Creating a Financial Home

Moving in together is a big step in any relationship. The excitement of beginning a new life together and logistical concerns about moving are often at the forefront of pre-move conversations. But with all the planning that goes into a move, some couples avoid talking about the financial aspects of setting up a joint household. Once the lease is signed and the couch is hauled up the requisite number of stairs, a lack of financial planning conversations may lead to some unexpected situations.

Before moving in together, you and your partner probably had duplicate furniture and kitchen supplies. Just as you talk about which items to bring into your new home, it's important to discuss what each of you brings financially to your relationship.

Managing Shared Expenses

Moving in together often means sharing expenses. If each partner earns the same salary and has the same level of debt, a fair way to split expenses may be as simple as 50 / 50.

But "fair" doesn't always mean "equal." Financial imbalances are common in relationships and can be especially apparent when couples move in together. These imbalances can stem from differences in income, savings, debt levels, or other financial responsibilities. For example, one person might have a large student loan debt, while the other has substantial savings.

The first step in addressing financial imbalances is to have an open and honest conversation about money. Discuss your incomes, debts, savings, and financial goals. Recognize that you and your partner may be at different stages in your financial lives. Understanding and accepting these differences early can help prevent resentments and challenges later.

When discussing money, being honest with yourself and your partner about your ability to cover certain expenses is essential. In the excitement of moving in together, you might be tempted to agree to everything and figure the details out later. Still, circumstances such as your income and debt aren't going to change just because you move to a new home.

If a simple 50 / 50 split of expenses doesn't seem fair, ideas for equitably managing everyday expenses include:

• Proportional Splitting - If a significant income disparity exists, you might split shared expenses proportionally based on income. For example, if one partner earns 60% of the total household income, they might cover 60% of shared costs.

• Equal Splitting with Adjustments - Split core expenses (like rent and utilities) equally, but have the higher-earning partner cover more discretionary expenses like dining out or entertainment.

• The 60% Solution - Both partners contribute 60% (or a similar percentage that makes sense for you) of their income to a joint account for shared expenses. The remaining 40% is kept in individual accounts for personal expenses and savings.

• Expense Categorization - Divide expenses into categories such as housing, utilities, groceries, and entertainment. Then assign responsibility for different categories based on income and personal preferences.

These certainly aren't the only ways to manage income disparities, but whichever method you choose, the key is finding a fair and comfortable system for both partners. Regular check-ins and adjustments may be necessary as your financial situations evolve.

Remember, even with a system for managing shared expenses, each partner may need to maintain some financial independence. This could mean keeping separate accounts for personal spending or agreeing on an amount each person can spend without consulting the other. There's no right or wrong approach, but it needs to work for both of you.

The Importance of an Emergency Fund

Life is unpredictable, and having a financial safety net can provide peace of mind and stability for your new shared living arrangement. This is where an emergency fund comes into play.

While easier said than done, financial experts typically recommend saving three to six months of living expenses in an easily accessible account to cover unexpected expenses. But even a modest fund of a few thousand dollars can help avoid unnecessary debt and potential conflict.

It's also important to discuss how you'll approach building and maintaining this emergency fund. Will you contribute equally, or will contributions be proportional to your income? Will you have a joint emergency fund or maintain separate funds?

Remember, an emergency fund isn't just about financial security - it's also about reducing stress in your relationship. Knowing you have a financial cushion can prevent money-related conflict during challenging times.

The Takeaway

By having honest discussions about money, creating a fair system for managing shared expenses, and building an emergency fund together, you can create a solid financial foundation for your shared life. Remember, there's no one-size-fits-all solution – the key is to find an approach that works for both partners and to be willing to adjust as your circumstances change.