Talking about money can be a tough conversation. Most people do not want to talk about their personal finances, however agreeing how to manage your income with your partner is vital. Talking about money is key in a relationship particularly when circumstances and income can suddenly change. Here is why we think you should discuss your finances, how to approach it and why it will help you.
Talk about financial situations early on:
Waiting until you have a money-related issue means it’s too late, emotions are high, and rash decisions will likely be made. That’s why it is important to have these conversations early on. Talking openly about your financial expectations and financial situations helps set the stage for a healthy relationship with money.
If you and your partner don’t know what your respective money situations are, you’ll have a difficult time sorting out a plan for your financial future. The first thing you need to do is disclose where you each stand, financially. This initial conversation is where you go over the basics of your money situation such as how much you earn, how much you owe (student loans, credit cards, and other debt), and how much you spend and save (your budget).
Finances: What are your goals?
Another way to get the financial conversation going is to start creating money goals together. Talking about your money goals is where you and your partner will go in-depth about your plan and whether your financial goals are compatible. For example, it’s important to discuss if you have always dreamed about owning a home, or someday that vineyard just south of Marlborough.
If you are in the process of saving for a house you may be foregoing large expenses like holidays or paying to rent a place in the city etc. Its crucial to know whether your partner is working towards the same goal as you. On the other hand, imagine that your partner is the one with big money goals. Are you interested in these goals and willing to make changes/ sacrifices to your life to achieve them?
Combining your finances:
Combining your finances can be a big step, however there is a conversation to have before leaping into joint accounts. Some couples choose to set up a joint bank account as soon as they move in together and decide they are in it for the long haul. On the other hand others decide to keep their money separate for their entire lives.
If you don’t wish to join your bank accounts, the way around it is to have a joint budgeting sheet to ensure you are both working towards the same money goal. A joint spreadsheet is a tool to help you keep track of your money and where it is going. This is important when you are both saving for a house for example as it allows you to keep track of those savings.
The reality is that, even if you and your partner don’t combine finances their money situation is going to affect yours. For example, paying off debt is a major financial goal. If your partner has a ton of debt to pay down, you may have to decide that you are okay scrimping in certain spending areas to help them achieve that goal.
The insurance discussion:
When discussing money, the conversation around insurance as a part of your financial plan will always pop up. Certain life events make it easier to start a conversation about insurance with your spouse. Examples of these events include the birth of a child, buying a new home, and starting a business. Whereby all those things signal a new financial need and added responsibility.
When discussing any insurance including life insurance policies with your partner, you should frame the conversation around the importance of protecting your family financially. What would you do if one of your pay checks was to suddenly stop? You have insurance that protects assets such as your car or home; life insurance can be part of a sound financial plan that protects your family’s income stream.
When you start having conversations about money it depends on your specific situation however the earlier the better. If you are taking the time to make room for someone in your life, then they are going to affect your finances. Discussing your financial plan will help clarify how much life or health insurance you need and can afford. Contact us today if you wish to set up an insurance plan or a KiwiSaver scheme to help you with your future finances.