Moving in together? It’s a big and exciting step in a relationship. Take the time to agree on money and financial matters upfront and you’ll avoid problems in the future.
When you live with your partner you share your personal space, your possessions, your good and bad habits, and of course money. It’s an exciting time, but with so much change in your lives, stress isn’t unusual. We’ve come up with a three-point plan to help you discuss your finances before you move in so you can avoid some of the conflict and misunderstandings that can arise. Follow the plan and you’ll know what to expect from your finances and how you’ll manage your budget, giving you more time to enjoy living together.
Spend a little time talking about money before it causes a problem
Why is talking about money before you move in so important?There are two main reasons:
- Money is a source of stress in many relationships, and often the cause of a breakup. If you as a couple agree upfront on a financial plan and on how you will manage your money, there’s less chance of conflict.
- To most of us the term ‘common law marriage’ means living together in a committed partnership, however common law marriages are not legally recognised in South Africa. This means that if your partner passes or you part ways, you are not legally entitled to any share of their assets, including property, even if you contributed to the purchase price, costs and maintenance. And if your partner paid some of your expenses you won’t be entitled to any compensation. To protect yourself financially, agree on some money rules before you move in together and consider formalising them in a cohabitation agreement (see more on this below).
Your three-point planWe’ve included the three points for discussion below. You should agree on at least two sessions where you will discuss money. You don’t have to solve all your issues in one go. You may need a time-out to think about issues raised and come up with compromises or other ideas on how to manage your money.
Start with: Your current personal financial state
You’re sharing your lives, so you need to be upfront about what you earn and how you spend it. You should include:
- Your budget
- What you earn
- What you spend
- Your assets
- Your debt, and how you are paying it off
- Any other financial commitments, such as child support
This is a good starting point for deciding how much you each contribute to joint expenses.
Move on to: How you will share finances as a couple
Be prepared to discuss how you manage money, and how you would like to manage money in your partnership. What are your individual goals and your goals as a couple? How do you think about money in your own life? How do the two of you differ in your earnings, financial behaviour and habits?
These items will form part of your discussion:
- Property: Where will you live, will you buy or rent, will you buy new property jointly or as individuals, and what happens to any property you already own? Who will pay the bond or rent, and how will you cover the cost of home maintenance? If your relationship is new you may want to retain your existing property or rent it out on a short-term basis, at least until you are fully confident of your new live-in relationship.
- Monthly expenses: How will you split the bills? Do you divide everything down the middle? If one partner earns significantly more than the other, do you split it based on income, say 60/40? Or are you each responsible for certain agreed upon items?
- Bank accounts: A joint account will be cheaper (lower bank charges) but if you break up or one of the partners passes, the bank account may be frozen. You might prefer to have more control over your own money and keep individual bank accounts, especially in the early days of your relationship. Discuss the options. You could, for example, have a joint account for household expenses and contribute an agreed amount to it monthly, and then have separate personal accounts.
- Vehicles: Do you need one, two, or maybe no cars? How much will you spend on petrol and how will you cover the cost of car maintenance?
- Debt: What debt do you have and how will you manage it and pay it off. Also think about future debt - when will you use debt, for example will you save for a new car or buy one using vehicle finance?
- Medical aid: Most medical aids allow a cohabiting partner to be a beneficiary on the medical aid, and it should result in cheaper premiums.
- Insurance: You will need to insure your property and belongings. One short-term insurance policy will be cheaper than two, but you can choose to keep separate policies for items such as a car and devices, especially if the relationship is quite new. If you are in a fully committed relationship you should also take out life insurance to ensure that one partner isn’t left in financial distress if the other passes on.
- Savings, investments and pension funds: One of the financial advantages of living together is that you can save money. For example, you’ll only have the one electricity bill, and only one rent bill or home loan repayment. Which means you might have more to save or invest. Consider your individual goals and your goals as a couple. Decide on what you will save for individually, together, and where you will save, such as in a savings or investment account.
- Budget: Who is going to be responsible for balancing the budget every month, or will you do this together?
- Big money decisions: When you need to make a big money decision such as buying a new home or car or taking a big loan, how will you agree on a plan to do this? Deciding on an approach to this should avoid the situation where one partner spends without consulting the other, leading to friction in the relationship.
Final step: Make it legal
If you are in a long-term committed relationship or plan to have children, it’s a good idea to consider formalising your arrangements:
- Draw up a cohabitation agreement: Although common law marriages are not legally recognised in South Africa you can formalise your financial arrangements in a cohabitation agreement. This will detail your assets, what you contribute to the partnership and what happens if one partner dies or the relationship ends.
- Draw up a will: It is crucial that you update your will if you intend naming your partner as your heir. They will not inherit, or they may face a lengthy and expensive court battle to inherit if you do not name them as your heir.
While you can do these informally, it is best to get a lawyer to complete these documents and formalise them so they will stand up in court.
Finally, remember to update beneficiaries on pension funds and insurance policies.
Your money plan must fit youMoney is a personal matter, and you might have different views on how to manage your finances. Having an open and honest discussion about your finances and your financial goals is the starting point. The time to do it is before you move in.