Let’s face it – when it comes to relationships, finances are a big deal.
Last year a BMO study showed that 98% believe it is important to be on the same page financially as your partner. Add to the fact that money is the number one reason why couples get divorced, and you’ve got an elephant in the room – finances.
Establish an Emergency Fund
Creating and maintaining an emergency fund is listed as the topic newlyweds wished they would have discussed before getting married.
No matter what your financial situation is or whether you are living together or not, it’s important for couples to have an emergency fund in case something unexpected comes up – a major car repair, a funeral, unexpected family emergency or a work related accident. It is recommended to save 1-2 months’ pay in case of an emergency.
After buying a condo a few years ago it was less than a week before our car unexpectedly broke down and needed significant repairs. At the time I had just spent all our money on buying the condo but I wished I would have left some money in the bank in case something like this came up.
We managed to find the money but not having an emergency fund definitely added some unwanted stress.
Identify Your Financial Goals
Whether you are a saver who wishes to save as much money as possible to retire early and do the things you love or a spender who likes to live in the moment without saving much for the future – it is essential that you discuss long term and short term financial goals with your partner.
You’ll need to discuss in detail how much money you’d like to have saved for the next 3, 5, 10 and 20 years so that you can both feel at ease with your finances.
Having financial goals makes you both work together as a team and feel like you are contributing to something real – your financial future. It is ideal to have a discussion with your partner and write out what your financial goals are and what you would like to accomplish financially over the next 5-20 years (and how you will get there).
Have a Plan to Eliminate Debt
Like many young couples, most people graduate with some form of debt – car loans, student loans or lines of credit.
It is important to be open and honest with your partner about any debt that you may have.
When you get married you are taking on your partner’s debt – so it is best to air it all out for them to see. Along with this comes a plan to eliminate the debt.
Make sure you sit down with your partner and talk openly about the debt that you have and how you plan to eliminate it.
Having a plan to eliminate debt will reduce friction in the relationship, set clear goals to follow and make saving for larger purchases (new home, new car, etc) much easier.
Create a Monthly Budget
All of the financial tips above rely on one thing – creating a budget.
A monthly budget helps show what money is coming in and where the money is being spent. It doesn’t have to be fancy – a simple list of income and expenses is enough to start.
As time goes on you can add to the budget depending on your needs. The budget should include debt repayment (if any), living expenses and fixed costs. It should also incorporate your short term and long term financial goals.
For example, if your goal is to save for a trip to Mexico within one year you will need a clear idea of how much it will cost and then incorporate that into the monthly budget.
A starting point for your budget is your bank statements to see what money is coming in, what money is going out and exactly where it is being spent.
Conclusion: Experts say that the sooner a couple starts to talk openly about finances, the easier it becomes over time and the less chance of a breakup (or divorce) over finances. A budget should be realistic and include your short term and long term financial goals as well.
What other money tips do you have for young couples?