Whether you seek a partner or a spouse with whom you want to live, it’s important to know that finances will play a big role in your relationship. Money problems is one of the leading causes of divorce or breakups.
It’s extremely important that you and your partner are on the same page financially. So it goes without saying that the two of you need to talk about money management. It’s vital that you agree on the most important financial aspects. If you don’t, I can almost guarantee that you two will butt heads.
To increase the likelihood of your partnership or marriage succeeding, you and your partner/spouse need to determine several financial responsibilities.
Have the Money Talk
When you become serious about a potential partner, that is the time to have the money talk. Choosing to skip it can cause you tremendous problems in the long run. To avoid financial and emotional torment, find out your potential partner’s outlook on money.
Some important questions to ask:
- Do you have debt? What do you think about it?
- Do you have money saved?
- What are you doing to ensure a comfortable retirement?
Don’t be afraid to ask these questions. If your potential partner is also serious about you, then they should want to have this conversation as well.
The most important question is, ‘Are you a saver or a spender?’ You’ll find that out by asking if he/she has debt and savings. Any person with debt and no savings is a spender. People who are paying off their debts and increasing their savings account monthly are savers.
What you’re trying to determine is if your financial values align.
A saver and a spender in a relationship will, almost, always butt heads. If you’re a saver and your potential partner is a spender, that doesn’t mean your relationship won’t be successful. It’s important that you agree on who’s going to manage the finances.
Managing Finances
Give a spender a credit card without limits and unlimited access to a bank account and watch him/her deplete your savings.
The first important step is to choose a financial manager. You can determine that by assessing which partner has less debt and more savings, preferably investments as well.
The one with more money and less debt will be the financial manager.
The next important step is for both of you to work on a cash flow statement. I call it that, instead of a budget, because you need actual figures and not forecasts.
As the financial manager, you need to set limits on expenses and eliminate unnecessary expenses.
Your partner, who is a spender, needs to understand that your knowledge and discipline have gotten you to a better financial standing than him/her. That means your decision should be final. It also means that you should compromise and hear your partner. But the final decision lies with you.
In every society, there is only one leader, the person with whom the buck stops. The financial manager in a relationship/marriage makes the final call. You’ll listen to your partner’s suggestions and consider them, but you know what’s best for the two of you financially.
Don’t be too strict, but you also don’t want to give the spender all the freedom that they want. It could hurt you financially.
What if you’re debt-free and the person you’re considering committing to isn’t, should you still pursue them? Most people have had some sort of debt at one stage in their lives. I have. I don’t think it’s a valid reason to write somebody off. What’s important is that they understand the dangers of debt and are making a concerted effort to pay it off.
Conflict
If your partner, who is a spender, does not accept that you make the final financial decisions, you have two choices: accept their proposal, which could be detrimental to your finances, or realise that they may not be for you.
By limiting or eliminating certain expenses, you begin to condition your partner to become a saver. Two savers usually are on a more harmonious path than a spender and a saver. That’s what you need to work towards.
Even after you agree on a cash flow statement, your spending partner may step over the line. Remind your partner of the agreement and that it’s important to stick to it. Without hard boundaries, a cash flow statement is irrelevant.
Compiling a Cash Flow Statement
Write down all of your expenses as a couple. Have separate line items for electricity and water, instead of grouping them under utilities. You need to see exactly how much you’re spending on each expense.
After agreeing on each expense, determine what percentage of each expense will be funded by the two of you. If you’re going to share debt, that needs to be considered as well.
Your total expenses and debt payments should not be more than 90% of the combined income that you’re contributing to the cash flow statement. That means you have 10% left over after settling all expenses/debts, which should be put into savings.
After paying off one debt, you should allocate that previous instalment to savings. Throughout the months and years, the savings percentage of the cash flow statement should be higher than 10%. The main reason that it may not increase is that you and your partner are not sticking to the agreed-upon expenses.
Caveats
Before choosing a life-long partner/spouse, make sure that the primary reason they’re not with you is because of money. A person whose primary goal is to be with you for financial gain is more likely to leave you if you run into financial problems or you decide to no longer splurge money on them than a person who’s with you for love.
The person you divorce is not the same person you marry. Your spouse will be unrecognisable to you during a divorce when you have to divide your assets.
Remember that it’s not always necessary for the two of you to be legally married for your partner to have a right to your assets. Co-habitation laws vary according to region, but they may grant your ex-partner the right to ownership.
Avoiding talking about money in the beginning could lead to major problems later on in your relationship/marriage. It’s not a taboo topic to discuss with the person you’re considering having a future. It’s just like asking them what their religion is or if they plan to have children.
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