This is the first of two posts on newlywed finances.
This seemed to be the summer of weddings for many of my close friends (and lots of personal finance writers, including Amanda right here at My Dollar Plan!). In April and May, I had weddings or related events FIVE weekends in a row! Two friends who are also brides-to-be recently asked if I could do a post on financial tips for newlyweds. Many of the tips that follow also apply to couples who live together without getting married, or those who choose to combine some aspect of their finances even before sharing a home.
Before you move in together, get married, or otherwise combine your finances, you and your significant other should sit down to have a serious discussion dedicated to financial management. You can even use this post as an “agenda” for your discussion! At a minimum, you should discuss the following:
- Your current financial state: What assets and liabilities is each partner bringing into the relationship? BE HONEST with each other about outstanding debts (even if they are $170,000), including any school or vehicle loans in your parents’ name that you are currently or will ultimately be responsible for. As the start of a marriage often coincides with the purchase of a home or other large assets, this is also a great time to check your credit scores and histories and correct any errors before moving forward.
- How you will handle debt: If either or both partners are bringing debt into the marriage, how will you tackle repayment? You may choose to treat debt payments similarly to or differently from other bills. Each person may be responsible for their own debts, or you may choose to attack all debt together, regardless of how much each partner brought in.
- How you will handle bills: Will you combine income and expenses into one pot, split expenses evenly, contribute a percentage of income to a joint account or something else? For more details on each method, see how to manage money in marriage.
- Spending “rules”: Will you each have a discretionary amount to spend per month? If one partner wants to make a big purchase, does s/he have to run it by the other partner? What constitutes a “big” purchase – $100, $1,000, or something in between?
- How each person will contribute to the financial management: Regardless of how you choose to split expenses, decide who will actually be responsible for paying the bills, making any necessary transfers into/out of savings accounts, choosing investments, etc.
- How financial disputes will be sorted out: If you have $500 extra at some point, and one partner wants to save it while the other wants to take weekend trip, what will you do? What happens if you agree to a set amount of discretionary spending and one partner goes over? If one person gets into serious financial trouble (e.g., runs up credit card debt, makes a bad investment), will the other bail the first out?
- Your major financial goals, both individually and as a couple: This point will be covered in more detail in tomorrow’s post.
Setting a Budget
If you’re not completely drained from discussion the above topics, you should next tackle a joint budget. It’s important that you approach this exercise with a fresh and open mind, so do it on a different day if the “getting started” section took you more than an hour or two. A workable joint budget is the backbone of any financial merging. Even if you are keeping your finances completely separate, each of you will have to come up with a budget to ensure that together you can cover all of your new household expenses. Many soon-to-be brides and grooms might find that they still depend on parental support for one or more major expenses – and that support might go away after “I do.” Your joint budget should include all previous individual expenses for both parties as well as any additional (or reduced!) expenses that might come up once you join your finances. Along with the normal budget items like housing, food, etc, you might also need to consider the following:
- Start-up funds: If you are moving into a new place, you may need to spend some time (and money!) to get situated. Don’t make the mistake of trying to do everything at once – do what you absolutely need to up front and budget in the rest over several months.
- Health Insurance: Does one of you have cheaper and/or better insurance that the other one can be added to? I knew someone who saved $160 a month by switching to his wife’s plan after they got married! If one or both of you is covered on a parents’ policy, will you have or want to change coverage?
- Cell Phones: I personally am still a part of a family plan that my parents pay for. If you are in a similar situation, you may need to establish your own plan – and thus an extra monthly bill! If each partner currently has their own cell phone, you may be able to save money by combining to a joint plan.
- Car Insurance: Similar to cell phones, many young people remain on the family car insurance, but will take on their own policies after marriage. Once again, you may also be able to reduce bills by combining two individual policies, and/or by moving homeowner’s and other insurance policies to the same insurer. Make sure to shop around for the best rates!
- Travel: If you and your significant other are settling far away from one or both of your families, you could suddenly be looking at increased travel costs for holidays.
- Spending money: As discussed earlier, you may want to establish an “allowance” of sorts for each partner to spend freely on individual expenses such as clothes, hobbies and entertainment.
- Taxes: When you get married, your taxes will change. Whether or not the marriage tax penalty will come back next year is still up in the air, but you’ll still need to look at your taxes as a couple and adjust your budget accordingly.
- Savings: Tomorrow’s post will focus more on setting and saving for long-term goals, but it should go without saying for readers of this blog that you will want to include emergency, retirement, short-term and long-term savings in your budget!
The first year of marriage is hard, and finances are never easy to talk about. But since money is one of the biggest causes of marital discord, it is to your benefit to be up front and honest with your partner about your financial goals and expectations. If you can sit down well before the wedding and come to an agreement on the big stuff, the small stuff will fall into place as you get used to living together. And since getting started is the hardest part, give yourself a pat on the back just for reading this post and sharing it with your significant other!
If you’re currently married or living with a significant other, what tips would you share with soon-to-be newlyweds? If you’re about to take the plunge, what other questions do you have?