Budgeting For Unmarried Couples: Simpler Than You Might Think

The Importance Of Budgeting as an Unmarried Couple

You are likely to be in two possible situations here. You and your significant other either share everything in one bank account due to simplicity, or you’re both still very separated with your finances.

No matter which camp you are in, it is imperative that you work together as a team to form a successful financial plan, and budget for the future.

It is unlikely that you’re both equally good at budgeting. It is probably more likely that one is better than the other, or alternatively….you’re both just bad.

Be honest with yourselves, would you say you are good with your personal finances?

If that answer is no, then it is likely that you will require even further focus in order to work together to form a good budget, and most importantly, stick to it.

My Current Situation

Currently, my girlfriend and I have been together for around 3 years, and live together. However, our finances are completely separate. Although we do share expenses.

We currently use an app called “Splitwise” which allows us to note down expenses and split them between the two of us. Things like rent, food shopping, bills etc go into this app, and then at the end of the month whoever owes who pays the other individual.

As we currently don’t own any large assets together, we don’t feel as though there is any need for us to have a joint bank account. However, we do work together in terms of working towards financial goals.

For example, we’re both working on saving up for a deposit for a house together. When this happens, we will likely create a bank account together which will go towards paying for the house etc.

How We Split Expenses as an Unmarried Couple

How we split our expenses has changed a little over time. Initially we were quite strict about it. Anything which we both benefit from we split down the middle.

There are certain things which differ now. For example, she pays for the car insurance, while I pay for the car itself. Or, often we just won’t put certain expenses into the Splitwise app. This is partially because we’re in better financial situations than when we first moved in together, and partially because we know that a missed expense will be made up by the other person at a later date. For example, I might pay for the shopping one week, and she will pay for it at another date.

However, the general rule is anything which benefits the both of us, is split down the middle – with some flexibility for specific situations.

The question is – is this the best way to split your expenses as an unmarried couple?

I think it depends heavily on your personalities and financial situation. I think if you’re both living well below your means, then you have the ability to be a little more flexible with your expenses and how you split them. I also think it depends on the salary discrepancy between the two individuals. For example, if one person is paid £100,000 per year, and the other is paid £20,000 a year, I don’t think that certain expenses should be split evenly.

It also depends on your spending habits compared to your salary. To use the above salary split as an example, if because of the £100k salary, you’re able to buy a really nice house which has quite an expensive mortgage, I don’t think the individual being paid £20k per year should be paying for 50% of the mortgage. If however, you’re being paid 100k, but you buy a house in which the mortgage is based upon a combined 40k a year salary, and you both pay 50% deposit each….then it is a different situation. It really depends on at what level you live based on your income I think. 

If you individually can afford a £30k car, but your significant other can only individual afford a used £6k car – then it is completely unfair to expect them to pay 50% of the value of the £30k car.

It is all common sense, and there should be an open and honest dialogue as to how you both feel comfortable in splitting your expenses.

Should We Combine Our Finances?

I think this heavily depends on where you are together in your relationship, as well as the general benefits of having a combined bank account.

It may, for example, be beneficial for you to apply for a mortgage with a joint bank account. Or if you have a child together, it makes sense to have a bank account where all the expenses for the child come from. You can’t sit there adding all the many expenses associated with having kids into an app to share them. Once you have children, you’re bound together in life and financially.

However, I also stand on the fence that if you’re not in either of those situations, then there is very little benefit to combining your finances. It blurs the lines of who owns what a little too much, and it makes things incredibly complicated in the unfortunate event if you were to split. I know many people would disagree with me, but I stand on the viewpoint in having a prenuptual agreement in place when getting married. I know my girlfriend disagrees with me strongly on this, and views it as setting ourselves up for failure. However, I’m an accountant at the end of the day, and I’m all about managing your financial risk. You never know what will happen in the future. I could be in a horrific car accident and be wheelchair bound, and she doesn’t want to stay with me. She become terminally ill, how do the finances work then? I believe people look at a prenuptual agreement as too simple of a document. It isn’t as simple as “if we break up, I get X, you get Y”. You wouldn’t turn down house insurance because otherwise you’re setting yourself up for your house burning down, that would be madness.

