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The Basics

Cohabitating? How to avoid money traps

If you haven't taken that leap into matrimony, the financial rules for domestic partners can be sketchy at times. Here's how to handle budget issues and remain in unwedded bliss.

By MarketWatch

If you are living together as part of an unmarried couple, you may face some special financial challenges. So it makes sense to work out strategies with your mate for combining finances that will be safe, fair and hassle-free.

Here are five ideas that many financial planners recommend to start:

Budget for joint expenses. The first step to financial harmony is to agree on a budget for monthly household expenses. It's probably wise to open a joint bank account to cover bills that you share, such as rent, electricity and cable TV.

Yours, mine and ours. Though some couples choose to split monthly bills 50-50 across the board, this approach doesn't work for everyone.

Chances are one partner earns more than the other. If this is the case, you may opt to contribute a proportional amount of your income. After the joint expenses are covered, the money remaining in your personal account is yours to spend freely.

Set mutual goals. Even if you choose to keep separate accounts, clarify your long-term financial goals with your partner. Do you want to own a house together someday? If so, you may choose to open a joint savings account to which you both can contribute.

If you intend to have children, be sure you agree on what will be the basic expenses. For example, will you aim for private school or public?

Don't avoid hard discussions. If you and your partner are having disagreements about money, address them before resentment builds. Try scheduling a monthly or even weekly meeting to discuss issues and mutual goals.

If that doesn't work, consider seeking guidance from a financial planner or a counselor.

Be straightforward about debts. Combining finances is one of the surest signs that both partners are fully committed to a relationship, but there are instances when such a combination isn't appropriate. To avoid conflict, each person should take responsibility for the debts incurred before entering the relationship.

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5 financial rules for shacking up
Maybe it's love or maybe it's a way to save on rent, but before any keys are copied, talk about the relationship, your money and who will pay for what.
Remember: If your partner chooses to help you pay down your debt, that's a choice, not a duty.

This article was reported by Marshall Loeb for MarketWatch.

Updated June 2, 2009

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