If you and your partner are considering a long-term future (whether that includes marriage or not), talking about merging your finances is an important step. There’s no right or wrong way to do it, but you’ll have to talk about money eventually. And for many people, that can be uncomfortable.
As a new physician, you’ve probably already experienced a few tough conversations. So why is it so hard to discuss finances with your new life partner? Talking about money is personal and emotional, so it’s not surprising that money issues are a leading cause of stress in a relationship.1
You can help start your partnership off on the right foot, financially, by asking these five key questions — before you take the next big step.
1. Where do we stand financially?
It’s important to talk about your salaries and other compensation, and share what you each own and owe. These components make up your joint balance sheet, and will give you both a clear understanding of your combined financial picture.
Conversation starter: Let’s get on the same page about our financial situation. What are we earning? What do we own? What do we owe?
2. What are our financial goals and dreams, and what drives our decisions about money?
Odds are good that you and your partner have very different approaches to money and financial issues. Learning the motivations — and the history — behind your money habits can help you to be more understanding of each other’s style. For example, a saver might equate money with security, while a spender likely values the experiences or things that money provides.
Can you make the relationship work if you’re polar opposites on the financial personality type spectrum? You can if you find common ground. Do you want to set up a practice? Do you both want to buy a home? Start a family? Recognizing shared goals — and their importance to both of you — may mean that you’ll each be more willing to change your financial habits to achieve them.
Conversation starter: What do you ultimately want to achieve financially? Why are those goals important to you? Have you already made progress toward them?
3. How can we manage our finances — together?
There are many advantages to opening a joint account with your partner. It’s much easier to pay shared expenses — and to keep track of spending — when your money is all in one place. On the other hand, if you’re used to keeping your bills and expenses private, sharing an account could mean forfeiting that financial autonomy. One solution is to establish a shared account for regular bills and expenses, with each partner maintaining a separate account for discretionary spending.
Conversation starter: As a couple, how do we want to handle shared expenses and individual discretionary spending?
4. What’s our debt situation right now?
Whether they have student loans, a vehicle loan or credit card debt, many people (particularly early career physicians) enter long-term relationships with a debt burden. Legally, pre-existing debt is the responsibility of the person who incurred it.
If you’ve incurred debt while training to become a physician, there are special programs that ensure you can still get access to credit and preferred lending rates if you want to take on more debt — to say, buy a home. And as you transition into practice and your income grows, you may be able to integrate your debt into a professional line of credit.
But debt can still put a huge strain on a relationship. So whether you work together to pay off your debts, or each go it alone, having a plan to eliminate debt will go a long way toward establishing a harmonious future.
Conversation starter: As a couple, it’s in our best interest to pay down the debts with the highest interest rate first. Let’s figure out our combined debt and plan the best way to reduce it. That way, we can save for the things that mean the most to us.
5. What if we split up?
While no one is thinking about ending a partnership while in the early stages of planning to spend their life with someone, it’s important to at least consider this possibility. Especially if one or both of you have waited until later in life to commit to a relationship, and have had more time to build up assets, you may want to protect what you’ve earned and saved.
A pre-nuptial agreement (if you’re planning to get married) or a co-habitation agreement (if you’re not) describes what you and your partner are entitled to financially should the relationship end, and spells out how you’ll handle the financial aspects of your relationship as a couple. Without a “pre-nup,” the value of what a couple owns is generally split down the middle.
Conversation starter: This is awkward, but we should discuss whether we want to protect what we’ve built up individually. What are your ideas on how we can best do that?
At an impasse?
Everyone feels differently about money, but having a candid conversation about how you’ll handle your finances as a couple is a crucial component of a successful relationship.
You can talk to an MD Advisor* for guidance on any of these tips, and you can also find other financial planning ideas on our Invested MD website.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
1 Business Wire, Money Ruining Marriages in America, www.businesswire.com/news/home/20180207005698/en/Money-Ruining-Marriages-America.