So, I think the answer here is, only combine your finances if it is fully understood by both parties, and protected from both sides. If you both have differing views on a prenup, then I would say keep your finances separated, as this keeps everything simple.

Couple’s Fighting About Money

It is quite common for couples to fight about money. In fact, it is noted as one of the most common causes for divorce. 

The best way to avoid any disagreements when it comes to your joint finances is to set out a plan which you will both abide by. If you’re both open and honest with your wishes and expectations, then there is often not much to argue about.

One of the most common themes when it comes to couple’s fighting about money is one of the individuals’ spending habits. Whether it is you or your significant other who is a bit of a demon with the credit card, it can be a polarising discussion point within a household.

The important thing when it comes to disagreements about money is to try and see it from the other persons point of view. Habits often develop over time, so try and put yourself into their shoes and understand where this poor spending habit has stemmed from. It can often be related to how their parents spent their money. Either they will copy their parents style, or perhaps deviate to a dangerous opposite. For example, if their parents liked to save everything, they may have grown up with a dislike for this. Therefore, as they grew up, and had their own money to spend – they did the opposite of their parents.

It is important in these situations to be as patient as possible. It is likely that if a specific habit your parner does is getting on your nerves, that it won’t change overnight. Make sure you discuss this openly with your significant other and try and help them cut the negative habit out of their life. Encourage them to keep track of their spending, and offer help wherever possible, but at the same time, make sure you are not putting too much pressure on them to change, as this will likely have the opposite to desired effect.

Try and micro-analyse your spending habits. If one of you slips up in your financial plan, then try and gain an understanding of why. Perhaps you were having a bad day, and you felt as though going on a shopping trip would help you feel better. Understanding our emotions and reactions causing financial actions is one of the keys to overcoming poor financial decisions, and working as a couple to financially succeed in life.

Teamwork Makes the Dream Work

I’ve sort of echoed this point throughout this post. The key to being a successful financial couple – and I mean that purely in the sense that you reach your financial goals and targets, and don’t have any financial issues – is to work together.

I think your teamwork can be broken down into three key areas:

1. Communicate clearly and regularly

If the two of you have individual financial goals, make sure you discuss them, and set out plans on how you’re going to achieve them. It might even be worth having a monthly discussion on finances, and where things went right or wrong during that month. The more you treat your finances like a workout or a skill you’re trying to learn together, the better the outcome will be.

Perhaps you could go for coffee on the first Sunday of every month to discuss finances, and how you’re going to attack your goal for the upcoming month. Although if you’re in a scenario where a lot is currently changing in your lives, you might want to make this a weekly occurence. For example, if one of you loses your job, or you have a newborn baby, there might be more regular discussions required.

I also think you should have a joint excel sheet (or Google Docs) where you can track your goal, and see how you’re progressing. I like to have something I can visualise within a spreadsheet.

2. Share Responsibilities

Making sure each of you have your own responsibilities can be a great way to make sure things get done when working towards your goal. If you know it is your job to pay the rent at the end of the month, you will maintain ownership of that task and make sure it is done well. There are a lot of tasks when it comes to running a fluid system of finance in your lives, so it really does help if you share the load.

Having one person in the relationship which does everything when it comes to your finances can become a burden over time, and just cause arguments in the long run.

3. Define your Goals

In order to achieve all of the above recommendations, you have to set goals to work towards. Making sure that you’re working towards the same goals is essential, as having differing goals can result in your actions being counterintuative to the other person’s targets.

For example, you may wish to both retire at 65 – therefore you should set out a defined goal and target as to how you are going to achieve this together. This would require planning out deposits into an investment fund or Pension, and figuring out how much money you will require once retired in order to live comfortably.