Budgeting can be a great idea for anyone wanting control of their household expenses, regardless of their relationship status. But it is worth considering when you live together as an unmarried couple. Budgeting for unmarried couples can help you organize your finances and start your money relationship on a solid footing. When creating a budget, consider some top tips and things to consider.
Talk About Money Before You Start
According to the 2019 US Census, unmarried partners have almost tripled in the last 20 years. That means more couples than ever are thinking about how to set up a budget and what kind of considerations need to go into it.
There’s no right or wrong approach, as with any budgeting. But there are some essential points to discuss before starting with the ‘who pays what’ type of questions.
Saving and Financial Goals
Saving and financial goals are very personal, but sharing your finances is the best way to discuss them upfront. There can be some very different opinions on these topics, but you can reduce the chance of conflict later if you are both upfront about them.
Things to talk about could include:
- What do your long-term financial goals look like (if you have them)?
- Do you have a savings plan or savings goals? What does your savings look like?
- What would you consider to be a big financial mistake?
Current Financial Situation
Talking about money can be awkward. But it is worth it, regardless of whether you plan to marry someday. One survey from SunTrust found that 88% of people thought it necessary to talk about money before getting married, but only over half of them did it.
Whether you may one day marry or not, having a clear picture of each other’s financial situation when living together is very important. Knowing if one of you has debt or financial commitments helps with budgeting. It can also help you ensure a compatible approach to money – more on that in the next point.
Spender or Saver?
Finding out if your partner is a spender or a saver could be one of the more critical questions. If you are very frugal and don’t like to spend money but love to splash your spare cash, you may need to face some compromises for things to work.
Or you may need to work on a budget that sections off the money so these different approaches don’t lead to conflict. Budgeting is what you need it to be, so don’t be afraid to create one unique to your situation and personal preferences.
Ask each other questions such as your favorite thing to spend money on or what you love to save money on. These can help show where you spend or save money and how that can work together.
Non-negotiables
The final part of the chat can be about non-negotiables. For one person, it may be donating a percentage of their wage to charity each month. For another, they cannot live without their Netflix subscription. These can be almost anything, but they are the things you can’t compromise on.
Whatever these financial non-negotiables are, it is important to get them into the budget and see how they impact things.
Create a Budget
The first step in setting up an unmarried couple’s budget is to look at shared and personal expenses. A few examples of monthly bills and shared expenses could include:
- Rent or mortgage if you are buying the house together
- Utility bills such as electricity, gas, and water
- Food and related areas such as cleaning products and toiletries
- Entertainment
Personal expenses might include things like:
- Car loans, credit cards, or student loans
- Transport costs such as a car or train
- Cellphone contract costs
- Insurance policies for health and life
- Ongoing medical expenses
- Personal care items
Regarding these, it is entirely up to the two of you what falls into what category. But you may want to decide this upfront.
How to Split Expenses
Many couples will split shared expenses on a 50/50 basis, but there are other ways to approach household finances. Another option is to look at what you each earn.
For example, if one-half of the couple earns $60,000 a year and the other earns $30,000, it may be fairer for the higher earner to handle two-thirds of the shared expenses while the lower earner contributes one-third.
Where this can get complicated is with existing financial commitments. For instance, the higher earner may have a car loan and a student loan bill to pay each month, while the lower earner has no debts. You then need to decide if these factor into who pays what. Again, there’s no right or wrong approach, just what you agree on as a couple.
Dealing With Debt
When tackling debt payoff as an unmarried couple, it’s crucial to approach the process together as a team. Communication, collaboration, and shared financial goals are key to successfully managing debt while budgeting. Here’s a step-by-step guide to help you navigate this situation:
Engage in open and honest discussions about your financial situation. Understand each other’s debts, including outstanding balances, interest rates, and monthly payments. This transparency will provide a clear starting point for your joint strategy.
Next, establish common financial goals that reflect your shared aspirations. Whether paying off specific debts, saving for emergencies, or planning for the future, aligning your objectives will give your debt payoff plan focus and purpose.
Decide whether each person is responsible for their debts, whether school loans or credit card debt, or if you will join forces and tackle it together. Make a plan. This should be a part of your long-term goals and your financial future.
Prioritize and strategize your debt repayment plan. List all debts and determine the order in which you will tackle them. You can choose between the Debt Snowball Method, which focuses on paying off the smallest debt first, or the Debt Avalanche Method, which prioritizes debts with the highest interest rates. Select the method that aligns with your preferences and financial goals.
By approaching debt payoff as an unmarried couple with open communication, shared goals, and a solid budget, you can effectively manage your debts and work towards a financially secure future together.
Time is Money Concept
Another idea to consider when creating a budget as an unmarried couple is that time is money. This means that while someone may not financially contribute as much to the household, they may make up for it in other ways.
