No Romance Without Finance!

When two people become a couple, what about their personal finances? Here's how to be financially potent together.

Although my wife and I have been married for ten years (and together for almost twice as long), some aspects of our personal finances remain separate even today. For example, even though my wage is paid into our joint bank account, my wife's salary is paid into her own current account. Then again, we're about to close our existing accounts and switch to a Best Buy current account, which will combine our everyday finances for the very first time. Heady stuff!

It's probably just as well that Mrs D and I kept our financial affairs separate in the past, because our financial attitudes and habits were very different. Until I straightened myself out at the turn of the century (with the help of The Fool), I was a chronic over-spender and brain-dead borrower who couldn't tell the difference between a budget and a budgerigar. My wife, on the other hand, had a talent for sensible budgeting, saving and investing. Thus, because we were at opposite ends of the financial spectrum, it made sense for my wife to keep my bad habits at arm's length!

Indeed, it's not unusual for opposites to attract, which means that many financially ill-suited people are thrown together by love. So if you'd like to learn how to strengthen your financial management in order to enjoy a more harmonious relationship with your partner or spouse, then read on!

1. Cash and couples

It's said that money causes more domestic arguments than any other topic, so the first rule of cash for couples is: discuss your finances. It's said that ignorance is bliss, but financial ignorance is sure to create problems further down the line, so it's vital to put your financial arrangements on the right footing from day one.

When you meet the man or woman of your dreams and later decide to live together (perhaps for your first time), you need to understand that the rules of personal finance change significantly. Hence, before you set up home together or tie the knot, take some time to talk over your financial arrangements. Get things right from the off and you'll have far fewer arguments later on, but hold back or tell a few white lies (for example, about your debts) and you risk undermining your future happiness.

2. Who pays the bills?

Although it's not strictly true that two can live as cheaply as one, there are savings to be made by cohabiting. For example, two adults at one address pay one Council Tax bill, but a single person only enjoys a 25% discount off this sum.

Still, it's clear that you need to decide how you divide up the bills: should it be 50/50 or based on your individual contributions to your joint income? Personally, I favour the latter approach, but some couples take the opposing view. They argue that each partner enjoys an equal benefit from their domestic arrangements, so they should each pay half of their overall housing costs.

For the vast majority of our working lives, my wife was our main breadwinner, so she paid the lion's share of our household bills. Apparently, some men find this situation embarrassing, but I'm fairly enlightened (if not quite a New Man!), so I've never seen any harm in this arrangement. Likewise, now that the tables have turned and I'm the higher earner, I'm now paying the larger share of our expenditure.

3. Single bank accounts or joint?

As I mentioned earlier, my wife and I have maintained separate current accounts over our two-decade association, but are all set to unify our banking arrangements. This is because we now fully trust each other to protect our collective earnings and assets.

My advice to all couples would be: keep things quite separate until you've grown to trust each other completely, at which point you may decide that your finances will be stronger together than apart. Of course, nothing forces you to combine your finances completely, and many couples happily co-exist with completely separate personal finances.

Your personal relationships are unique and, equally, so are your financial arrangements. Remember that, when it comes to money management, one size rarely fits all, so don't be pressurised into a deal which leaves you uncomfortable. If you split up later, as so many couples do, you may regret being pushed into something that leaves you far worse off in the long run.

4. To wed or not to wed?

In time, as your relationship widens and deepens, your thoughts may turn to marriage (or a Civil Partnership for same-sex couples). If a wedding is definitely on the cards, then it's a sound idea to start saving early. With a typical wedding costing around £16,000, a bit of financial planning before your big day can pay off handsomely.

For example, to borrow £15,000 over five years (without rip-off payment protection insurance) via an unsecured personal loan could cost as little as £17,215 or as much as £18,754. This is a difference of almost £1,540, so it pays to shop around for a Best Buy personal loan.

Even better, instead of borrowing to pay for your big day, why not plan ahead by saving up? Anyone who is sixteen or over can open a special kind of tax-free savings account called a mini cash ISA, the best of which pay market-beating rates of interest. You can save up to £3,000 per tax year into one of these accounts, which comes to £6,000 for a couple. Hence, a few years of solid saving could prevent you from spending your first years of wedded bliss in hock to a nasty old bank!

5. The tax benefits of marriage

Although successive governments have done their best to undermine the tax advantages of marriage, getting hitched (or entering a same-sex Civil Partnership) can help you to keep more of your money safe from the taxman's greedy mitts.

For example, a spouse paying tax at the higher rate can transfer cash and other assets to a low-earning or non-earning spouse. So, instead of paying 40% tax on savings, the tax rate might be cut to 20% or even 0%, reducing a couple's overall tax bill. Furthermore, you can accrue tax advantages by transferring shares and other assets between spouses, reducing the income tax paid on dividends and the Capital Gains Tax due when selling assets. I explore this topic in more depth in Eight Taxes To Avoid.

6. Cash and children

Finally, if you think it's tough getting by financially as a couple, try raising the ante by having a child! In all probability, your joint income will fall (particularly during maternity or paternity leave), while your expenses will soar. Indeed, according to recent research from friendly society Liverpool Victoria, the average cost of raising a child from birth to age 21 now exceeds £180,000. Gulp! To get to grips with your family's financial fitness, read Twelve Top Tips For Families and Make Your Child Wealthy.

That's it from me. Happy families!

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