Money is not always the most romantic topic. But it is the leading cause of stress for most couples. So if you’re in it for the long haul, there are some basic money talks we recommend every couple to have as you move through different life stages together. These can be uncomfortable conversations, but being open and honest about money is a key to a happy successful partnership.
Determining Financial Compatibility
There’s no denying you’re compatible – you both love indie films, rock climbing, quotes from “The Office,” and dancing in the rain. But are you compatible financially? There are some basics you should learn about your partner before you start thinking seriously about a future together.
- Debt numbers – Does your partner have any debt, and if so, how much and what are their rates? For instance, having $50,000 in high interest credit card debt is a lot worse than having a $50,000 mortgage.
- Income picture and job stability – While you know the struggling artist or the beautiful actress-turned-waitress are true artistes at heart, are they bringing in viable income now, and in the foreseeable future? Can you count on them to contribute to a long-term financial future, or will you be shouldering the main load?
- Savings patterns – What does long-term savings look like for your partner? Do they look to the future and pattern their savings habits to meet that future?
- Spending patterns – Saving can only be accomplished in context of spending; after all, spending drastically impacts what you can save. Your partner might make six figures, but if he or she is spending 99% of that income, then there’s no way to viably save. Our free online tools, like our Personal Capital dashboard, helps you think through your finances, allowing you to link all your financial accounts so you can see a complete picture of your spending and savings habits.
- Long-term financial goals – At the end of the day, these conversations should support a long-term financial goal. Does your partner’s idea of a long-term financial goal mean blowing off retirement savings in favor of affording the new Tesla? Or does it mean he or she is planning their personal finances to support a solid retirement lifestyle? You can use our Retirement Planner to see if you and your partner are in sync and on track with your long-term financial goals.
Moving in together
Before you move in together, it’s a good idea to talk about who pays for what, so you’re not figuring this when you’re committed to living with this person for at least a year or more. Will you be splitting rent equally? What if there’s a mortgage and you have property taxes? How about divvying up utilities or groceries? Do you have a car? What about a pet? These factors that play into your daily life cost money – and it’s smart to think through whose dollars support which part, especially if you have variable incomes.
Getting married means you’re now legally bound to a person in a way that’s different than any other partnership. But before you tie that knot, there are things you need to consider. The first concerns the wedding itself. The average wedding cost in the United States is more than $25,000. Tack on an extra $5,000 for the average cost of a honeymoon, and you have some serious things to consider even before you walk down the aisle. At these prices, what kind of wedding do you want, how much are you willing to pay, and who will pay for it?
The money conversations doesn’t end just when you say “I do.” As you think about combining two lives – and that includes financial lives – you should also be thinking about combining assets. Do you want to keep them separate or will you blend them? And while no one likes to think about, you do need to consider about what happens if “‘til death do us part” becomes “‘til divorce do us part.” For example, if you live in a community property state, getting married basically combines everything – do you need a prenuptial agreement, especially if one of you has a higher net worth?
Having children is pricey. According to CNN Money, the cost of raising a child from birth to age 17 these days is nearly a quarter of a million dollars, which grows to $372,200 if you’re part of a high-income household. With such a hefty price tag, you and your partner should be talking about how many kids you can afford.
Education is a big discussion as well. Do you want your children to be privately or publicly educated? The national private elementary school average is around $9,000 per year, and the private high school average is around $14,000 per year. And education doesn’t just stop at grade school level. College is another hefty number to consider – remember how we said that it can cost up to a quarter of a million to raise a child? That’s before college costs. Today, the average cost fees for a private college is nearly $47,000 per year. For a public college, the number comes down to around $21,000 (in-state fees; out-of-state rises to nearly $35,500). How much toward college are you wanting to contribute, and are you able and ready to start saving toward that?
And there’s a more high-level point of view to take when it comes to your kids: What types of money attitudes and outlooks are you planning to pass on to your children? How will you teach them about money?
Money and love should go hand in hand. Working with a financial advisor can help you facilitate some of these conversations with your partner.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.