Three Stages of Financial Stability for Couples
There are three stages in life a couple needs to consider when striving to achieve financial stability; the present, the future and the unexpected.
In today’s society, many couples no longer see marriage as being a prerequisite for combining finances. With more couples cohabiting and having children prior to getting married, establishing financial stability within a couple is something that can no longer be put off until a future date.
The Present
When entering a financial relationship with your spouse it is important to be completely honest and open about your existing circumstances.
From discussing your income and outgoings to declaring any existing debt you may have outstanding, it is important to be completely transparent with your significant other to ensure they have all the information required to make an informed decision about entering into a financially combined relationship with you.
Once, existing circumstances have been established, as a couple you should then draw up a budget. Agree on how much of your income you are willing to combine and equally set expectations on the amount of outgoings and debt payments you are willing to share.
Setting out a clear, segmented budget will allow you to ensure you can cover all expenses over the course of a month whilst avoiding getting into further debt. It will also set expectations on the amount of recreational spending which can take place without causing frustration on either side.
The Future
Once your day-to-day spending has been determined, it is important to begin looking to the future. This may come in the form of working towards fulfilling aspirations or forming a contingency plan for unexpected occurrences.
Nothing in life is certain, meaning that there is always the likelihood of unexpected outgoings making an appearance. This may be a broken car, unexpected dental appointment or even a speeding ticket.
Whatever the outgoing, it is always good to have some savings to cover this, to avoid putting unnecessary strain on your monthly budget.
As well as unexpected outgoings, there may be future aspirations you and your partner have which will require the use of savings. For example, getting married, buying a house or starting a family all cost a significant amount of money and are unlikely to be able to come out of your day to day budget.
A good way to build up your savings is to put away a certain percentage of your monthly income into a separate account and allow the balance to accumulate. Even a percentage as small as 5% can build a significant amount over the course of the year.
The Unforeseeable
Although not pleasant to think about, when part of a financially combined relationship, it is important to consider what would happen if either partner were no longer around.
Mortgages and children bring with them huge financial strain for couples, let alone if one partner was left to cover these outgoings as well as day-to-day living costs alone.
Taking out adequate life insurance cover can provide financial stability for you or your partner so the other of you pass away.
As a couple, there are two main combinations of life insurance available; 2 single policies or one joint policy.
On a monthly basis, joint life insurance is likely to be cheaper due to only paying one premium and the application process is more succinct due to certain questions only needing to be answered once.
A joint life insurance policy, however, will only pay out once (usually upon the first death). This leaves the remaining partner uninsured and needing to obtain new cover at an older age (resulting in higher monthly premiums).
It also means that if the couple has children and both partners die together, the pay out sum of the policy may not be sufficient enough to cover the financial loss of both parents.
Therefore, when deciding whether to opt for joint life insurance or two single policies, it is worth considering who the policy is being put in place to protect.
For example, a couple looking to cover one another may be adequately covered by a joint life insurance policy, whereas a couple looking to cover their children may feel more comfortable with two single policies.
Summary
When aiming for financial stability for a couple it is important to plan for three main stages of life; the present, the future and the unforeseeable. To achieve this it is important to;
Be open and honest about existing financial circumstances
Create a clear and concise monthly budget
Set expectations on recreational spending
Put aside savings for unexpected outgoings
Identify any future aspirations which require financial backing and save accordingly
Take out adequate life insurance cover to prepare for the worst