How to manage money with friends and partners

Managing your money on your own can be a challenge for even the most financially savvy of us, let alone when you start sharing expenses with a partner or your friend circle isn’t on the same page as you financially. Managing these situations is an inevitable part of life but making sure you are living within your means is an important part of ensuring you stay on track to reaching your financial goals. Playing someone else’s financial game will only lead to debt and regret down the track. We asked Lexi Glover, our 40’s-something Marketing Manager what she wished she could tell her 20-something self about money: “I had the worst case of FOMO when I hit the employed world after Uni. I wanted to do everything my friends were doing. What I never did that I wish I had done, was take a step back and think about what was most important to me and what I really wanted my money to do for me. In hindsight, I spent too much on things that didn’t actually matter to me (clothes, nights out) which meant I couldn’t afford the things that do (travel). It also meant that when I did find ‘Mr. Right’ I had more debt than I wanted and it took me a while to get back on track and contribute to our joint financial situation.”

In this article we cover:

Managing finances and friends
Managing shared finances with a partner
How to recover your finances and get out of debt faster

Understand how a financial adviser can support you with your need for financial security. Get in touch.

Managing finances with friends

We’ve all been there at one point or another, whether you signed yourself up for a holiday you knew you couldn’t afford or tapped away an expense on your credit card just to keep up with your friends. It may leave your self-esteem tarnished wondering how they can so easily afford these things while you’ve stretched the budget thin, had to tap into the savings account or accumulated more debt.

The fear of missing out can cause emotional stress as well as financial stress, especially if you have bills to pay and goals you’re trying to meet.

Below we cover some steps which may help:

Be clear about your own goals: It is all too easy to go with the flow and seemingly aspire to what your social circle aspire to, but we are not all the same. By knowing clearly what your own personal dreams and goals are, and how you would prioritise them, making decisions about spending becomes much easier.

Make your goals clear to your friends: By having a discussion about your goals with your friends, will allow them to understand not only why you can’t afford to do something but also why it doesn’t align with your goals, it also gives them the ability compromise around plans given they have that information. You may even find some other people in your circle have been feeling the same way. You can then change from saying ‘I can’t afford that” to “I’d love to but I’m really focusing hard on saving towards buying a house at the moment”. This will not only make them more understanding but will shift your mindset into a much more positive one. Oddly enough, this can also help with feelings of rejection. If you are sticking true to your goals and that means saying ‘no’ from time to time if your friends understand why are you are saying no, they won’t take it personally.

As an activity, you could invite your friends around or head down to the local park and complete our goals worksheet. At the end of the activity, share your goals and dreams and discuss how you will go about achieving them.

Suggest Ideas that don’t cost as much: Perhaps instead of a Sunday session at a cocktail lounge, opt for a picnic by the water instead. Or turn a night out into a night in. Both can be just as picture worthy!

Find friends with similar goals: Do your friends live for today but you’re trying to save for your future? Finding friends with the same goals will not only make socialising easier but it also means you have a supportive friend who can help hold you accountable and keep you motivated. If you feel like you don’t have any friends that are on the same page as you, it may be time to expand your friend circle. Apps like Bumble BFF make this easier than ever before.

You may even decide to ask a friend to be your money buddy and make a pact towards reaching your goal target.

Don’t play the comparison game: It can be hard when your friends are in a different financial position to you, perhaps they still live at home or are given an allowance when you’ve had to work for every dollar you have. It’s important to try to focus on doing the best you can in your situation. They may have financial freedom now but your hard work and financial experience will pay off in the future, especially if your current financial strain is due to juggling the working and studying lifestyle.

TIPS FOR MANAGING EXPENSES

Always carry some cash to pay your part so you don’t get left with the group bill
If you do go out, opt to be the designated driver, this will save you on uber rides and prevent you paying $20 a cocktail.
Be clear on your budget from the start and make that clear with your friends; “I would like to stay under $200 for accommodation if we can”.
Eat before you go out; smashed avo on toast can easily cost $20 out, vs $3 if you make it at home.
Remember it’s okay to say no especially if it means you’ll reach your goal faster.
If you are on a group trip, try using an expense sharing app like Splitwise to tally expenses and who has paid as you go. At the end of the trip, everyone knows who is owed what.

