Finances in Relationships
Once and Warren Shute Msc. CFP
This guide will take you through the timeline of your love life and how to handle the finances with care. By Ezgi Ceren Işık, relationship and dating expert at slow-dating app, Once, and financial planner, Warren Shute MSc. CFP.
Your credit rating is a no go for the first interaction or date.
Ezgi says, “It’s always important to be upfront about what you want and what you’re looking for so that expectations can be managed from the very start. However, on a first date try to keep the conversation light and friendly. Sometimes people can feel pressured if their date starts to talk about the ‘big stuff’ which can put unnecessary pressure on the date. Instead focus on having fun and getting to know one another!”
Making it official
As you get more serious you will begin to learn about your partner’s financial habits whether it is a not so secret ASOS addiction or the latest consoles. Relationship expert Ezgi says, “Trust is the foundation of any relationship, whether it’s money, fidelity or safety, talk to your partner. Holding in worries and concerns can be very dangerous for partners - causing feelings of resentment which in turn often lead to unhappiness. If you feel as though you cannot share your feelings with your other half, it may be time to evaluate whether this relationship is right for you. You do not need to feel uncomfortable talking to them.”
Renting or buying your first home together is a big commitment and investment in your future.
How to start
First, Warren advises that you each write down what you want from life and then discuss it supportively. For both renting and buying it is important that you analyse your outgoings in detail to confirm affordability to avoid putting any financial pressures on the relationship.
Warren says, “It’s all about asking yourself good questions: have a plan, decide what your future together looks like, decide whether you’re going to manage money jointly or individually and then get creative to raise as much money as you can.”
Ezgi adds, “Make sure your visions are aligned and if they aren’t, can you compromise? This doesn’t only affect finances, it will give you both a sight of your future and compatibility.”
Your first mortgage can be a gruelling process so be honest with each other about existing debts before starting. Transparency from the start will be less damaging than ten years down the line with a mountain of debt. Talk to your bank about managing your finances - they are the experts so will help you back on your feet.
Ezgi says, “Communication is absolutely key in tough situations. Approach difficult conversations together and logically whilst trying to remove extreme reactions from the moment and be clear about how it affects you. Working as a team and being open will make a huge difference to the outcomes in times like this.”
Warren says, “If you truly love someone, you can be happy with modest financial means or financial abundance. What’s important is that you share the same life and financial values, so it shouldn’t be a deal breaker”.
Getting professionals involved
As soon as you feel ready to take the first step together book an appointment with a mortgage advisor. They will support you through the whole process but be mindful that some do charge commission and fees.
Nowadays there are so many options for buying a first home such as a Help to Buy ISA and a Lifetime ISA (LISA). These are two products from HMRC that give a ‘bonus’ lump sum on savings to help raise a deposit for a home. Be advised there is a specific set of criteria to qualify for these types of accounts including:
· Being between the ages of 18 and 39
· You must either be saving for your first home or for retirement
If you don’t fit the criteria your financial advisor can you help you find other suitable products.
How to split your finances – the bank account system
Ezgi says, “As many will already know, finances can cause a massive strain in a relationship and this is a common reason for arguments between couples. As soon as you think about moving into your first home with a partner make sure you discuss the financial implications. Talking about the tough stuff early in a relationship will make it easier down the line - it becomes logical rather than emotional.”
Try using Warren Shute’s Bank Account System with your partner.
Warren says: “The Bank Account System is designed to automate your money as much as possible. It takes routine thought out of the everyday financial choices you make, which removes emotion from your decisions; when you’re in a distressed position you make decisions out of desperation, rather than opportunity.”
**INCLUDE BANK ACCOUNT SYSTEM IMAGE**
Walk About Money (WAM) Allowance
When you start go through your direct debits list and answer these three questions:
1) Do I need this?
2) Do I want this?
3) Can I get the same experience cheaper?
Do you have a gym membership that you don’t use or can pay less for? Do you buy lunch every day when you can prepare lunches at home?
Warren says, “Come up with your weekly WAM allowance. Write down all the things you spend in a typical month and divide by four. Then set up a direct debit for that amount every Wednesday. Try not to exceed your weekly allowance as this is where being accountable can save you from future debt. If you want to buy that new phone or holiday, save some of your WAM each week. Train your mind to save and eventually it will become routine.”
Ezgi recommends this process to protect your independence in a relationship. “Make sure you and your partner give each other freedom especially when it comes to finances. Do not feel guilty for treating yourself to a pair of shoes or an afternoon at the pub. If you feel that your partner has too much control over your spending talk to them as it could reveal some underlying issues.”
