So you’re engaged. Or thinking about it. If you’re really serious about spending the rest of your life with another person, it’s time to get some of the tougher issues out in the open.
Somewhere near the top of your list should be MONEY.
Conflicts about money issues can stop a relationship before it has a chance to be successful. Unless each of you understands the other’s money habits and spending preferences, an unhappy relationship can be created, eventually leading to the big D – divorce. Trust me, there are a lot of other things to fight about rather than money. You’ve got the toothpaste tube, who sleeps on which side and whose turn it is to do the laundry.
Talking about your financial situation is often considered taboo. Many couples tie the knot without knowing a thing about how much their partner spends, saves or charges.
Discussions about money can be emotionally charged and you may find it difficult to raise the subject. Use this article as a springboard to get things going. By talking about money now, you’ll be setting yourself up for a much happier relationship in the future.
Another important reason to talk about money now is so your spouse’s finances do not surprise you once you get married. How will you feel when you discover your new spouse has $50,000 of debt he or she never told you about? Yikes! If you suddenly have kids, who may not be planned, the repayment of that “new” debt will fall on your shoulders.
When you get married you not only get new family in-laws, you also get debt in laws. The first time you go out to dinner as a married couple you can hand the waiter the credit card and say, “I’d like to introduce you to my new American Express in-law.”
One guy even said that he was afraid to marry the love of his life after seven years of engagement simply because he was embarrassed to tell her about his bad credit and debt. His girlfriend could not understand his reluctance to get married and gave him an ultimatum, “After seven years of being engaged, we either get married or I’m leaving.” He could never bring himself to be honest with her. She left him and he was brokenhearted because he could not bring himself to tell her the truth about his finances.
The Big Day
Before maxing out your credit cards or taking out loans to pay for a dream wedding, think about it carefully. Do you really want to start your life together with huge debts? Starting a marriage with this added burden will be very trying on your relationship.
Keep the cost of your wedding to a reasonable level so you don’t bring a boatload of debt into your marriage. It is very easy to get carried away when planning your big bash. Set aside time to sit down with your future spouse and make a list prioritizing every aspect and expense of the wedding. Each of you should make a separate list so that you both feel happy that your ideas for the perfect wedding were heard. Eliminate those things that are a low priority for both of you.
Work together to plan a wedding that you can afford and enjoy without putting yourself deep in debt. (Check out “Bridal Bargains,” by Denise and Alan Fields at windsorpeak.com.) If you plan your wedding carefully you may begin your new journey with little to no debt.
Plan the wedding at least a year in advance, so you have time to start saving a little each month and can look for bargains. Both of you should save a specific amount each month in a money market fund, savings account or certificate of deposit. The more time you give yourself, the more you can save.
Today it is no longer clear who pays for what.
Traditionally, the bride’s parents paid for thewedding and the groom paid for the honeymoon. Today, many couples are paying for their own wedding and honeymoon.
Because the rules are no longer rigid, it is important that everyone be open about costs. If parents are willing to pay for a specific item, like flowers, let them know how much flowers really cost. The stress level will be high for all involved anyway, don’t compound it by surprising family members with an expense they weren’t expecting (and may not be able to afford). And keep in mind that they will probably have specific ideas as to what type of flowers they want to buy.
If you both agree you have to take on debt to pay for your wedding make sure you have a solid plan for paying it back in no more than a year. You will have many new expenses and challenges as you start your life together. Don’t let yourselves be weighed down by debt.
Even in the most blissfully happy marriages there are disagreements, and you’re likely to disagree about money more than anything else. It is, after all, the number one source of conflict between couples.
Before you marry, take the time to sit down and learn about each other’s attitudes toward money. You should discuss where each of you currently stands financially, your individual goals, the kind of lifestyle you want, your saving and spending habits and your personal needs. It is important that both of you are open and honest. Hiding something at this stage will only cause problems later on.
This should not be a critical session of one or other person’s spending habits. This does not have to be a one-session deal. If you need time to think about your differences before you attempt to reach a definitive resolution, take it. Just agree that you will both look at the situation objectively in order to find the best way forward for you both in your new life together.
Discuss what kind of lifestyle you expect to have. You may be surprised to find that your partner considers one or more of your “necessities” as a luxury. For example, do you expect to travel to the Caribbean every year? Do you want a big house? How about a new car every year or so? Discuss how important having money is to both of you.
The following questions can give you an idea as to what issues are important:
- How much of your income do you want to put in savings?
- What kinds of financial risks are you and your partner comfortable taking when investing?
- How will you handle debts you both bring into the marriage? Are you willing to use some of your income or savings to pay off your partner’s debt and vice versa?
