When you talk about personal finance and relationships, it is an acknowledged fact that it is most often cheaper to be two than one.
I agree with this. Normally, you enjoy the scale benefits of being two in terms of housing, food, insurances and so on.
However, as with everything, there are exceptions to the rule.
Being in a long-term relationship myself, I know that relationships can definitely also drive bad financial behavior.
In fact, I believe there are some areas where couples are more prone to making financial mistakes than people who are not in a relationship.
1. Settling down too expensive too early
A classic money mistake is to settle down too expensive too early.
In a relationship, you often move together after some time. You move out of your small studio and find a place where you see yourself living together in the future. You upgrade to a nice area. You find a modern house with a newly restored kitchen and bathroom. You maybe even buy a bigger house to accommodate for future kids.
There’s no problem with moving in together. The problem arise when finding the perfect house becomes more important than the affordability of the house.
Too often, I see couples settling down in a way too expensive house, which makes them unable to save and invest to start building their net worth early on in life.
In fact, I also live in too big a house and spend more money on housing than I probably should, so I’m no different here.
So what should you do? You should seriously consider what you really need when finding a house. Do you really need a large, modern house in the perfect location right away, or would you be just as happy in a smaller place while building your net worth?
Even if it is a hassle to move, it might be better to find a slightly smaller place now in a less desirable area and then move to a bigger place in the future when you can afford it – and if you need it.
Normally, people say that housing should not be more than 30% of your take-home income. I would argue that it should be much lower and maximum 20% if possible.
2. Spending too much on things and experiences
One the financial mistakes I see happening most often in my group of friends is spending too much on things and experiences.
Things and experiences could be vacations (!), expensive restaurants and furniture. You wouldn’t believe how many nearly broke couples I know that spend enormous amounts on these things.
In my experience, couples spend a lot more on these items than people who are not in a relationship. It is like all these things and experiences have become a currency of how good your relationship is.
“Look at us! We have a great relationship because we go on fancy vacations to exotic locations, eat at expensive restaurants and have our house [that is way too big] filled up with expensive furniture”.
What should you do? Make a financial budget for your shared expenses that enables you to save money – and stick to it!
3. Spending too much on a wedding
Here’s one I’m guilty of myself.
Spending too much on a wedding is a classic financial mistake for couples.
For a normal couple, spending too much on a wedding can set you back years in savings. I know that my wedding will amount to roughly half of a years’ savings, which is a lot!
We have designed our dream wedding, and we have talked about it for so long, so we decided to prioritize it, but we could obviously have done a lot to have a more affordable wedding.
There’s a lot you can do to minimize wedding costs. Consider how many people you need at the wedding, the location of the wedding and the concept. Do you really need 100+ people to have a great party? Do you really need the fancy castle? Do you really need it to be a four-day event?
The major driver for a wedding is the number of people there, so consider this one wisely.
4. Not being protected against life’s financial curveballs
Younger couples tend to think that they are immortal and that bad things only happen to other people.
A big financial mistake of couples is not to protected themselves against life’s financial curveballs.
The best way to protect yourself is through insurance and emergency savings.
What happens if you get sick? If your partner gets hit by a truck? If you damage someone else’s property? If your house burns down? If you have a severe water damage in your house?
If you don’t have health insurance, home insurance etc. to cover these potentially enormous expenses, then your whole life can be ruined.
I’m not saying that you should have insane insurance coverages with zero deductibles, I’m just saying that you should protect yourself against the biggest financial risks.
A good way to protect yourself against smaller incidents is to keep an emergency savings fund on the side of your insurances.
5. Not saving early enough
The biggest financial mistake of most couples in our modern society is that they don’t start saving early enough.
Savings rates are historically low in most countries. It is such a shame that most couples don’t prioritize a solid saving strategy because they could change their lives for the better.
It is incredible what saving early can do to your financial situation later in life. The earlier you get your money in the market to work for you, the earlier you’ll be able to take control of your life and become financially independent.
Beginning with saving and investing is always the hardest part because it will be a slow process in the beginning, but trust me, the speed will pick up and you’ll never regret it. The best day to start saving is today!
Your turn: What financial mistakes have you made as a couple?