The average cost of a wedding in the UK is now £30000 and the average length of an engagement being just under two years. This does not give much time to save for the fairy tale wedding.
Weddings are an ideal example of how a WAM allowance can work to your advantage. Avoid getting into debt with loans and credit purchases. Also make sure you invest in wedding insurance to keep you protected from the unexpected.
“Weddings can be stressful for a relationship. Between the finances, family and food there are hundreds of decisions to make. A major problem couples have is when a lot of responsibility falls to one person instead of making decisions together. Why not try turning your planning into a date night and make it fun? Just make sure to take time to appreciate the precious moments right from engagement to the honeymoon. Every now and then just pause and take a mental picture - you won’t regret it,” says Ezgi.
Warren says, “Record all outgoings for your wedding and honeymoon and always keep a small emergency fund for the last-minute purchases. Set up a spreadsheet together and make it a habit to document your spending.”
From birth to 18 years old children can cost up to £75000 each so planning and having a degree of financial security is always recommended.
When you decide the time is right to expand your family, start your research.
Working parents will need to consider parental leave and childcare. Check
https://www.gov.uk/browse/childcare-parenting/financial-help-childrenfor information and resources. It is also wise to have a chat with your employer about any existing maternity or paternity packages. Then take a look at the everyday costs you will encounter such as nappies and clothes and make sure you can afford these even when your income changes.
When children start school finance will not be on the curriculum. Teach them about money, budgeting and the techniques to give them a healthy financial future.
Ezgi says, “Children can be a blessing but are also a huge undertaking so as a couple the decision to expand your family must be a mutual one. I recommend discussing this when you begin to become more serious and make sure it is something you both want in the future. Try not to put any pressure on yourselves during this process, it can test relationships but can also be a beautiful experience.”
Warren adds, “Many couples don’t have the luxury of planning for children. In this case I recommend starting the financial planning process as soon as possible when you get the news as those few months of full pay could make all the difference.”
Breakups can be messy and the added pressure of being financially involved with another person can mean breakups are not quick. Many couples do not have a safety net of savings for a move so co-habiting can go on for months after the separation.
When renting you have options in your contract but a mortgage is much more complicated.
It is recommended that you seek help from a solicitor or the Citizen’s Advice Bureau as soon as possible before it affects your credit rating- just make sure you do not stop making payments.
Make sure that before buying a property you seek advice from an independent financial expert about drawing up a deed of trust. This will ensure you get back what you initially put into the house. When separating without a deed of trust you have two options:
· Married – you are automatically entitled to 50% of the property value this will usually be upheld in the case of a divorce
· In a relationship but not married - consult with a solicitor as soon as possible as this can depend on a variety of factors including your willingness to handle the situation amicably
Ezgi says, “Breakups are incredibly tough to go through and when there is something prolonging the process like property or children, neither person gets closure causing even more pain. It is important in times like this to make sure you have a friend to confide in as bottling up emotions can be harmful to your mental health and sets a dangerous precedent for future relationships.”
Warren adds, “Breakups can have a large impact on anyone’s financial situation. From having to move out to selling a home, it’s a lengthy and expensive process. This is why you need to ensure you are protected and taking professional advice every step of the way whether you are renting or buying a home together. It may not seem romantic to plan for the worst but it is the most sensible way.”
When it comes to your finances staying organised throughout your life is essential. It will ensure you leave a legacy of security behind for your loved ones. There are several things to consider when you plan a life together and although no one likes to talk about death it is inevitable so knowing what you and your partner want is important.
Ezgi says, “The thought of losing your partner is unbearable. When they are gone you are still entitled to happiness and a life free from struggle. Be sure not to cut yourself off from family and friends as they will make such a difference to your recovery so keep talking and remember you are allowed to grieve.”
Warren advises, “Death can be an impossible situation to deal with when you are left behind and sadly finances play a large part. Whether your partner suddenly passed or had time to plan, it can be a large burden to deal with the aftermath. Consider wills and power of attorney as early as possible to ensure peace of mind for your family and their future.”
Write a will
Book a meeting with a lawyer to take you through the process or why not try a legacy will? By donating an amount to charity on your passing they write your will for free. It is important to know your partner or children are secure when you are gone.
Funerals in the UK cost anywhere between £3500 and £4500 which can be a shock to those left behind. Look into the various plans available which involve paying a few pounds a month to cover any expenses incurred after your death. This is something you can discuss with a financial advisor.
This is something important to consider if you have assets worth over £325000. If leaving everything to your legal partner you will be exempt but to anyone else a 40% tax can be charged. There is more information here: https://www.gov.uk/inheritance-tax
If in doubt speak to an advisor about how to manage this, especially if your assets are worth a significant amount.