Five expert tips to help manage your money in a relationship
There are perks and pitfalls when it comes to managing your money in a relationship, writes Press Association personal finance correspondent Vicky Shaw
The start of a beautiful relationship can also bring financial perks. Working together, a couple can take steps to grow their finances, perhaps boosting their chances of getting on the housing ladder earlier and supporting each other at times when money is tight.
But as your financial lives become more closely linked, there are also pitfalls to watch out for – which could leave you with an empty wallet as well as a broken heart if the relationship goes wrong.
Here are five tips to help couples live in financial harmony...
BE TRANSPARENT ABOUT MONEY
If you’re older, it’s likely you’ll both have accumulated some assets along the years, but you may have some financial baggage too. Don’t keep this information secret. Jamie Jenkins, a life savings expert at Standard Life, says: “Tell each other about any debts, as well as your savings and assets.”
UPDATE YOUR WILL
Jamie says that while many people put off sorting out a will, it’s vital to keep it up to date, as well as thinking about the nominated beneficiaries of your pensions.
WORK TOGETHER TO IMPROVE YOUR CREDIT SCORE
One in six (15%) UK adults say they have been negatively affected by their current or ex-partner’s credit history, according to credit-checking firm Experian. When couples apply for a joint financial product, such as a loan or mortgage, their credit reports are likely to become “linked”.
If your partner has a more positive credit history, it could mean lenders view your credit application more favourably, potentially meaning better lending rates. But if they have previous bad debt, the way they manage money may be considered in assessing whether you can keep up with repayments.
James Jones, head of consumer affairs at Experian, suggests learning how to manage credit and debt together and being honest about what’s realistic.
“Remember everyone earns different amounts, so what’s achievable for one may not be for the other,” he adds.
If you and your partner decide to part ways, remember to “disassociate” with credit reference agencies, to “uncouple” your credit reports in the eyes of lenders.
CAREFULLY CONSIDER JOINT ACCOUNTS
While there are benefits to combining your cash, there are also pitfalls to watch out for. Kevin Pratt, a consumer affairs expert at MoneySuperMarket.com, says opening a joint account should not be done lightly.
“The convenience of having a single account that can take care of shared bills is a great benefit, but there are potential pitfalls,” he says.
“For example, what if you’re the sort of person who keeps a close eye on every penny, but your partner is more carefree with their spending? What if it’s the other way round – would you be happy with your other half scrutinising everything you buy?
“There are practical issues as well. If your partner has a poor credit score, yours might suffer as a result of your being associated with them via the joint account. And don’t forget that you’re equally liable if the account goes overdrawn.
“If a relationship comes to an end, the joint account can be vulnerable to one partner simply withdrawing the balance and leaving the other high and dry. It’s easy to see how arguments might develop.”
To add an extra safeguard, Kevin suggests talking to your bank about imposing a requirement that every party to the account has to give permission for spending outside normal standing orders and direct debits.
BE PREPARED WHEN BUYING A HOME
David Hollingworth, from L&C Mortgages, says: “Buying a house together is an exciting time but also a big commitment, so it makes sense for all parties to fully understand what they are taking on. Mortgage lenders will require that both borrowers are ‘jointly and severally’ liable for the mortgage, which means that the lender can seek full payment of the mortgage from either or both of the borrowers.”
He says joint mortgage applications will still need to be able to meet lender affordability requirements, but being able to pool their income and deposit should hopefully help couples reach their borrowing needs more easily.
“Lenders will take account of monthly outgoings as well as income levels when deciding how much they can borrow,” he adds.
“Going through the monthly outgoings to have a clear understanding of the monthly budgeting will help when applying for the mortgage, but can also have the added benefit of identifying expenditure that is no longer necessary.”