Love is in the air! Moving in with your partner is a big step in your relationship and you might be thinking about how to plan out your partnership finances without getting stressed by things you didn’t plan for.
The simplest way to start is to identify the shared costs of living together. Depending on your comfort level on using a joint account, maintaining a separate account, or doing a combination of both, here are some of the costs you may share (or will be sharing):
Making a Budget: How much is it going to cost?
Recurring (expenses that take place weekly/biweekly/monthly):
- Rent/mortgage payment
- Groceries/eating out
- Utility bills
- Subscription services (e.g. Amazon Prime, Netflix, etc.)
- Phone bills
- Transportation costs
- Debt repayments
Depending on your lifestyles, not everything on this list may apply. For example, with 40% of Canadians reporting that they eat out because it’s easier, have no time to cook, or do not know how to cook.
Non-Recurring (expenses that take place infrequently):
- Emergency fund
- Gifts - for mutual friends/family
- Fun/Entertainment/Events - movies, shopping, birthday dinners
- Household – new furniture, toiletries, supplies
An emergency fund would generally cover repairs, but if you are used to having a bigger safety net, this might include an extra month or two of expenses just in case (and if your finances allow there to be).
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Savings (recurring or non-recurring):
Putting money into a joint saving fund together allows you to plan for vacations without it being a large expense all at once.
Unsure of how much non-recurring expenses will be?
Try doing a look back at your spending over a 3/6/12 month period to get an idea of how much you usually spend on these activities in a month. Have your partner do the same and add them up. Add up the costs of the activities that you did together to get a real amount of what those expenses might be in your joint budget.
Uncomfortable conversations - are you ready?
You’re not alone if you don’t really want to talk about how you spend your money. With 36% of Canadians rarely or never talking about their finances with their partners, we know it's a touchy subject. To help prevent some of that financial stress, you can understand your options and plan ahead. Although at the end of the day, if you both feel uncomfortable and agree that splitting and paying for your joint costs are as far as you’re willing to go with each other – that’s okay too!
Sharing your personal finances
If you’re comfortable discussing your personal finances, you should start with what your incomes look like month over month. If one of you makes a lot more money than the other person, expenses split right down the middle might not make sense. A better option might be to split shared expenses as a percentage of what each person makes.
For example, if you and your partner make $5,000 per month together, with you taking home $3,000 a month and your partner taking home $2,000 a month together, you could decide to split 60% and 40% of all the shared costs. Another option is to split your recurring costs in half, but split the non-recurring costs based on income.
Something not adding up?
If you're moving out with someone for the first time, you might run into costs you hadn’t thought about before.
You may still have a student loan to personally pay off so you agree as a couple to make this a priority, meaning you contribute less to some of the joint expenses until it’s paid off. Or, you might find yourself having to cut back on getting your food delivered or ride-sharing services in your budget to make room for shared financial goals. Joining your finances is an adjustment that may require some sacrifices.
The initial higher costs of moving in together can also be pretty scary with moving costs, rent deposits/down payments and furniture costs to think about. Before looking for a love nest, it’s always a good idea to stay up to date with your credit score with a free credit check as your future landlord or mortgage lender will probably ask for it (and no it won’t hurt your credit score).
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If you’re looking to buy a home together, you may also want to get pre-approved for a mortgage before your search so you know what you can afford.
Structuring your finances - 3 options
Joining your expenses doesn’t always mean opening a joint account together. Some couples work together fine with separate accounts. What’s most important is identifying joint expenses and creating a budget together (ideally a spreadsheet but it could just be a piece of paper!). Once you have one, let’s go through your options:
1. Using joint accounts
This makes it easier to budget as a couple – you have both your incomes land in one account and you don’t have to manage separate accounts.
You will see how each person spends their own money and you might have to accept the part of your partner’s spending habits you don’t like as well (e.g. that sneaker collection they have). While we never like to think about the sad stuff, break ups happen. If you break up or want to separate your accounts later on, dividing up whose money is whose may be harder.
Keep in mind that you and your partner's credit histories will play a key role when opening a joint account. Both of your credit histories will be reviewed and affect your approval chances when you try opening a joint credit card account.
2. Using individual accounts
Partners using this method will likely split the list of joint expenses you’ve put together (you will pay rent but they will pay for groceries and for the car) because it adds up to be the right split ratio you agreed on. If not, one partner can repay the other partner at the end of the month (or vice-versa) to balance out the split. This lets you keep your personal spending private.
3. Using joint accounts & individual accounts
This is ideal if you don’t mind managing your finances more regularly. After deciding how you will split your joint expenses, you may decide to have your paycheques deposited into a joint account first, or through your personal accounts. Your share of the joint expenses will be left in or transferred into the joint account to cover off the costs when they’re due.
This set up will allow you to maintain your own personal finances while separating out what’s shared. This also means doing a little more work by having to make sure both bank accounts can cover upcoming bills and payments. If you happen to be a little short one month, we can help you out with our new product Boost!
For savings you want to work towards as a couple, it can be a good idea to open another account to make sure they aren’t used for other joint expenses accidentally.
Whatever you choose, communication and keeping in mind the goal of celebrating this new milestone in your relationship will ensure you’re both on the same page to reduce any financial stress ahead.
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