Advice for good joint finances

When moving in together, the important practicality of joint finances is best discussed early on to ensure a smooth transition. Here, Jo and Paul Leon share their story. By Kate de Brito.

“Before we got the card, we took turns to pay for dinners and things,“ says Jo. “You just knew when it was your shout and when it wasn‘t. But, eventually, it became easier to put it on a shared credit card.”

When Jo, 31, and her boyfriend, Paul, 35, moved in together on Valentine’s Day a few years ago, they celebrated with oysters, prawns and Champagne near their new harbourside apartment.

“We were tired from the move, but we were also excited to be living with each other,” recalls Jo, an account manager for an advertising agency.

After several years running the gauntlet of flatmates and shared houses, moving in seemed the next logical step. “I was not really enjoying myself where I was living,” says Paul. “Jo and I had been together for about a year and we were spending so much time with each other it made sense to move into our own place.”

Before beginning the search for the perfect love nest, Jo and Paul sat down to work out how they would handle money matters. Both had individual savings accounts and credit cards, and agreed it was smart to keep their money separate – at least for the time being.

They had enough experience in shared households to want a system of splitting bills and rent that was simple and trouble-free. Neither wanted the hassle of collecting money each week for a household kitty or sole responsibility for arranging rental payments.

Paul, an accountant, had a larger income than Jo, but both agreed it was fair to split expenses evenly. “Our relationship is equal, so we wanted to do everything fifty-fifty. Also, the pay difference wasn’t that huge,” says Jo.

To begin with, they discussed how much they could afford to spend a week on rent without overstretching their budget. A sunny two-bedroom Art Deco apartment in Sydney’s Lavender Bay turned out to be the ideal abode, but Jo admits she wound up paying slightly more than she’d planned. “But I was very happy as the place was perfect for us,” she says.

Talk then turned to household expenses. Jo and Paul agreed to open a joint bank account together. Each month, $1,000 was debited directly from each of their individual bank accounts into the joint account. The accumulated $2,000 per month covered rent, bills and groceries. If bills ran over, they both transferred extra money into the account. “We knew couples who paid their rent separately and paid half of the bills when they came in but, to us, that just seemed difficult,” says Paul.

Jo and Paul later applied for a credit card to cover all household expenses, including entertainment when they were out together. “Before we got the card, we took turns to pay for dinners and things,” says Jo. “You just knew when it was your shout and when it wasn’t. But, eventually, it became easier to put it on a shared credit card and split the repayments when the statement came through.”

They agreed on a credit limit of $2,500 for their shared card, sufficient to cover monthly expenses. And each month, they paid it off in full. “We had an agreement it would only be used for joint expenses. After that, it came down to a trust thing,” says Paul. They also maintained their individual credit cards to pay for personal items such as clothes or presents.

Although the couple was fortunate to find common ground about financial issues early in their relationship, they admit to different spending styles.

“Jo likes to pay off a credit card immediately when the bill comes in, but I leave it to the last minute so the money in the bank keeps earning interest,” says Paul. “But I learned to compromise. It wasn’t worth arguing over a dollar or two.”

Both agree honesty has been integral in maintaining a happy shared household. “I think the best thing we did was keep it simple and straightforward,” says Paul.

Romance aside, one of the side benefits of living together has been the money saved to help them work towards shared goals. Happy to spend time at home together, the pair began saving money by staying in and cooking dinner rather than eating out. They finally merged their savings when Paul accepted a job offer in Melbourne. Jo’s salary went straight into a joint savings account to save for a house deposit and Paul’s salary was used for rent and day-to-day expenses.

The couple married in April last year and recently bought a home together in Sydney’s Dulwich Hill after moving back from Victoria.

“We still have our own credit cards, so if I want to buy Paul something, he won’t see it on the statement – it’s also a good backup,” says Jo. “But really, nothing has changed. We haven‘t had to alter our lifestyle; we’ve just been honest with each other.”

Paul agrees, saying, “Don’t make it complicated. I know people who live together who do spreadsheets, where every single cent spent is accounted for – that just wasn’t us.”

What the expert says

Moving in together may be one of the most romantic decisions you will ever make, but it can also lead to heartbreak if you are not properly prepared. David Rose, head of marketing and products at BankWest, one of Australia’s fastest growing retail banks, advises couples take time out for a practical look at finances before merging households.

Partners who leap into combined living arrangements may quickly discover they know little about each other‘s approach to money. Ideally, says David, they should sit down to discuss money before they rent or buy a house so they know exactly what is expected of them in financial household matters.

“Everyone has their own preferred way of managing and spending their money,” says David. “We see so many different couples and, at times, some people are totally in tune while others disagree. The important thing is to be up-front with your partner.”

Have an honest discussion about how much rent you want to pay, or how much you want to invest in a property if you are considering buying. David says it may seem petty, but clever partners discuss up-front how to split everything, from the cost of bills, utilities and insurance right down to batteries and baked beans. Without proper debate, previously happy couples may find themselves in for some unpleasant surprises.

For those coming to the relationship with substantial savings or property, it’s useful to do an inventory of what you own. This may seem unromantic, but in the event of a breakup, it could save you additional arguments and heartache. In previous generations, it was usual to marry before moving in together, so finances were automatically merged.

“It is more complex these days,” says David. “The trick is to have sufficient flexibility in your financial structures to do your own thing, but also to take care of joint expenses.

“A little bit of planning and openness up-front is the best thing – to talk about what you are trying to achieve, even talking about what you do and don’t want to disclose in terms of your finances. Transparency and openness go a long way to making things work.”

Even though some couples choose to split expenses based on what each partner is earning, David says there is a growing trend to split expenses equally regardless of earnings.

He recommends that separate accounts are kept, at least in the beginning, and to think carefully before opening joint accounts and credit cards. “It’s like any major decision – you should take time to consider what you’re doing. Sharing finances and expenditure is a major decision, so consider it carefully.”

Banks don’t actually issue joint credit cards; they issue primary and secondary cards. David says couples should be aware that the primary cardholder is legally responsible for money spent on the credit account, even if it was done without their agreement.

However, if the relationship ends and you notify the bank, they will cut off access from the secondary card to the account, meaning no further debt can be racked up. But, any debt accrued before you notify them must be paid by the primary cardholder.

If you choose to open a shared bank account, money can be automatically debited from your individual account, so partners retain financial independence and privacy.

Those who choose to open a joint account or credit card to look after household bills can also implement safeguards. Consider setting the lowest possible limit on credit cards and restrict large withdrawals from savings accounts by requiring joint signatures.

“There are no hard and fast rules,” says David. “Every couple will have their own way of doing things. The trick is to figure out what you are trying to work towards.”

On the positive side, living together can have many financial advantages. It’s commonly said that two people can live more cheaply than one. David says moving in together can also spur couples to get their finances in order, pay off debt and start a regular savings plan.

He advises using the budgeting tools available on www.getsaving.com.au, a website sponsored by BankWest, to get a good overview of your financial situation and then discuss it with your partner. Moving in may turn out to be the ideal launching pad to stop living like a spendthrift single and start looking towards the future.

David suggests tracking money and putting savings straight into an account you can’t access easily, whether for a home deposit or to invest in shares. “These are just simple things you can do in terms of starting to build financial stability,” says David. “Try to get into good sensible financial habits of clearing debt where possible and saving money to invest.”

 

Photography: Sam McAdam. Hair & Make-up: Tira Jaye.