While millennials are generally waiting longer to get married than generations past, that doesn’t mean they’re not cohabitating—and entwining their finances.
Finances can put a lot of stress on a relationship, so it is incredibly important for partners to talk openly about expectations, especially when they make the decision to move in together. Of course, most people do not divulge their entire financial histories when they start dating, but when it comes to talking about living together, it’s important to be open about the issue. Talking about money is never comfortable, but it can help avoid a lot of tension down the line.
Some of the important questions to consider prior to cohabitation include the following:
1. How will expenses be split?
Splitting living expenses is rarely as easy as drawing a line down the middle. First, individuals will need to come to an agreement about what constitutes living expenses. While rent and utilities are typically a given, perhaps there is a disagreement about, for instance, the type of cable to get, especially if one person wants premium channels and the other doesn’t. Will this additional expense be split or will the person who wants the extra channels shoulder the burden?
Talking about these questions can help avoid frustration and confusion down the road. Once the couple agrees on the expenses to be split, the question becomes how the division will happen. If one person earns significantly more than the other, then a 50/50 split may not make sense. In that case, will the person who is paying less make up for the difference by doing extra chores? Addressing these issues can help avoid the feeling of imbalance.
2. What are the financial goals?
One of the most important conversations that a couple should have is an exploration of financial goals. While the personal goals of each person may not overlap, this conversation can help get both individuals in sync so that no surprises pop up in the future. Ideally, a couple will decide on a specific goal that they both work toward, such as buying a home, moving to a bigger place, or saving for a wedding. Both individuals can retain their personal goals, but it is important for them to decide how they will balance personal and joint goals so that both can be attained.
This conversation should also touch on concerns like credit scores, savings, debts, and income. Disclosing all this sensitive information can feel uncomfortable, but it helps both partners set realistic goals for their future together. The couple can also work together to devise a plan for addressing any specific shortcomings.
3. When will financial conversations happen?
Couples moving in together should schedule a time to talk about money. No one wants to have these conversations, so setting time aside helps to guarantee they will happen. As painful as these conversations can be, they are still better than fighting about financial matters later. During these conversations, the couple should go over how their money is spent, which can be tracked manually through a spreadsheet or through apps. Couples may want to log into their credit monitoring and bank accounts together for complete transparency.
These meetings are the ideal time to bring up concerns without feelings getting hurt. With objective evidence about spending, it becomes much easier to point out problems and identify them as important conversation points. Without this time set aside, frustrations can build and result in finger-pointing, which is not a healthy form of communication.
4. How will new debts be split?
Once individuals move in together, they may eventually take on new debt. When this happens, they should have a clear idea of how that debt will be split and who will hold ultimate responsibility for it. While no one wants to think about a relationship failing, untangling financial responsibilities will only add salt to the emotional wounds. For that reason, taking on joint debts may not be all that wise until marriage. Generally, couples should try to keep new debts separate as much as possible. This can become complicated if, for instance, cosigning a loan for a new car will result in a lower interest rate. However, serious issues could arise if the relationship fails, as the cosigner will have ultimate responsibility for the loan if the other party decides to stop making payments—even if that other person still has the vehicle.
5. What is the exit strategy?
No one moves in together expecting a relationship to fail, but individuals should always have an exit strategy in case it does. In general, people should keep accounts, even for utilities, in one name to facilitate an easier split should the relationship end. When both names are on an account, the couple may begin to argue about how to handle the situation. When only one name is present, that person has the decision of how to deal with the account.
Both individuals should also have some cash set aside in case of financial emergency, which may include handling a breakup in the case that temporary housing becomes necessary. Often, couples choose to move in together partially because they can afford more home together than separately, but the issue may then arise of who retains the home after the breakup, especially if neither party can afford it alone. This situation could result in early termination fees for renters.