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Money mistakes couples make
Avoid these common pitfalls if you are in a relationship. Image: Getty.
Singles have their own personal finance challenges to contend with.
But for couples, the consequences of bad money management -- debt multiplied, foreclosure, even divorce -- can be far more costly and significant.
That's why it's important to jointly develop and frequently reassess a family financial plan throughout your relationship.
Here are some common money pitfalls for couples, with advice on how to steer clear of trouble or overcome problems. Take a look.
Living Together Without a Shared Lease and/or Cohabitation Agreement
Why it's a mistake: If your significant other's name is the only one listed, "you leave yourself open to being thrown out on the street at a moment's notice" if you break up, says Kevin Reardon, a certified financial planner and owner of the Pewaukee, Wis.-based financial planning firm Shakespeare Wealth Management.
How to avoid it: Both parties' names should appear on the lease, suggests Reardon.
Couples should also consider drafting a cohabitation agreement that clearly states the living arrangements they've agreed to.
Related: The worst financial blunders of the 21st century
It might include how much each person pays for rent and utilities, for example, or state whether one person is financially supporting the other; or confirm how much each person contributes to a joint bank account, says Celia Rechtshaffen Reed, a lawyer with Gillespie, Shields & Durrant.
Putting it down on paper helps to protect both parties if there's a breakup. You can seek out the help of a lawyer in writing a cohabitation agreement, but a basic agreement can cost up to $2,000, she says. If you draft your own, be sure to get it notarised.
Not Having a Money Talk Before Marriage
Why it's a mistake: Couples who don't have a money talk may ultimately be surprised by the costly impact that one partner's low credit score has on the interest rate for their mortgage and other loans. You'll also be more likely to fight about budgeting, saving and spending habits.
How to avoid it: Early and frequent communication with your sweetheart is critical to help avoid fights down the road, says Cathy Pareto, a financial adviser in Coral Gables, Fla. Several crucial issues should be up for discussion before marriage, including how much money each person earns, where it comes from, where it has been and will be saved and invested, and where it's spent each month.
Keep in mind that this is just the beginning. Throughout the course of your relationship, you'll want to discuss your finances regularly and update your plans and budgets as necessary.
Making One Person Responsible for Household Finances
Why it's a mistake: Designating one person as the family money manager can make one partner feel burdened by a thankless job, while the other feels out of the loop.
Related: Five unusual ways to make extra money
And in the event of a divorce or the death of the spouse who handled the finances, the less-involved spouse is exposed to a variety of financial risks.
How to avoid it: Both individuals should be active participants in the managing of household finances.
A simple solution for couples is to take turns each month managing the checking account and having a regular check-in meeting so that both spouses are aware of what's happening on the financial front. Both partners should attend meetings with financial advisers.
Not Having Separate Personal Bank Accounts
Why it's a mistake: It's easy to fight about one spouse's personal expenses from a joint account.
How to avoid it: Set up a joint checking account and open a joint credit card for mutual expenses, but maintain separate personal checking accounts and credit cards for the occasional splurges. Establish boundaries regarding how much you each can hoard and/or spend on your own.
Saving for Your Children's University Education Instead of Retirement
Why it's a mistake: You won't get any grants or scholarships to support you in your old age, nor will you have the income or time to catch up once you retire.
You could even harm your student's chances for financial aid.
How to avoid it: Throw everything you have at your retirement accounts.
There are some exceptions. Save for university if you are lucky enough to fit one of the following scenarios, says Deborah Fox, of Fox College Funding: You know you will receive an inheritance or are the beneficiary of an irrevocable trust that will cover your retirement needs.
Related: What men can teach women about money and vice versa
You plan to retire at midlife with a pension and start a lucrative second career. You have a guaranteed pension that will be enough to support you in old age. You are in a profession in which your income will jump significantly later in your career, allowing you to catch up on retirement saving. You have income-producing property or other assets that will provide enough money to support you after you leave the workforce.
Not Having Income Protection Insurance
Why it's a mistake: The loss of even one income source can jeopardise a couple's ability to pay monthly bills and meet savings goals.
How to avoid it: Buy an income protection policy, which will replace a portion of your income should an illness or accident prevent you from working, if you're self-employed. Or get a supplemental plan if your employer coverage is skimpy.
The policies pay monthly benefits if you can't work at all, and some pay partial benefits if you can work only part-time.
"Disability insurance is not about you," says Connie Golleher, chief operating officer of the Holleman Companies, an insurance advisory firm in Chevy Chase, Md. "It's about your family not having to deal with the consequences" of a breadwinner's disability.
