Budgeting with a New Partner

Budgeting with a new partner might not sound romantic but laying the foundations for financial success could make all the difference to your happiness as a couple. 

Financial challenges are one of the biggest reasons for divorce. As such, understanding how to budget together could be the glue that keeps you together.

Couples’ financial planning: how do you budget for a new relationship?

If you’ve decided to live with someone special, then you’ll have to plan on how you split your bills. This includes everything from weekly food shops and electricity bills to mortgage or rent payments. 

However, it’s not always easy to decide how you’ll split the bills. That’s why we’ve put together a comprehensive guide on:

• Managing finances together efficiently
• Dividing joint and personal finances
• Communicating about money in relationships

The first thing you should do is get clear on your shared financial values and priorities.

Identifying shared values and priorities

You and your other half have probably discussed the things you’d love to do together. Maybe you want to buy your dream home. Book the once in a lifetime trip to Barbados. Launch a business. 

Once you get clear on your shared values and priorities, budgeting for the long term will be much easier.

Establishing short-term and long-term goals

When you know what your overall plans and priorities are, you’ll be well-placed to create short-, mid-, and long-term goals:

• Anything you can pay for in 2 or less years is a short-term goal. These goals might include buying Christmas presents or saving for a special holiday.
• Anything that will take two to five years to finance is a medium-term goal. These goals might include saving for a baby or funding the wedding you always imagined.
• Anything that will take longer than five years to finance is a long-term goal. The most important long-term goal is likely to be saving for retirement. Maybe you’ll even save for an early retirement with a round-the-world trip.

When setting your goals, follow the SMART formula to get clear on how these will take shape. SMART goals are:

• Specific: Be exact about what you want to achieve together
• Measurable: Pin down an exact figure that you’ll both aim to save
• Achievable: Make sure you’ll be able to accomplish your goal based on both your current and predicted future incomes
• Realistic: Check whether it makes sense for you to work towards this financial goal and work out whether you’ll have to make any sacrifices to make it happen
• Time-based: Give yourself a timeline to reach your goal based on whether it’s a short-, medium-, or long-term goal

Use this formula to adjust your goals, and revisit them at any time as your finances change.

Discussing financial expectations and preferences

When you start budgeting with a new partner, you may find that you have different expectations about how you’ll spend your money. For example, one of you might assume you’ll split all your bills 50/50, while the other might expect you to split your bills based on how much you earn.

Should relationships be 50/50 financially?

When budgeting with a new partner, you may decide to split your finances 50/50. But what if your incomes aren’t similar? This could lead to one of you putting most of your payslip towards shared expenses while the other has lots of extra cash to spend.

Another idea is to keep all of your income in a joint account. Being able to pay all your shared bills from one place is one of the benefits of a joint bank account. But this approach will allow your partner to see everything you buy, which can make purchasing gifts more complicated.

Fortunately, there is another way.

How do I budget when one spouse makes more?

If one of you earns more than the other, try budgeting this way:

1. Calculate your total household income based on both of your annual salaries
2. Work out what percentage of this income you make and what percentage your partner makes
3. Add up all your monthly shared expenses
4. Multiply this expense total by each of your two percentages to work out how much you should each contribute

Each month, both of you should transfer your share into a joint account to cover your shared bills. This way, you can use your joint account for shared bills and keep your individual bank accounts for personal expenses.

There are many joint bank account benefits. But there’s a big drawback if one of you has a poor credit rating. Opening a joint account with someone who has a poor credit score can damage your score too.

If one of you has a poor credit rating, it may not be beneficial to open a joint account. You may find it makes more sense if one of you can move your contributions into the other’s personal account, if you can trust them to pay bills on time!

