Whether you are buying your first home together or simply renting your first apartment, moving in with your significant other can be extremely stressful. Too often, couples do not share their personal finances before cohabitating, which can result in stressful financial situations down the road.
Ideally, couples share where they stand financially and work together to create a budget beforehand, but that is not always the case. If you are planning to move in with a significant other, follow these tips to reduce the stress as much as possible and create a supportive financial environment in which both of you can thrive.
1. Talk about credit scores.
Your credit score matters a lot whether you are renting an apartment or trying to secure a mortgage. Few things are more embarrassing than being denied a loan or a lease because of bad credit, especially if your partner was not aware of it beforehand. Before moving in together, both of you should share your credit scores and talk about your credit history. This conversation can serve as a jumping-off point for discussing other financial matters. Also, you may decide that it makes sense to wait to move in if one or both parties have some work to do when it comes to improving credit score. Waiting another year to move in together can open up new options and potentially save a lot of money if you both focus on improving your credit in the interim.
2. Figure out how to split expenses.
In an ideal world, expenses are split down the middle and each person covers half. However, this is not always ideal. If one person makes significantly more money than the other, then it may make more sense to figure out a different split or to assign certain bills to one person. The lower earner should not feel stretched to make bills, which can cause resentment, especially if their partner has money to spare. Ultimately, there is no one correct answer about how to split expenses, but it is important to have this figured out before moving in together.
3. Schedule time to talk about finances.
Because money is an uncomfortable topic, many couples rarely talk about it. To make sure you keep the lines of communication open, you should schedule regular time to talk about everything concerning personal finances, from goals to anxieties. During this time, you could both log in to your bank accounts or credit monitoring services for easy reference.
If you do not schedule regular times to talk, it becomes very easy to forget about. The frequency of these dates can shift depending on your particular situation, but a quarterly check-in is probably ideal for evaluating progress and getting potential issues out in the open. Of course, these check-ins are no excuse for not discussing money in casual conversation.
4. Discuss when to merge finances.
The decision of when to merge finances is a tricky one, and many couples nowadays choose not to. Certainly, while dating, and even if you are living together, merging finances does not make sense as it leaves both parties vulnerable. Once you are married, it may make sense to merge finances into joint accounts, but this is not always necessary and many couples enjoy having separate finances. You can always create a joint account for things like groceries, rent, and utilities. Then, both of you can transfer funds to the account to cover bills rather than pooling money all the time. Many couples continue to do this once they are married. You should think about what you want and address this issue long before you move in and/or get married.
5. Consider making a written agreement.
Some couples decide to create written cohabitation agreements when they move in together. This document can outline the responsibilities of both parties. Ideally, this is a living document rather than one set in stone. However, it can be helpful to have everything written down so that you can refer to it whenever necessary. The document should have bills and expenses outlined, including due dates and who is responsible for paying what. You may want to talk about how to handle the payments. Does one person make the payment and get reimbursed by the other? Does the money come from a joint account? Who issues the payment from this account? Also, consider documenting large purchases made together and what would happen in the event of a break-up.
6. Maintain an exit strategy.
Thinking about a potential break-up is never pleasant, but you should have an idea of what you can do if you part ways. Keeping bills and accounts in your name can help make cutting ties easier so you don’t have to sort out what to transfer, which could interrupt service for things like utilities and Internet. In addition, you may want to have some money saved for emergencies, which could include finding a new living situation if anything goes wrong. You never want to be in a position where you feel financially obligated to stay in a bad environment. Having some emergency money on the side and an exit strategy in the back of your mind can help avoid much of the unpleasantness of a break-up.