Mixing Love And Money
It’s Valentine’s Day and love is in the air. That’s my reminder of the interpersonal challenges that emerge when romance merges with finance. I suggest you align on various financial issues before they create misunderstandings or resentment.
Consider these questions:
- Do you enter the relationship with different assets and liabilities? Does one of you bring a trust fund, but the other student loans? What is the most equitable approach to balance your mismatched net worth?
- Do you have different incomes? Should you split the living expenses equally, proportionally to your incomes, or in some other manner? Also, if you’re married, the lower earning spouse may face a higher tax rate while the higher earner may end up paying a bit less. Is that fair?
- Do you have different attitudes on saving versus spending? Does one of you prefer to max out a Roth IRA every year, while the other prefers to travel with all available cash?
- Does one of you want to borrow money for a wedding celebration and the other wants to elope?
- What is your risk tolerance? Does one of you want the safety of federally-insured bank CDs but the other believes in aggressively investing in stocks with a long-term horizon?
- How much do you contribute to charity? Does one of you support the NRA but the other supports the Coalition to Stop Gun Violence? Should you donate to both or neither?
- Do either of you have children from a previous relationship or parents who require financial support? If so, how do you reconcile the conflicting commitments?
- How much of your kids’ education do you want to fund? Did one of you work and borrow your way through college and the other had parents pay for it?
On the more practical side, review this checklist:
- Do you need a will? Probably, but especially so when you have kids.
- How much life insurance should you have? Once you have kids and a mortgage, more than you think.
- Have you updated the beneficiaries on your retirement accounts? Ensure they reflect your current wishes.
- Do you want a joint bank account? It may be helpful but in this age of venmo and google spreadsheets, it’s not necessary.
- Do you want a joint credit card? There’s never a good reason to share liabilities if you don’t have to so I recommend not to do so.
- If you are married, your taxes may change. You may want to adjust your withholding rate.
Mixing love and money is a journey, but your relationship will benefit from an explicit and shared understanding of these dynamics.