Example scenario

Here’s an example of how this budgeting approach could look:

• Ashley earns £40,000 a year, and Charlie earns £60,000 a year. Their total household income is £100,000.
• Ashley’s portion of the household income: £40,000 / £100,000 = 40%
• Charlie’s portion of the household income: £60,000 / £100,000 = 60%
• They agree to split their bills 40/60
• Their monthly expenses are £5,000
• Ashley’s monthly contribution to the joint account: 40% of £5,000 = £2,000
• Charlie’s monthly contribution to the joint account: 60% of £5,000 = £3,000

If they made 50/50 contributions, Ashley would pay 75% of their annual salary into the joint account and keep 25% for themselves. Charlie would pay 50% of their annual salary into the joint account and keep 50% for themselves.

Charlie would have twice as much money to spend on themselves than Ashley would. This is why this approach can prove much fairer if you earn different amounts.

Creating a joint budget: how to budget together as a couple

Budgeting with a new partner doesn’t have to be as overwhelming as it often feels. To budget well as a couple, list your monthly expenses and decide whether you’ll split these 50/50 or take an approach like the one laid out above.

Next, decide how you’ll split your budget across the things you need, the things you want, and your savings. If you can afford it, a good split could be:

• 50% on things you need (such as household bills)
• 30% on things you want (such as for cinema dates and takeaways)
• 20% on savings (such as for long-term goals)

You could make life easier by using apps to list your funds and flag areas where you’re overspending.

Combining income and expenses

When you combine your income and expenses, it can be difficult to list everything you buy off the bat. The good news is you don’t have to have a fully-fledged list from the get-go when you start budgeting with a new partner.

Spend the first couple of months noting all your purchases so you can get clear on your expenses. Keep a note of everything, even those occasional commute coffees. With a comprehensive list, you’ll be able to split your expenses into categories.

Your categories might look something like this:

• Household: Rent or mortgage payments, insurance policies, phone contracts, utilities, groceries, TV licence, water, broadband, and/or gas/electricity.
• Transportation: Train tickets and/or car expenses.
• Childcare: Nursery fees, childminding, and/or school holiday entertainment.
• Luxuries: A monthly night out, a bi-monthly takeaway, clothes, after-work drinks, and/or entertainment subscriptions.

If you have any debts, you’ll need to allocate funds to pay these off each month too.

Allocating funds for shared expenses

For the most part, household bills are likely to be your main shared expenses. However, you may want to tweak how you split these bills depending on your lifestyles.

For example, maybe you’ll lump car payments in with household bills. But if one of you has a finance deal for a luxury car and the other has a finance deal for a much cheaper vehicle, you might prefer to each pay your own loans.

Maybe one of you works from home and will pay more of the internet bill. Meanwhile, the other one of you works in-house and will cover any costs they may accrue from commuting.

Discuss any adaptations you want to make so that your payment split is fair.

Setting aside savings, emergency funds, and discretionary spending

Having listed all your expenses, you’ll know how much money you have left over when you’ve covered these. This is the amount you should aim to set aside for savings, emergency funds, and discretionary spending.

Choices over discretionary spending can cause tension, as this is the area where we buy what we want rather than what we need. And we often want different things.

The easiest way to avoid conflict over discretionary spending is to leave room for luxuries in both your personal and joint accounts. This way, you can make any discretionary purchases that are for you only from your personal account.

When you plan to make discretionary purchases from your joint account, always talk to your partner first.

Open communication about money

Having a budget plan mapped out is a great start. But a budget plan alone won’t put you in the best place to manage your shared finances. You also need to discuss your ongoing financial decisions and decide where you’d like to make changes.

Having regular budget meetings

The easiest way to communicate about money without having to bring it up at a bad or stressful time is to have regular budget meetings, such as with a monthly money date. 

During this date, discuss and evaluate your progress towards your SMART goals together. You might like to discuss:

• Whether your spending is matching up to your budget
• How much you’ve managed to save this month
• Areas where you’re overspending
• Unexpected bills and any adjustments you can make to next month’s budget to compensate for these
• Changes in financial priorities

These discussions will help keep you on the same page and quickly resolve any worries about your shared spending. Budget chats don’t have to be long either – 15-30 minutes will usually do the job.

