Wedding season is here and as couples across the country celebrate their love with friends and family, we wanted to offer Canada’s newlyweds a gift of our own: the financial advice you’ll need to build a lifetime of happiness.
Money is one of the most important elements of your shared life together.
No matter your hopes and dreams, your financial situation will influence whether you’re able to get there.
But if managing money as an individual is hard, managing money as a couple is even harder. Some studies have found that money is the leading cause of stress in relationships.
New couples may struggle to understand the “best way” to organize their money. That’s because there’s no one-size-fits-all way to manage your money. The best way to manage your money will depend on your values and situation as a couple.
In fact, we ran a survey of 400 Canadian couples and found that the way couples manage their money can differ from household-to-household, more than most people realize. You can find that survey here.
Want to avoid letting money stress get in the way of your relationship? We’ve got you covered.
Here are the top things you should consider as you marry your finances:
Start with a plan
When it comes to money, one of the most important things a couple can do is to get on the same page about their goals.
Planning ahead can have a huge impact on your financial outcomes. People who have a financial plan are far more likely to succeed in achieving their goals in the long term. Yet, 31% of couples haven’t developed a financial plan.
Start by having an open conversation about your short and long-term goals. You’ll also want to establish some shared financial values including what you’re comfortable shelling out cash for and what you can live without. Next, you’ll want to outline how you’ll share expenses, pay off debt, and invest. We’ll look at the different ways to do all of those below.
If you don’t have a clear idea of your financial goals, you can work with a professional financial adviser to make a plan that helps you build your assets over time while covering the day-to-day needs.
Setting expectations from the outset will reduce surprises and keep inevitable disagreements from turning into full blown arguments.
If all’s fair in love, don’t let household expenses be the exception. These days, most couples expect to share at least some costs.
Sure, it may be nice not to keep tabs of who foots the bill on date nights, but if you have no way to track day-to-day costs, the breakdown will become uneven over time.
Not surprisingly, most couples choose to divide expenses down the middle with both partners contributing equally. This makes sense for many couples, but it’s not right for everyone. If one partner makes significantly more money than the other, for example, you might choose to both contribute proportionate to your income.
That said, expect that there will be times in your relationship where you or your partner may have to contribute an uneven share depending on your employment situation.
Open a joint account
Regardless of how you decide to share expenses, setting up a joint bank account or credit card is usually the best way to cover costs and keep track of the bills. But don’t worry about losing control of your money! Doing so doesn’t have to mean surrendering all your financial independence.
Many couples choose to maintain their own bank accounts for individual spending while pooling resources in a shared account for the essentials. And while we hate to remind you that divorce exists, maintaining separate accounts can make things easier if your relationship ends.
We get it. Nothing kills the romance faster than bringing up debt. But there’s a reason financial guru Gail Vaz-Oxlade called her show “Til Debt Do Us Part”. Overlooking it will inevitably harm your relationship—or at least your bank account.
Canadians hold some of the most household debt of any developed country, and even the most frugal spenders will likely have to borrow money at some point for larger purchases like a home or vehicle.
To get on strong financial footing, you’ll want to start by tackling any high-interest debt such as credit cards. With two incomes, you may be able to pay it off faster by contributing together. If you do tend to hold a credit card balance, you’ll want to come up with a plan to avoid doing so in the future. Start by moving your day-to-day spending to debit and cash. If you still need lending options to cover a big balance, you may be able to access lower rates through a line of credit.
Next, if you or your partner hold individual debt like student loans, decide how you’ll handle repayments. Just like the decision to maintain separate bank accounts, you may choose to keep this separate, or you can treat it like a shared expense to pay it off sooner.
Finally, look at your options for bigger loans such as mortgages. Regardless of whether you’re entering the housing market, upsizing, or downsizing, you’ll want to find a repayment plan and timeline that you both feel comfortable with.
If there’s one financial habit that most Canadian couples are optimistic about, it’s investing. But many aren’t sure where to start and how much they should be saving.
A good rule of thumb? Aim to invest 10% of your income together. If you can do that, you’ll be moving in the right direction. The best way to build your wealth over time is to save money consistently as you earn it (say, every paycheque, for example) and to invest those savings in a diversified portfolio.
Right, so what should that portfolio look like? For most couples, the winning strategy isn’t going to be just picking stocks. It may be easy to know when to buy, but most investors don’t know when to sell. Meanwhile, it’s easy to fall victim to biases that cloud your judgement. Instead, consider working with a robo-investing service that automatically invests your money into professionally diversified funds.
Your own financial situation and goals will help guide the level of risk you should take and the type of account you should use to achieve each of your goals. For example, if you need to use money in the short term, you may want to hold cash savings or a conservative portfolio in a TFSA. On the other hand, if you are saving for your long term retirement income needs, a higher risk portfolio in an RRSP might make more sense since you have more time to ride out the short term swings of the market.
Take advantage of tax opportunities
Many couples (reluctantly) think about taxes only once a year. But you can’t outright avoid them. You might as well embrace the opportunity to save money where possible.
One option for couples who have significantly different incomes is to have the higher earning partner contribute more to a spousal RRSP, while the lower earner takes on more of the household bills, for example. The higher earner would typically have a higher tax burden and may benefit from a greater tax savings, which can be reinvested.
Meanwhile, you can pool your charitable donations, medical expenses, public transportation costs, and childcare expenses onto the person’s return where the savings are maximized to take advantage of savings.
Need help building a joint financial plan?
That’s what we’re here for. CI Direct Investing clients get access to unlimited advice, from a financial adviser who is looking after your interests, commission-free. Not a client yet? Get started with a free introductory call today.
Disclaimer: This blog post is provided for informational purposes only and is not to be considered as investment advice.