5 Money Mistakes Young Couples Make

If you’re a fan of pop culture financial queen, Suze Orman, you would know about her signature financial advice, which is to consider “people first, then money, then things.” But she also counsels that when it comes to people, the self should take precedence over others. Selfish as it may sound, helping yourself financially first is the only way to do it if you want to help others, too.

So how does planning for the future with your partner or spouse fit into the picture? Don’t most couples treat themselves as a single entity bound together by everlasting love and friendship, such that money shouldn’t be an issue for them at all? Well, the thing is, you need to make love and money work together. If one of you has weaker financial management skills, for example, do you just accept it as it is? If you’re sailing on a rocky love boat, do you still think it’s reasonable to pool your resources? Having financial literacy is necessary if you want to be able to continue paying your bills, get out of debt, provide for your future kids, and so on.


Money mistake no. 1: Keeping money matters to yourself
This is one of the worst money mistakes couples will ever make. Keeping communication lines open is very important to preserve the elements of transparency and trust in any relationship.

People who plan to move in together should talk about financial matters, like how they would share their household expenses, how they would be keeping their money (joint or separate bank accounts), how much they intend to spend on the short and long-term, and what their goals are.

Couples should also be open about big money matters that may compromise their relationship in the future. An example is having a large debt to pay off. Do you want your partner or spouse to be caught off guard by your creditors? Absolutely not. Also consider your spending habits. Are you someone who is wont to go on a spending spree, buying expensive things you don’t really need? Are you a pathological gambler? And are you likely to hide such activities from your partner? Keeping big financial secrets like these is one of the quickest ways to antagonize your partner or spouse and to ruin your relationship.

According to Bambi Holzer, author of the book Financial Bliss: A Couple's Guide to Merging Money Styles and Building a Rich Life Together, it will help if you schedule a “financial state of the union meeting” with your partner. The meeting will allow each of you to discuss your financial history and experiences, as well as your goals.

Conversely, author Linda Gough advises in her book, The Couples’ Guide to Money: How to Make the Most of Your Financial Power as a Couple, that couples should assess their financial compatibility with each other early in the relationship. “Knowing your financial personality type and what makes you and your partner tick will help in making the right financial moves and setting the sort of goals that will work for both of you,” she writes.

Getting help from a financial professional before moving in together would definitely be beneficial, too.

 

Money mistake no. 2: Not knowing where your money is going

Are you and your other half on the same page about where your money is going? You should be. It is critical that you know so that you will have enough to cover for usual expenses, and still have more to build on your savings. Tracking your money is also important to avoid piling on debt.

In her book, What to Do Before ‘I Do’: The Modern Couple's Guide to Marriage, Money and Prenups, Nihara Choudhri advises couples not to pile on too much debt because it can get in the way of their personal and financial dreams. “It can chain you to a job you hate or put a wrench in your plans to buy a new home or travel the world,” she writes.

Having a budget will make it easier for you to estimate if you can or should buy particular things. It’s a great way to make the two of you learn the practice of compromise, too. Sure, each of you will want to be able to have free rein over how you spend your money, but saving for the things you really need also means agreeing on laying off on other things—expensive shoes, spa sessions, and golf games, for example.

In order to track your monthly financial standing, create a list of your expenditures. If you need to keep receipts, do so. Constantly check on your debt balances and focus on paying them off. The idea is to work together in budgeting and going over your finances.

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Money mistake no. 3: Having a joint bank account (too soon)

There’s still ongoing debate on whether couples should have a joint bank account or keep separate ones. Some people say it’s an issue of trust, meaning if you trust your partner or spouse enough, then combining your resources shouldn’t be a problem.

Yes, many people trust their partners enough with their entire earnings. Besides, it is quite convenient to have a joint bank account because everything is in one place already, and either of the couple can just deposit and withdraw anytime without telling the other. But that’s just the problem. In this age of debit cards and checks, it’s a disaster waiting to happen. Let’s say you have ₱50,000 in your joint bank account and you make a ₱40,000 check for bunso’s school tuition fee; problem is, you didn’t know that your partner already used a debit card the day before to buy your new TV set worth ₱15,000. Even if there was no ill will involved in the use of the money, this situation can still cause friction between the two of you because now you have a bounced check to deal with! So perhaps it is not entirely an issue of trust.

