitation agreement. Check with an attorney for more info.

 

Some people react strongly to the idea because it doesn’t seem romantic, but finances shouldn’t be subject to feelings which can change over time. Think of it as protection for yourself and your partner.

 

A cohabitation agreement is a living document which can change over time, but that provides a written plan for how financial responsibilities will be managed without a couple. You can plan to revisit it every so often to make sure that the terms still suit your circumstances and arrangements.

 

• Start by noting down all the household expenses – bills and other payments – their due dates and who is responsible for paying what.

 

• Make a note of your approach – whether each individual is responsible for certain payments, if they come out of a shared account or if one person reimburses the other.

 

This agreement becomes especially important if there are children involved, which generally means a period of low or no pay for one partner.

 

This can represent a fundamental change in financial arrangements which will need to be agreed by both partners. It’s not the most pleasant thing, but you can gain a lot from formalising in the agreement what happens in the event of a break-up. This could be the agreed division of shared assets such as property, furniture or vehicles, childcare costs and any joint accounts or debts such as a shared credit card. You may also include a log of big-ticket purchases that have been made jointly or by one or the other partner.

 

Keep The Discussion Going

The financial conversation isn’t something which just happens once – talking about money needs to be an ongoing process between a couple who live together. Talking about personal budgets and credit balance will never be sexy, but then neither is having huge fights about money.

 

So schedule time to sit down and have a regular review of money matters with your other half. It can be easy to skip this when both of you are busy, so create a shared Google calendar and pop in some time to talk about the household finances each month. These discussions don’t have to be long and onerous – it’s more about making them feel familiar and natural, so that talking about money isn’t some big taboo that feels unreasonable.

 

Having money conversations little and often can make the bigger discussions much easier to have. Optimise your finances together – get into the habit of shopping around for the best deals from utilities providers or using a portal like Morison Personal Insurance to make sure you get the best coverage for the lowest cost.

 

Think About A Way Out

They say begin with the end in sight, and this should also be true when it comes to your personal relationships.

 

Yes, perhaps you will be together for the rest of your lives. But admitting that may not happen doesn’t stop you aiming for that fairy tale, happy-ever-after finish. It just gives you some protection in case the outcome is different from what you hoped for.

 

In life these days, very few people stay in one relationship for the duration of their adult lives – not planning for this eventuality doesn’t mean you aren’t aiming for that, but it is an acknowledgement of reality. It is extremely important to retain some degree of financial independence to enable to you get out of any bad situation – that means having a separate amount of savings in a personal account, and perhaps having a credit card in your name only as well.

 

Not having any separate financial identity at all is asking for trouble should anything unforeseen go wrong – especially as the idea of having ‘common law’ rights is essentially a myth, and there is no required division of shared assets if you aren’t legally married.

 

You may want to consider keeping crucial accounts in your name only initially, to make it easier to cut ties if you find things aren’t working out after moving in together.

 

You are the only person who is best qualified to look out for and make decisions about your own money, no matter how much your partner loves you. Financial independence is a gift which many aren’t lucky enough to have, so hold it close and don’t ever consider giving it up or sleepwalking into arrangements which might take away your freedom of choice.

Best of luck!

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

(website and blog) https://www.accountingaccidentally.com/

(you tube channel) https://www.youtube.com/user/kenboydstl