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As much as you love your partner, there are times when you need your own space! Your money is no different. Sometimes it makes financial sense to share your money and assets, and other times it is a smart move to keep them separate. Here’s how to safeguard yourself and your finances.
Living expenses: Share and save
Sharing expenses in a relationship can be a significant boost to your budget. Just think of the savings you make on one home loan or one month’s rent alone! This is an example of where it pays to go in it together.
Bank accounts: Keep separate
Sharing a bank account usually means the account is in the name of one partner, who is the account owner, with the other partner as signatory.
The partner who is a signatory effectively has no bank account and cannot build up a track record of how well they manage their bank account and credit. For example, not having bounced debit orders or going over an overdraft limit will build a better track record and credit score for the account owner, not the signatory. When the account owner dies, the signatory will find themselves without access to funds as the bank account will be frozen. In addition, the owner of the bank account can remove the other partner’s signatory powers at any time without any warning.
Separate bank accounts doesn’t mean you can’t share expenses. You can open a new account for shared expenses that you each contribute an agreed amount to every month to cover shared costs.
Investments: Keep separate
Even if you have shared investment goals, having your own investments means you have access to the money you have saved and invested, and can withdraw funds if you need to. And, as with bank accounts, if something happens, you don’t run the risk of being left without any investments or access to the money you have contributed.
Short-term debt: Keep separate
There are two reasons to consider keeping your short-term debt separate in your relationship.
Firstly, if one partner racks up too much debt the other may be liable for these, even if the relationship ends. For example if you co-sign on debts, stand as surety, or are married in community of property you may be liable for your partner’s debts.
The second reason to keep your short-term debt separate is to ensure both partners can build a good credit score. Having short-term credit and managing it well, for example paying amounts due on time, is a good way to build a credit score. This is difficult to do when you have joint accounts, which could leave one partner with a low credit score and difficulties signing contracts, such as for new credit or even a cell phone contract.
Home ownership: Share if it makes sense and you have an exit plan
Home loan repayments have become a lot more expensive recently, making it hard to afford a home loan on one salary. Taking a joint home loan can set you on the road to property ownership. Make sure you have an agreement that details what happens to the property and loan if your relationship ends, for example you sell the home and split the proceeds, or one partner keeps the property and pays the other partner an agreed sum of money.
If one partner purchases property and takes out a home loan, they are the owner of the property and responsible for paying the home loan, even if the other partner contributes in cash or kind, such as maintaining the property. Here, you should also have an exit plan, such as a legal contract or legal cohabitation agreement that sets out any financial arrangement when you split up, such as the partner who owns the property paying an amount to the other partner for their contribution to the property.
Finally: Protect yourself against unforeseen expenses
Insurance such as home and motor vehicle insurance, funeral cover, as well as medical aid, protects you against unexpected, untimely losses that can wipe out your savings, wealth building plans, and leave you in debt! Take out short-term insurance, funeral cover, and consider medical aid to protect yourself and your partner against these costs. You may also be able to get lower premiums if you have one policy covering both of you than two separate policies!
Life insurance, with your partner as beneficiary, will ensure you have funds to pay expenses and even pay off debt if your partner passes.
Be practical, up to a point
Healthy finances go a long way towards healthy relationships. Talk openly and honestly about money and work towards agreeing on how money should be spent, saved and invested. Take care of the money and you have financial peace of mind and one less area of conflict in your relationship!