Discussing financial decision-making processes

Sometimes you need a well-chosen strategy to make a financial decision. Rather than making a call straight away, discuss your plan with your other half to make sure they’re on the same page.

For example, you may have found an investment ISA that could offer a great return on your shared savings. But there’s a small risk you won’t get the return you’re hoping for. If you don’t discuss this with your partner, you may not know that they’d feel safer with a lower-risk option, like a standard savings account.

Addressing differences in spending habits and financial styles

Just as you and your partner will have different ways of cooking and handling work stresses, you’ll likely have different spending habits too. Maybe you:

• Prefer to pay bills as soon as you receive them while your partner would rather pay on the due day.
• Always put a percentage of your paycheck into savings while your partner spends whatever’s left after you’ve covered essential bills.
• Can’t stand the idea of credit card debt while your partner considers a credit card a great way to get what they want/need quickly.

There are lots of ways our spending habits can differ. From payday takeaways to weekly car washes, we all have financial routines that others might not understand or agree with.

If you have any spending habits that don’t align with your partner’s, finding a compromise can avoid any build-up of resentment.

Handling individual finances

Budgeting with a new partner is essential to managing your shared expenses. But you’ll still have your individual financial goals too. Because of this, you’ll want to handle your individual finances as well as those that you share with your partner.

Respecting each other's financial autonomy

While you and your other half will work together to manage most of your finances, you’ll also need to respect each other’s individual finances. There will always be things you want to buy that have nothing to do with your partner, and the same goes for them.

This is why having a personal account is so important. If you follow our budgeting strategy for when one of you earns more than the other, you’ll both have a fund to dip into when you want to make a personal purchase.

Supporting each other's financial goals and obligations

A big part of budgeting with a new partner is mapping out shared financial goals. But it’s healthy to each have individual financial goals and obligations too. Maybe one of you is saving up to go to university. Maybe one of you makes child maintenance payments to support a child from a previous relationship.

It’s essential to support each other’s financial goals and obligations in scenarios like these. It probably won’t be appropriate to share every payment.

Maintaining transparency in individual finances

While it’s okay to have individual financial goals and obligations, this doesn’t mean you should shut your partner out of these. Keeping financial secrets can create trust problems when your other half inevitably uncovers these secrets later.

One of the most common financial secrets is debt: One in six people have hidden debt from their partner. However, if discussed early, debt problems can be resolved. Left under the covers, these problems can spiral and cause serious relationship damage. In short, hiding debt from your partner is rarely a good idea.

Overcoming challenges in budgeting as a couple

If and when financial challenges arise, your budgeting plan may need to shift. In this case, you and your other half might have different ideas about how to move forward, which can result in challenges. Whatever happens, communication is always essential and will help you find a solution that works for both of you.

Resolving conflicts and disagreements about money

If you and your partner have a disagreement about money, the most important action to take is to talk about it. Undiscussed conflicts lead to deeper issues. Listening and showing your partner that you’re willing to compromise can help you overcome the disagreement.

Seeking external support or financial counselling

If you can’t reach an agreement, it might be time to seek external support, perhaps from a financial counsellor. The most important thing is that you and your partner are on the same page and agree that you need some guidance.

Revisiting and adjusting the budget as needed

Everything in life is subject to change, including your finances. Your budget may need to change at any point, whether for better or worse.

Maybe a new money stream comes in. In this case, will the person receiving the fund decide how it fits into the budget? Or will you choose together?

If you lose an income stream, a discussion over how to replace that income and/or lower expenditure will be important. It’ll be helpful to know which of your priorities you can put on pause in this instance.

Start budgeting with a new partner

This guidance should have you more than ready to manage your finances in a relationship. As you dive in, focus on three sets of financial priorities: yours, your partner’s, and your shared priorities. Make sure each gets a special place in your budget.

As you find your flow with budgeting, you and your significant other will become more and more confident in sharing your finances.

For more advice on how to budget together, take a look at the money management section of our Knowledge Centre.