How to share finances with a partner

Your relationship is starting to heat up and now it’s no longer just a matter of who should pay for the bill at the restaurant or the tickets to the cinema. You’re starting to think about how you should split the living expenses if you should tell your partner how you much earn and if it’s time to open a joint bank account. Every relationship will be completely different so there is never a one size fits all when it comes to this topic. However, there are a few different strategies that could work for you.

It’s important to have an open discussion with your partner about money before taking the plunge to avoid unnecessary conflict or resentment further down the track.

You may like to read our article on “10 money conversations to have when your relationship heats up”.

Methods for splitting finances:

Split everything: The split everything method may work if you are on similar incomes and in some perspectives is the fairest option. However, if you do have a pay gap this can cause financial strain on the partner earning less. This is a common method for those early into a relationship and still want their finances separated from one another. If you are both living within your means this could be a good starting place until things get more intertwined.
Pay an equal percentage of your pay towards living expenses: If one partner earns significantly more than the other and also wants a lifestyle outside of the means of the lower-income earner this is a great option to ensure you are both contributing equally in accordance with what you earn. You may decide to pay 30% or 40% of your pay into a joint account each week to cover living expenses and then keep the remainder of your payment free to do as you wish with. This will allow you to both make purchases within your own means and maintain a similar lifestyle with the independence of your own bank account. It’s important to ensure both parties are happy with this decision and the higher income earner won’t hold resentment for paying more in total over the long run.
Put both incomes into 1 joint account: This option usually works best for long-term relationships with children and shared mortgages involved. It may make covering all expenses such as childcare, hobbies, bills etc easier to manage. Privacy can become an issue with this method as all purchases can be seen from both ends. However, you may decide to allocate a budgeted amount into a separate spending account for each of you.
Decide who pays for what: You may decide it’s easier if one person covers the rent/mortgage while the other pays for all the groceries and bills. This method can be hard to keep track of who is paying for what and how much overall.

For all of these options, and the fourth especially, it’s really important that you are both really clear on your goals as individuals and as a partnership. Clarity about your goals and how you plan to achieve them will help you to make informed spending decisions together, avoiding unnecessary disagreement about money. Speaking with an adviser can give you clarity around your finances, help you reach joint goals and ensure your future is financially secure.

You may be interested in our article “out with prenup and in with the pronup” where we discuss how a pronup agreement could help you grow a strong financial relationship together and take the financial strain out of your relationship.

How to recover your finances and get out of debt faster

If you have found your fear of missing out or trying to keep up financially with a partner or friend has led you to accumulate debt, it’s important to take the time to create an action plan around improving your financial position.

Create a budget: This will allow you to clearly see exactly where your money is going. You may be shocked to find out where your money is really going each week. You can download our free budget planner here.
Allocate money: From any free money available after your expenses, decide how much to pay off your debt, how much to save and how much you’re comfortable spending on outings and non-essentials each week.
Join our Money Bounce Back Program: We cover budgeting, saving hacks, how to reduce expenses, ways to grow and invest your money and provide plenty of free resources. You can join
Keep motivated and learn through podcasts: listening to podcasts or even joining their Facebook groups on saving can be another great way to keep yourself motivated and feel like you’re not alone on your journey.

We recommend:

You may also be interested in our article: A guide to managing debt.

The key takeaway for managing finances with both partners and friends is to start an open conversation, discuss your goals and long-term plans openly and adjust where need be. You may find our article “how to talk about money” useful.

If you’re serious about taking your finances to the next level speak with one of our advisers to find out how we can help you reach your goals and dreams!

What you need to know

This information is provided by Invest Blue Limited (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.