June is a month when couples in love often flock to the altar. For those that have been married before they know only too well that exchanging wedding vows is not only a romantic decision – it’s a financial one as well.
Many of my friends have tried on marriage once or twice and as we know, money can often be the root cause of failed marriages. If couples don’t learn how to communicate about money and how to manage it effectively, it can become a constant source of conflict. It only gets more complicated when you add in children or other responsibilities tied to previous relationships.
Before the wedding, couples are often reluctant to discuss anything so unromantic as financial matters and after the wedding, they may not know where to begin. It is no wonder that some disagreements emerge over time around what to buy, how much to spend and save and where to invest.
To help legions of summer brides and grooms make a smoother transition to a financial life together, here are some pointers:
Engage in Full Disclosure
Ideally, money issues should be resolved well in advance of the wedding day, and couples should fully disclose any asset and debts they bring into the marriage. It is essential your spouse-to-be know about any outstanding debt up front because ultimately you will be working to pay this off together. It can be very destructive to the relationship if it comes as a shock later.
Set Time Aside to Talk About Money
We recommend monthly money meetings to provide a routine time for effective communication. We find that generally, people pick poor times and places to talk about money, if even at all. Sit down and discuss what you have, how you spend your money, and how you might adjust the plan if it isn’t working for either of you. This is especially important if you have one spouse that will be managing all of the household finances. It’s also important to disclose any financial hardships you may have had in your past that have affected your credit and your ability to take on new financial obligations.
Decide on a Checking Account Strategy
Are you going to share a joint account? Will you both contribute to the account? Who is going to pay what bills? Are you planning to balance the account? Will you have separate checking accounts as well? What amount of personal spending is agreed to so that each spouse has some freedom to spend without feeling confined by the other’s ideas on spending money?
Establish a monthly budget/spending plan
Most people hate budgets but there are ways to set up spending plans that don’t have to account for every penny but allow you to know you are on track with your plan. Whatever system you decide is a fit for you it is important that you identify your expenses and find if there is any “leftover” money which you can then apply towards other long term goals. At your monthly meetings, you will need to compare your actual expenses to your spending plan. There are a number of excellent apps available so you can each know in real time what has been spent such as Everydollar or Mint. Make sure to set aside money each month for unexpected expenses and other non-monthly expenses and beware of credit cards. It is essential that credit cards are paid in full each month in order to avoid the expense associated with carrying a balance.
Make a Will and Consider a Prenuptial Agreement
If you have a will from earlier in your life it will likely need to be updated along with your other estate documents such as a power of attorney and health care directive. This is especially important if you have kids from a prior relationship. As laws and lifestyles change, pre-marital agreements are becoming more widely used. If you bring children from a prior relationship or assets into the marriage a prenuptial agreement will likely be advised.
The second step of estate planning involves updating your beneficiary designations on your retirement plans, IRAs, Roth IRAs, life insurance, etc. With second marriages this may get more complicated and most often makes sense to work with an estate attorney to make sure your beneficiary designations work in tandem with your estate plan.
Evaluate your Employer Benefits and your Insurance Needs
Does it make sense to have your health insurance on one partner’s plan or is it better to keep it separate? Do you need more life or disability insurance in order to provide financial support should either of you die or become disabled?
Review your Taxes
Now that you will likely be filing a joint return you don’t want the tax bill to come as a shock. Running tax illustrations and adjusting the tax withholding on your paychecks or possibly paying quarterly estimated taxes can avoid the surprise when you file.
Develop an Investment Plan
As they say “opposites attract” and that holds true when it comes to investing. Often couples approach life very differently which is often the reason they are attracted to each other. We have found that carries over to their comfort level with investing. It is essential that you both understand how investing can support your combined goals and how your investments are allocated will impact the ups and downs of your investments. We call it the “sleep at night” test. For example, if your investments drop below x percent will you be able to sleep at night or will you worry? Understanding the connection between your investment mix and your combined goals is essential to financial harmony.
The bottom line is figuring out how to comfortably talk about money. Find a non-stressful time, when you are not pressed to make any imminent financial decisions – to share your attitude about money. What is your money story, what do you believe about money, what are your fears, etc.
Never interrupt one another; be respectful and trusting. Share your fears about money and also your hopes and dreams. Share your feelings about your financial hard times and your positive experiences with money.
Now that you have shared the emotional content shaping your attitudes about money, remember to reaffirm your partnership so your money-life can start with a good foundation.