Marriage is an investment in each other. You will make many decisions together throughout your marriage. The toughest decisions typically revolve around money. Are you a saver? A spender? How and where should you spend it? You might be surprised to learn your beloved has very different ideas about money than you. Unfortunately, financial issues are among the top reasons why marriages fail. According to a 2017 survey by Ramsey Solutions, couples who declare they have a “great” marriage are almost twice as likely to talk about money on a regular basis compared to those who say their marriage is only “okay” or “in crisis.”
There are a few things about money and financial goals you and your loved one should discuss to make sure you’re both on the same page before taking the plunge.
Communication is important for a marriage, and communication about finances may be some of the more important talks you will have. Having discussions about finances can be difficult for many couples, because it may make you feel vulnerable or exposed to poor financial decisions. It is easier to have these conversations before you get married rather than waiting to have them when a tough financial situation arises.
7 Tips for Newlyweds for Financial Bliss
- Know Each Other’s Financial History
It’s a great place to start. You both need to be open and frank about past financial history. Yes, this may be a difficult discussion, but you may not want to hide information from each other as you will both be in the marriage together. You should both get a copy of your credit reports. You should discuss your current debt and bank account information. Doing so will give you both the opportunity to chart a new financial direction together. You should also share if you know or even think you might have bad credit.
- Set Financial Goals
Before you get married, discuss the life you both dream of together. Without a financial plan, you may never reach those dreams. It is very likely you have talked about the idea of kids but have you spoken about the financial impact kids could have? You should also discuss your views on money. It is most likely that you both were raised differently and have a different attitude towards saving and spending.
You should create goals and a timeline for each one, like buying your first house together in 3 years, taking a vacation every year, saving a certain amount for retirement per month, or buying a new car in 5 years. You should put your goals in writing and post them, so they are visible to you both.
One suggested idea for you to start with when planning is known as the 20/30/50 Rule.
- 20 - Always pay yourself first. Under the 20/30/50 Rule, you use 20% of your take-home pay to handle debt and contributing to your future retirement.
- 30 – If you follow the 20/30/50 Rule, you spend no more than 30% of your net income on variable expenses like travel (including gas), dining out, hobbies, etc.
- 50 - Aim to keep your fixed-living expenses, like housing and utility bills, at no more than 50% of your take-home in order to follow the 20/30/50 Rule.
- Deal with Debt Together
Debt is something that many people have. It's an unfortunate reality, but it is one that needs to be dealt with, especially at the beginning of a marriage. Make reducing your debt a priority. If you have multiple debts, many financial advisors suggest focusing on the debt with the highest interest rate. In the long run, you will pay less in interest over the life of your debt, you should continue this process until all your debt is paid. Of course, this solution may not work for everyone and it is always a good idea to consult with a financial advisor to discuss your specific situation.
- Decide Your Roles
You both have been responsible for paying your own bills, but will you continue to be responsible for your own bills? Will you join your income into one account? Some couples choose to combine bank accounts and pay for all the bills from that one account. Some couples want to keep separate bank accounts, and each spouse is responsible for paying specific bills. Regardless of which way you decide to go, make sure all the bills are paid on-time. Some couples that choose to have one bank account will switch responsibilities each year, so they both understand the financial situation of the household. It really depends on how you want to manage your finances; the most important part of the process is deciding together.
- Regularly Communicate with Your Spouse
In order to stay on track and avoid financial pitfalls, make sure to regularly communicate with each other. Discuss all financial matters, whether good or bad, at least monthly, and be open, honest, and respectful. These discussions will help each other remain accountable to the dreams and goals you’ve agreed on. Finances are one of the top, if not the top, reasons couples argue. Having regular open conversations makes a big difference in money management. Think about the process of continued open communication as it relates to exercise: the more you do it, the easier it gets. The results might be gradual, but they increasingly improve your overall health over time.
- Protect One Another
Another crucial area to discuss when you get married is life insurance. It’s a hard conversation to have, dealing with one’s own mortality, but it’s an important one. If you are young newlyweds, you might not think you need life insurance. Many companies offer some life insurance included in your benefits package; that may suffice. Regardless of the path you choose, you should speak with a qualified financial consultant to better understand your needs.
- Create a Will and Estate Planning Documents
Having a will is one of the most important legal documents in your financial estate. A will establishes your wishes with respect to the distribution of your assets and gives direction on how they should be carried out in the event of your death. A concise will may also help your family avoid a lengthy probate process. You also need to make sure your will is formally witnessed and signed in order to make it legally valid. You may also need other estate planning documents in order to ensure your financial estate is in order.
If you already have a will, you’ll want to update it as soon as possible after you get married. Dying without a will can financial wreaking ball on surviving family members. Each state has its own estate laws. Thus, you and your spouse should contact an attorney for more information about estate planning as soon as possible. You should review your will every three to five years to ensure they address your changing circumstances.
It's smart for newlyweds to set financial expectations before they say “I do”, make financial plans together, and discuss these arrangements on a regular basis to determine if any changes should be made to them. Like everyone else, newlyweds should consult with a financial advisor or attorney to ensure the tips in this blog apply to them, as everyone’s situation is different.