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Money and finances are a common source of disagreement and stress

When you get married, or cohabit, you are not just blending your hearts and lives together, you are also combining your finances. So it is important that you take the time to discuss and plan how you will manage your combined resources in order to ensure financial security for both of you.

But it's not uncommon for money to cause major problems in a relationship. In a recent survey, 27% of couples claimed money has caused them issues, an increase likely related to the cost of living crisis[1]. Interestingly, the older generation seemed to have fewer arguments about money, with only 12% of them saying it has caused an issue compared to 35% of 35-44-year-olds.

No one-size-fits-all approach

When it comes to managing finances as a couple there is no one-size-fits-all approach, especially in these trying times when prices are constantly rising. 38% of couples prefer having some mix-and-match accounts with money in both joint and separate accounts, 29% opt for pooling both incomes into a single account, and 27% keep things completely separate.

Openness and honesty are meant to be key components in any successful relationship; however the figures revealed that 26% of 35-44-year-olds had lied to their partner about money while only 12% of those over 65 confessed the same.

Set realistic expectations

The good news is that, overall, 47% described talking about finances with their partner as being natural and part of daily conversation. 11%, mainly among 35-44-year-olds, find it awkward while 10%, also mostly coming from this demographic group said they would avoid doing so altogether.

Building a secure financial future with your partner starts with planning. Honesty is the best policy when it comes to finances; couples should have clear, open conversations about their financial issues, hopes and aspirations. Doing this will help set realistic expectations, address any potential problems, develop a budget that works for both of them and create an overall stronger financial plan.

Make informed decisions

Agreeing on one or two shared goals as a couple can provide you with an additional source of motivation to stay on track. Once you know your goals, you'll be able to make informed decisions about how much money to save and where to invest it.

For example, if you have a goal of moving into a bigger property in three years' time, then it might be wise to put that amount into a cash savings account in order to minimise risk. For longer-term goals (10+ years away), investments in the stock market may provide more growth potential in the long run and improve your chances of hitting your targets faster.

Advantage of tax benefits

Appropriate tax planning will ensure more of your money goes towards your future. Consider taking advantage of the tax benefits available through Individual Savings Accounts (ISAs). Each partner can currently contribute up to £20,000 (for tax year 2022/23), enabling you to shield the money from Income and Capital Gains taxes.

You may also benefit from the Capital Gains Tax exemption, which lets both partners realise up to £12,300  (for tax year 2022/23) in investment gains without paying anything. However, the threshold for paying Capital Gains Tax has been reduced to £6,000 for the 2023/24 tax year and will be cut again to £3,000 in the 2024/25 tax year.

Worst-case scenario

For married or civil partnerships couples, this exemption could be further doubled as investments can be transferred between partners tax-free. Additionally, every person has their own personal savings allowance where they don't have to pay tax on interest earned up to a certain amount, so you should take advantage of this.

Considering the 'worst-case scenario' can be a tough conversation to have, but it's one that you and your partner should have in order to ensure that you are both financially secure. Taking out the right insurance policies and drawing up a Will may not make for the most romantic dates, but they are important steps to protect yourselves financially. By doing these two things, you can rest assured knowing that your wishes will be followed, even if one of you passes away or suffers from an illness.

Ready to discuss your financial situation to make sure your money is being managed responsibly?

When you are in a relationship, it is important to arrange your finances as a couple. As we’ve seen, couples often face financial challenges such as making ends meet, planning for retirement and saving for future goals. By taking the time to discuss your financial situation, you can make sure your money is being managed responsibly and that you are on the same page financially. To discuss how we can help, please contact us.

Source data:

[1] RBC Brewin Dolphin survey as at 30 June 2022.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

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