MoneyMagpie Editor and financial expert Vicky warns readers about the pitfalls of merging finances if you don’t ask these vital questions first
Merging bank accounts and finances with a significant other is a big step in commitment.
But many of us will do it sooner than we expected to because of practicality, such as because of needing to pay rent and bills together. However, linking your finances without thorough discussion first can put you at risk. Here’s what you need to ask each other before you join any financial accounts.
Do you have any debt?
This is a tough topic for some people to talk about, but it’s important that you do so. Most people will have faced debt at some point, and it shouldn’t be as taboo as it still is to talk about. Some debt, like student loan debt, seems to be easier to discuss than others, like credit card debt.
Most people fall into debt because of life circumstances or a lack of financial education, rather than recklessness. Having conversations about types of debt, how they got into it, and what they are doing to get out of it will help you understand if you’re ready to link finances.
Linking your finances with someone in significant debt or with a trend of defaulting on repayments can negatively impact your credit score. If they have got into debt because they have poor financial management, this could also mean they spend your hard-earned money without much thought, too. However, someone in debt for understandable reasons, such as a period of unemployment, is less of a risk when it comes to linking finances.
Have you had debt problems in the past?
Your partner might say they don’t have any debt – but did they in the past? A previous debt repayment programme, or bankruptcy might have cleared their debts but still have them in a precarious financial position. For example, bankruptcy can significantly impact your ability to access lines of credit or get a mortgage. If your partner doesn’t reveal previous debt, it can mean they are hiding some financial habits from you – or that a future joint application could impact your own ability to access credit or get a mortgage, too.
Can you write an accurate budget?
This question will help you understand how much attention they pay to their income and expenses. Most people will underestimate how much money they spend in a month – and this can spiral over time into debt or, at the least, living a more restricted life than they actually need to.
Someone who can accurately write a monthly budget has good oversight and understanding of their finances, and they will be able to easily acknowledge areas of spending that could be improved if, for example, you’ve decided to save money towards a joint goal.
Has anyone linked to you had financial problems?
If your partner has been previously married or in long-term relationships, it’s important to understand what financial links they might have to others. For example, if a former partner is still named on a joint mortgage and they default on a repayment, it impacts you, too. You also need to understand their financial commitments to previous partners, such as for child support, as this will impact your joint finances.
How will we split expenses?
When one person in a relationship earns more, there is a big question to ask when you start merging finances. Do you split everything 50/50 or do you split things proportionately according to income? There is no right answer here. Some prefer to split bills 50/50 and the higher earner will spend more on the treats and luxuries for the couple to enjoy. Others prefer to be proportional so that you each contribute, for example, 30% of your earnings to a joint account that is then spent on your joint expenses.
You also need to agree what counts as joint expenditure and what should be your own. Just rent and utilities? Or groceries, too? Do you need a separate joint savings account for things like holidays and gifts? If you had a pet prior to your relationship, are you solely responsible for pet expenses now? There are different expectations in each couple, so make sure you’re clear before you join finances.
Be wary of joining your finances fully with both salaries paid into the same joint account. This isn’t just in case one of you drains the account and runs off – but also for practical reasons. If there is a fraud flag on your account, for example, it’s frozen during the investigation. Having separate accounts lets you access cash while that happens.
What are your spending habits?
Some people are savers and some people prefer to live for the moment. Neither is the ‘right’ way (although everybody should be saving something aside each month for a safety net!). If one person in a couple is a super saver and the other likes to splurge, this could cause big arguments.
Find a middle ground and make sure you understand the other person’s expectations about spending. Some people prefer to have a separate ‘fun money’ account that’s theirs to spend as they wish, which helps avoid arguments. However, if you’re paying into your fun money account and in the same month saying you’re unable to contribute to monthly bills, there’s something disconnected in your financial expectations as a couple.
What is your five-year plan?
Finally, before you join finances, make sure you both have aligned future plans. If one of you wants to throw in the towel on a well-paid job to travel the world, while the other wants to buy your first home together, there’s an issue. The same goes for retirement planning – whatever your age.
Do you both set aside an amount each month for investment and pensions? Or are you hoping for a future inheritance to ensure a comfortable retirement? Being able to plan ahead together and understanding each other’s attitudes to long-term financial planning is really important if you see a future together.
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