- If you have been married before and are bringing substantial assets into the new relationship, you might want to think about a written agreement about exactly how you would handle those assets if you ever split.
- How will you decide how much spending money each of you should have?
- Will you have a spending limit above which you will need to let the other person know about the purchases before you make it?
Understanding your future partner’s perspective on money is very important. If you can’t talk about it now, it will become worse after you marry and have to share expenses. Make sure you pay attention to important cues when you’re dating. If your loved one seems to be lavishly spending more than his or her income, but you never like to take on debt yourself, you’ll want to start working on a compromise now. Lavish spending while dating may seem very enjoyable if you are the recipient of such attention, but it may be a sign that your significant other’s spending may be out of control. If that is the case, financial troubles may be in your future. Trust me, individuals with such spending issues rarely rein in their spending on command.
Compare spending behaviors and identify where they are the same and where they differ. You will have to compromise and make sacrifices if one of you is a big spender and the other isn’t, or if you are both big spenders but like to spend money on different items. The last thing you want is to have the “spender” lie to the “saver” about how much he or she spent on an item. Interestingly, spenders often attract people who are savers and savers attract spenders.
We often look for mates with the traits we subconsciously wish we possessed. This can lead to marital conflict later, once the initial romantic blinders have worn off and you start to see your spouse clearly. So it’s best to tackle these difficult financial issues before you tie the knot.
Reviewing these issues should give you a good start:
- How often does each of you use a credit card?
- What do you use credit cards for?
- Do you use a debit card for impulse purchases? If yes, do you record your withdrawals so you know exactly how much money is being sucked from your account?
- Do you pay off your cards every month, or only use them for big-ticket items and pay off the balance over time?
- Should your spouse get your approval before making an extravagant purchase, such as a $500 dress or new set of golf clubs? If so, what level should you set as “extravagant?”
- What would you do if your spouse didn’t approve of your making an extravagant purchase?
Managing the Cash Flow
There are generally three ways to handle the finances:
- Pool all money into one joint account.
- Keep separate accounts and divide the bills between you.
- Keep separate accounts, but also have a joint account for joint expenses.
If you are going to become marital partners you should prepare to become financial partners as well. Maintaining separate accounts can be the first step towards keeping financial secrets from each other and leaving you in the dark regarding your spouse’s finances. We’ve talked with many couples who have never been honest with each other regarding their finances and the fact they maintained separate accounts never let them have a clear understanding of their current financial state of the union.
It is so sad to talk with couples who discover one of the partners in the marriage is way over their head in debt, and their spouse never had a clue. They get blindsided and the illusion of what their world was is suddenly replaced with financial conflict, strife and pain.
The old excuse that each spouse needs to maintain separate accounts in case they are going to purchase a gift for the other is just that, an excuse to maintain separate accounts. There is little logical basis to support this behavior.
The third approach is the one that many couples want to start with. They fear giving up their independence and want to cling to what was theirs before the knot was tied. Don’t assume your spouse-to-be will agree. Your betrothed may feel upset that you don’t want to share everything. Decide ahead of time which approach you’d like to try.
If you decide to use a joint account for joint expenses, decide how much money each person will contribute. If one of you makes a lot more than the other, it may make sense to have that person contribute a larger share. And don’t forget to decide what will be considered “joint expenses.” Her dry-cleaning? His boat payment? Both of your long-distance phone calls?
Divide up the Chores
Unless you keep totally separate accounts, someone is going to have to take responsibility for paying the bills. Usually, this task falls to the spouse who feels more comfortable handling money. But that may be a mistake. Both spouses should know about the bills and that there are other expenses that occur each month. If you just let one person handle it, the other may end up with an unrealistic view of the family finances, or worse yet, not know what is happening at all.
One of the biggest mistakes couples make when it comes to finances is not talking about the little things before they become big things. Consider holding a monthly “meeting” where you can pay bills, talk about your financial progress and goals, and discuss any issues or problems that have arisen during the month.
A great idea is to share the responsibility. One month one spouse will pay the bills and the following month, the other.
Put money in its place: Money is simply a tool to help you achieve your goals. If one of you starts using money to control the other person, as a “drug” to make you feel better about your life, or if one of you develops a problem such as a gambling addiction or secretly running up debts, seek help together. Money should help improve your life together, not make you miserable.
Credit Advice for Couples
Another decision you’ll have to make is how many credit cards you plan to have and whether to have joint or individual credit accounts with your spouse.
So you have decided to have joint credit accounts. Before you use those cards, decide who will use which card, if the two of you will carry the same cards and how you will communicate when the cards have been used. If you don’t communicate about the purchases on the cards, you may exceed the credit limit, which will cost you more.
