Often when couples get married, they decide to merge their finances together too. And it doesn’t always go as magically as the wedding did. Money is one of those crucial elements that really require both individuals to be on the same page. Tying the financial knot together can be a pretty scary step to take, but it can also be very necessary and beneficial for maintaining a strong, healthy and honest relationship.
If you’re ready to get started with forming a well structured financial plan together, read on as we provide 6 tips for combining finances in a relationship.
Before you combine finances, you should both be fully transparent with each other’s financial situation. This includes your current debts, any previous bankruptcies, RRSP contributions, annual income, homeownership, inheritance money, and investments. Knowing what each other holds or owes is important to help you both build a financial plan and future together.
Start a Budget
Talk to a financial advisor who can help you create a financial plan and budget. Often more times than not, when couples merge their finances they believe they have more money than they really do (thanks to a double income), which can quickly lead to spending well beyond your means. Having a plan that sets out your actual budget and what can you can afford on a weekly or monthly basis for various items, such as groceries and entertainment, can ensure that you don’t land in a massive hole of debt that can be hard to get out of.
Talk Over Purchases and Spending
As a couple, it’s important to really understand that you will now be making purchasing decisions that affect both parties. That is why you should talk about your financial game plan regarding how you will spend your money and what rule or boundaries should be in place. You don’t want to end up in any situation where miscommunication leads to overspending, with anger and aggravation thrown into the mix. Get on the same page right away, and always talk about big purchases and spending to avoid tension.
Create a Joint Account
Sharing your lives with one another will also include associated house payments, vehicle expenses, and possible childcare, among others. Having a joint account will make it much easier to pay for any of these items in the future. Additionally, if you and your spouse make different amounts of income, this should be included in a conversation where you determine what makes sense in regards to sharing your combined living expenses. But having a joint account where both parties contribute is an important step.
Add An Emergency Fund
There are many unforeseen instances that can happen, and being financially prepared can make a difference. Make sure you are both protected by creating an emergency fund to offset a job loss, health issue, or market downturn. Planning for backup money will ensure you don’t have to pull money from savings or enter into debt.
Talk to A Mortgage Advisor About Homeownership
When it comes to merging or purchasing a home, this can create questions about co-ownership. In Ontario, there are specific laws that outline how the value of any kind of property that was acquired by a spouse during the marriage is divided equally between both spouses. These set laws also state that any increase in the value of property owned by a spouse at the date of marriage must be shared. Talking to a mortgage advisor can help you understand your rights with homeownership and excluded properties like gifts or inheritances.
Combining finances in a relationship can be a difficult topic to discuss and figure out, but it’s a topic that is crucial for mastering to allow your relationship to thrive.