For example, if one partner only works part-time but handles most household chores, you can view this as contributing to the household. So while they may not be able to put as much money into the pot, the time they spend running the home and doing everything the other partner doesn’t want to do. Or doesn’t have time to do it?
Who Pays Bills from Where?
The final part of setting up a budget is considering who pays the bill and from where. Again, there are a few ideas to consider.
One option is to open a new joint checking account so you both have access to and pay most of the bills. Then all the bills come out of the account, and you both have separate accounts for personal expenses. These are usually the shared expenses, although you could also put money for the grocery bill, for instance, into this pot.
Another approach is to have all the bills from one of your accounts. Here the other partner deposits their share of the bills into that account while paying their personal expenses through their account. This can work well if one partner moves in with another, as the bills are set up already.
Also, decide about any manual bills that you need to pay. Who will be responsible for them, how are they paid, and when? Use whatever system works, from a budgeting app to a simple reminder on your phone, to ensure these are always paid on time by whoever handles them.
How Do You Save Money as an Unmarried Couple?
Savings can make a big difference to your long-term financial health but can also be the source of conflict in a relationship. So it pays to decide upfront what the approach to savings will be.
One area to discuss is how much money you plan to save each month. This could be general savings or savings for something specific such as a vacation or renovations to the house.
The other thing to discuss is whether to have a joint savings account or two separate ones. There are pros and cons for both. Joint accounts allow for transparency as you can see how much money is in there and what you have deposited.
However, that can also cause conflict if there’s any mismanagement of the money. Or you may have differing views on what you are saving for. Sometimes this can be better to have two separate accounts and keep track of what you have as a couple.
Avoid opening a savings account in one person’s name and put both of your savings into it. This is just because you don’t have the same legal rights as a married couple, and if something goes wrong, one partner legally owns all of the money.
Remember to save for your own for things like retirement plans or emergencies that aren’t covered by the joint savings account.
Deal with Worst-Case Scenarios
Let’s face it, no one wants to discuss breaking up, especially if you are a new couple moving in together. As part of the talk about finances and budgeting, dealing with those worst-case scenarios is a good idea. But when it comes to money, it is essential to face that this can happen.
Take the example of a couple with different incomes, each paying their half of the bills. In this scenario, if the partnership were to break down, the higher earner would have a lot of money put to one side if they had saved some of their extra income. But the lower earner would likely have nothing.
Decide what happens to money saved while as a couple. Would the lower earner be entitled to a share of the higher earner’s savings? Would the higher earner take on a more significant percentage of shared debts or financial commitments?
No one wants to talk about breaking up, but if you are tying your finances together, even if you don’t plan on tying the knot, it is a good idea to deal with the subject.
Other Tips on Budgeting for Unmarried Couples
These are the main points to consider when creating a budget. The last few points can help you fine-tune those decisions for the best possible outcome.
Can You Open a Joint Account if You Aren’t Married?
Marital status doesn’t impact whether you can open a joint bank account. Both parties involved in the account have the same rights and responsibilities, and there are no limits to what each can spend on the account. Each person is entitled to debit cards for the account.
There are pros and cons to this, as mentioned earlier. But if you decide it is the right choice for you both, then there’s no reason that you can’t open a joint account.
What Impact Does Your Partner’s Credit Record Have on Yours?
For married and unmarried couples, your partner’s credit score doesn’t always impact yours if you have individual accounts. It could affect your credit scores, mainly if you have a shared account.
Another reason your partner’s score might affect yours is if your names are both on a credit card or a loan. This can be a way to boost the credit score of one partner if it isn’t as good as the other. But if things go wrong, any negative impact will affect your credit records.
Are There Any Financial Benefits as an Unmarried Couple?
It is true that most of the time, unmarried couples don’t get the same legal protections that married couples do in most places. But there are still some financial benefits available for unmarried couples.
One example is tax returns. You can’t file your returns together as an unmarried couple, which can sometimes lead to tax savings. This is because a married couple’s income is combined for these purposes, which can push them into a different tax band, meaning they pay more tax.
Another example is health insurance. Some companies allow unmarried couples to share benefits. This might happen if you have lived together for a certain period or other conditions.
Finally, car insurance can sometimes let unmarried couples apply for a joint insurance policy if they keep both cars at the same address. This can save you some money.
Final Thoughts On Mastering Budgeting for Unmarried Couples
With a good budget, you can have a great relationship and a great handle on your finances too. Many of us struggle to talk about money, especially when moving in together.
But having a budget as an unmarried couple can be crucial in setting yourself up on a firm financial footing and reducing problems in later years, even if things go wrong. Remember, the most important thing in any serious relationship is your shared goal to be a couple, and your common goals are to be financially healthy.
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