Another idea is to have a joint credit account you use for joint credit purposes. But if you want to maintain an individual account – you know how we feel about that – do it. If you do use a joint credit card, decide together what kinds of limits you want to place on it so one of you isn’t surprised with a bigger bill than you expected. Also, decide whether you will pay that bill in full each month or if you feel comfortable carrying balances.
If one spouse has good credit and the other has damaged credit, it is especially important that you don’t merge the bad credit onto the report of the other one. You can avoid that by keeping those accounts separate. Do not add the name of a spouse onto an account with a poor payment record or that information will hurt the credit report of the other person.
Here’s the rule of thumb:
Individual accounts should not be reported on your spouse’s credit report. Only joint accounts, or accounts with the “authorized user” status, should appear on both of your reports.
Before either of you considers the issue of individual versus joint credit, you should each get a copy of your consolidated credit report and review them together. You can get a consolidated credit report from GetOutOfDebt.org. It will show you what the three major credit-reporting bureaus say about you. You’ll be surprised how much difference there will be between credit bureaus. That’s why it is so important that you get a consolidated report rather than one that just shows a single credit bureau’s file on you. Your credit reports may determine whether you will be able to buy a home together, how much you’ll pay for auto or homeowner’s insurance or whether you’ll have to put up deposits for utility or cable service.
For women, you’ll have another decision: do you want to change your name on your credit accounts when you marry? The federal Equal Credit Opportunity Act gives you the right to maintain credit in your maiden name, your married surname or a combination of both. If you decide to go with your married name, notify all three major credit bureaus (Experian, Equifax and Trans Union).
What if one person comes to the marriage with a lot of debt?
If that’s the case, it’s important you work together to reduce the debt, without just “rescuing” the over-spender. After all, most people get into debt by spending more than they earn. To get out of debt, you have to learn to live within your means and deal with the issues that got you into debt.
Make sure the person who racked up the bills makes a serious effort to change his or her ways. Otherwise, if the spender continues to spend, you may both end up in trouble.
You should both track your spending and come up with a spending plan that includes paying off the debt.
If buying a home is your next priority after the honeymoon, here are a few steps you should take:
If you have debt, and feel it may keep you from buying your dream home, consider decreasing and/or paying it off. The less debt you have, the larger the mortgage payment you’ll be able to afford. Focus on paying down debt as rapidly as possible, and then you can start saving for a down payment. With little debt and a decent credit report, you may also be able to find a mortgage with little money down.
If one of you has damaged credit, take steps to improve and repair your credit as soon as possible. It won’t happen overnight, but it will improve with time and effort.
Talk about having children, how many children you would like and how you’ll raise them. If you decide to have children, will one of you stay home full time or will you use day care? How will you afford those options? Do you want to create a college savings fund? How much do you need to save and where will you find the money?
If your goal is for one of you to stay at home and look after the children, you need to prepare now to live on one income. Talk together about what you will sacrifice.
You might be surprised to find that losing the second income doesn’t make as much a difference to your bottom line as you thought. There are considerable expenses to having children if you both keep your jobs — higher taxes, higher FICA and Medicare taxes, Social Security (although you may lose Social Security income opportunities), a second car, increased auto insurance premiums for commuter driving, gas, parking fees, maintenance costs, a second career wardrobe, bigger food bills if you eat out, child-care expenses and parental stress of not being able to be with your kids as much as you want, etc. It may be that the second wage earner is adding only a small net amount each month.
The average American family saves very little money and many people end up deeply in debt at some point in their lives. Once you’ve paid down debt (if there is any), get in the savings habit. Together, you should find a method that works for you. You might have money taken from your paycheck for savings or investments. You can write a check each month, just like a bill, to a savings account. Come to an agreement about what that money can be spent for, though, so you don’t sabotage your efforts.
Your savings strategy should include an emergency fund that can cover between three to six months of living expenses. Those savings can be kept anywhere that gives you easy access to the money, such as a savings account, money market fund, certificates of deposit or treasury bills.
You should also have long-term savings for future expenses like a car, house and, most of all, retirement. That’s right, your company sponsored 401(k) or 403(b) may not be the only cash you’re going to need in your golden years.
It may not sound very romantic, but for some people, prenuptial agreements are important. First, they are an excellent tool to force a couple to discuss where they are now financially and where they want to be. It is especially useful if you are getting married for a second time, if you have kids, if you are older and have built up savings, or if one partner has a lot of money and the other does not. A prenuptial agreement is usually not legally enforceable unless it is made before the wedding. Talk to an attorney about preparing a prenuptial agreement if your situation requires one.
After the honeymoon is over
Research your respective insurance policies and decide how you can merge them to your benefit. In particular, look at the following:
- Auto Insurance is usually lower for married drivers. Let your insurer know when you get married so you’ll get decreased premiums on a joint/family auto insurance policy.