Another disadvantage of having just one joint bank account is when the partner with the weaker financial sense puts the joint fund at risk. The problem will come to a head when one of the partners’ spending habits get out of control, while the other partner continues to painstakingly manage the money. In The Couples’ Guide to Money, Linda Gough writes that the most common financial personality combination among couples is between a hoarder and a spender. She warns that money is the single biggest point of contention for couples. “If not dealt with properly and maturely, this issue can easily turn into the one you argue about most,” she says.

Furthermore, more and more people these days tend to bring “baggage” into a relationship, including debts and also children with former partners. And we haven’t even begun talking about what happens when you and your partner end up being separated. What if your estranged partner took all the money from the joint bank account? Yes, you can take the matter to the court, but that will be a long, gruelling process. So then again, maybe the whole thing is an issue of trust. Unless you’re absolutely certain that your partner is trustworthy, combining your money too early into the relationship might not be a good idea.

But all the disadvantages of a joint bank account notwithstanding, having separate bank accounts may not be the best option either. With two accounts, you will have to go through the hassle of deciding “who pays for what” when it comes to your shared expenses. This may not be a concern at all for some couples, but for others, it definitely is. One partner may become resentful if he or she feels that the other is not contributing enough to household expenses.

One option for couples is to have both separate bank accounts and to open a third joint checking account. This way, they can still maintain their financial independence and also have a joint pool from which to draw money for common expenses and important purchases. If there is a big difference between what the two of you earn every month, maybe contributing the same amount of money is not the way to do it; instead consider having each of you contribute the same percentage of your income.

 

Money mistake no. 4: Letting one person be in charge of the money

In a relationship, one is often assigned to deal with money matters, a practice also followed when it comes to other household tasks. For instance, one of you may be more inclined to doing the budgeting, as the other is more inclined to do the cooking or the laundry. But your cash is neither like your casserole nor your underwear. Things can easily turn nasty if you put one person in charge of the money.

If your partner feels you are not being too involved with financial decisions, he or she may become too stressed out and feel resentful for having to deal with all the planning. In addition, you don’t want to get into that position where you have to ask permission from your partner every time you need to buy something. Yes, the two of you will occasionally agree on cutting back on unessential items, but that doesn’t mean one of you should have a stranglehold on the cash box and the other should have to ask for permission every time money is needed.

By being in the know about your finances, the two of you can avoid engaging in a financial power play. Financial blogger Fitz Villafuerte reminds couples that getting into a relationship is all about working together as a team. “Don’t let your partner feel inferior by dictating all the financial decisions, especially if you’re the income earner. Create your monthly budget and work out your spending priorities together as a couple,” he says on his blog.

Maybe this is the beauty of having two separate bank accounts and a third joint checking account. Both of you can still enjoy a certain amount of independence, and the presence of a third resource pool containing both your moneys will motivate both of you to participate in managing your finances.

 

Money mistake no. 5: Ignoring the possibility of emergencies

Financial emergencies can happen whether you are living alone or with a partner. We hate to be blunt, but if one of you loses a job, becomes ill, or if your house catches fire, do you have a stash of extra cash to rely on? Aside from ensuring that both of you have sufficient insurance coverage, you should also build an emergency fund. Never, not even for a second, think that a credit card can substitute for one.

To get started on saving for your emergency fund, determine first your combined costs of living and evaluate your needs, e.g. how much do you think are your monthly living expenses, or how many months do you think you’ll be out of work if you lose your job? In her book, Getting Yours: It’s Not Too Late to Have the Wealth You Want, financial adviser Bambi Holzer recommends having an emergency fund that covers three to six months’ worth of important living expenses.

It is best to open another account, a savings one, wherein you can keep your emergency fund. The idea is to make it separate from your other joint account, which you use to pay for your periodic bills and regular expenses.

Now saving for your emergency fund is quite simple. One way to do it is to religiously allocate a percentage of you monthly salary to your fund as if it is one of the regular utility bills you need to pay. When you reach your goal of saving at least six months’ worth of living expenses, continue saving and build on what you already have. There will always be extra money to add to your emergency fund, including your Christmas bonus, 13th-month pay, or even those little amounts you save from your Starbucks or beer money.



Photo courtesy of Focus Features