- Health Insurance. Look at your respective policies. If one is better than the other, merge into that plan. Don’t forget to look at the premium costs
each month; your deductibles, if any; your co-payments; the quality and type of coverage; and extras, such as dental, optical and prescriptions. Consider child care if you plan to have children.
- Disability insurance gives you monthly payments to replace the insured person’s income if he or she can’t work because of an accident or an illness. If you pay for your disability insurance with after-tax dollars, your disability insurance benefits could be tax free when you receive them. For this reason, you probably need disability insurance to cover 60 to 70 percent of your gross income. Figure out exactly how much disability insurance you need based on your monthly expenses — food, shelter, transportation, clothing — plus other expenses that may increase due to your disability, such as medical expenses. Also, keep in mind how much of your savings you are willing to use before relying on insurance.
- Life Insurance pays a certain amount of money to the beneficiary of the policy in the event of the named insured’s death. Life insurance is necessary if you have children or expenses like a mortgage and one of you couldn’t meet the expenses alone. The amount should be enough to cover immediate expenses in
the event of your death (funeral costs, for example) as well as longer-term financial obligations, like paying the mortgage. If you plan to have children, you will need to update the amount again to make sure it covers the cost of raising and educating your kids.
If you are young, it is preferable to get term life insurance. Term policies only insure you for the period of time for which you need the insurance and are cheaper than whole or universal life insurance. Whole and universal life insurance policies build cash value and cover you for life. If you are an older couple, however, term insurance is more expensive.
If you already have life and/or disability insurance, make sure you update the beneficiary information. Your policies will only pay out to the person(s) named.
- Homeowner’s and/or renter’s insurance protects your property against theft, fire, floods and other hazards.
Check your policy to see how much it covers for your belongings and your “loss of use,” which includes your temporary living expenses while your home is being repaired. Your insurance needs will change when you get married, as your personal property will increase in value as you merge your belongings.
Often insurance companies recommend taking pictures of, or videotaping, your personal property, to substantiate any future claims that may arise.
If you have certain expensive items, like silver or expensive jewelry, you may want to get extra insurance to cover the actual worth of those items, since it won’t be reflected in your regular homeowner’s insurance policy.
For example, you may want to get insurance for wedding and engagement rings. You will have to decide how much loss you are willing to pay out of savings and how much you want the insurance company to assume. People generally insure between 80 and 100 percent of the replacement cost.
- Write a will. Because each state has different laws regarding wills, you should consult an attorney licensed in your state.
- Prepare a power of attorney. Powers of attorney give a named person authorization to act on your behalf should you become incapacitated. Without a power of attorney, your spouse may have a difficult time taking care of your affairs should you become incapacitated.
- If you change your name, make sure you legally change your driver’s license, social security card, income tax forms, voter registration card, passport, bank accounts, credit cards and insurance policies.
Think about whether you should file your taxes jointly and whether you should adjust your tax withholding. Most couples are better off filing jointly but it doesn’t always pay to do so.
If both of you have been claiming one exemption, one of you may want to reduce it to zero. Consult with a qualified tax professional for other helpful tips and questions you may have.
“Waddya mean I have to think about retiring? I just got married!”
The best time to plan for retirement is NOW! People are living longer and have more leisure years to fund. The sooner you start saving for the future, the less it’s going to cost you each month to generate the cash you’ll need.
Generally you should plan to have enough capital saved to provide you with an annual retirement income to pay your monthly expenses and still put money into savings. If you’re unsure about how to invest for your retirements, get the advice of an independent financial adviser licensed in your state.
If you already have a 401(k) plan, or other financial holdings, make sure your spouse is named as your beneficiary on those plans.
Happy ever after
Despite the alarming divorce statistics, it is possible to stay together forever. There are plenty of success stories out there. Openness, honesty, planning, cooperation, compromise and an enormous sense of humor will help you write your own fairy tale ending.
Marriage and Money Questionnaire
Take the time to discuss these questions before you get married:
- How will you pool your money? Separate accounts, joint accounts, a combination?
- Will you be able to cover your living expenses, such as rent or mortgage, utilities, car payments, food, cable, etc? What about discretionary spending like travel, entertainment, clothing or personal expenses?
- How often will you eat out or travel, and how much will you spend?
- What are each person’s top three financial goals? How will you reconcile different goals?
- What do your credit reports look like? How can either be improved?
- How does each of you feel about carrying debt? How much are you willing to have? What type (mortgage, credit cards, car loans and unsecured loans)?
- What is your investment tolerance, high risk, medium risk or conservative?
- What is each person’s strength when it comes to finances? Weakness?
- Who is going to manage the finances at home or are you both going to share the responsibility?