How to Manage Finances in a Marriage

How to Manage Finances in a Marriage
Eight Financial Tips for Newlyweds

You’ve met the love of your life and are about to get married.  You’ve set the date, created the guest list, decided on the location, and have even picked out the invitations.  All of these important decisions are sure to lead up to a beautiful wedding.  But have you considered the financial decisions that will help you have a happy and financially healthy marriage?  According to a Money Magazine poll, 70 percent of married couples argue about money more than household chores, togetherness, snoring and what’s for dinner. When it comes to marriage and finances, open communication and ensuring you are both on the same page are key to a successful financial future. Following these eight steps will help get you there.

1. Understand your combined financial position
   

   When you marry your spouse, you marry more than the love of your life (and their family). You also marry their financial past. The first thing you need to do as a new- or soon-to-be-married couple is create an understanding of your combined financial position. This means each of you must disclose your incomes, how much you have saved in the form of emergency savings and retirement savings, how much debt you have (including student loans), your credit scores, life insurance policies, and any other assets or liabilities that come into to play. Understanding your financial position as a couple will help you define your financial priorities and set your financial goals.
   
   

2. Discuss financial priorities
   

   Now that you understand your combined financial position, it’s time to work together to set your financial priorities going forward. These priorities should include conversations about serious, big-ticket topics such whether or not you plan to purchase or rent your home, if you will buy or lease your cars and how often, if you want to have children, whether both of you will work, what your savings goals are, and when you would like to retire, just to name a few. Your conversation should also include topics such as how much you want to travel or participate in leisure activities such as concerts or sporting events, how often you prefer to cook at home or dine out, if you prefer to pay with cash or credit, whether you prefer to pay off your credit card balances each month, etc. 
   
   It’s important to understand that you and your soon-to-be spouse may not always agree 100 percent on what your financial priorities are.  For example, you might be a more aggressive saver than your significant other.  Understanding where your differences lie and figuring out a way to find a middle ground that you are both comfortable with will help reduce financial stress throughout your marriage. Every couple is different, but determining what your unique financial priorities are will impact how you set and achieve your financial goals.
   
   

3. Set financial goals
   

   Once you’ve decided what your financial priorities are, it’s time to start setting goals in order to achieve them. If you have any consumer debt (car payment, student loans, etc.), make a plan for paying it off as soon as possible.  Doing so will reduce how much you pay in interest and will free up cash to reach your other goals. It may also reduce the amount of stress in your marriage.  According to a recent Ramsey Solutions study, nearly half of all married couples with $50,000 or more in consumer debt report that money is the top issue that they fight about and 47 percent say their level of debt creates stress and anxiety.
   
   It’s also important that you are prepared to handle a financial emergency by establishing your emergency savings fund. Having an emergency savings fund will help you cover unexpected expenses without creating unwanted debt or forcing you to utilize high interest lending services. Discuss what amount a comfortable emergency savings goal is for your situation and work to achieve it.
   
   After that, your goals will depend on the financial expectations that you previously discussed. If purchasing your own home is your priority, you will need to determine what your down payment options are and how you will save for the down payment, if you haven’t already. You will also need to understand the miscellaneous expenses of owning a home such as utilities, lawn care, snow removal, updates and repairs. Make sure these expenses are included in your homeownership goals.
   
   Maybe you decided one or both of your credit scores need improvement before you can make your next big purchase? Work together in order to come up with a plan for managing and improving your credit scores.
   
   Or, maybe you will decide that your goals are financially unrealistic given your current financial situation? Coming up with ways to increase your income can help you get there. It’s also possible to come to the conclusion that your financial expectations are just too expensive. That’s okay, work together to adjust them until you are both comfortable.
   
   

4. Create a budget
   

   Now that you know what your financial goals are, it’s time to formulate your budget in order to achieve them. You can create and manage a budget in four simple steps. Just be sure it includes all income sources, long- and short-term savings goals, and spending limits for your needs and wants.
   
   

5. Plan for the unexpected

   It’s important to prepare for the unexpected as you enter your new life together. Whether it’s opening or modifying a life insurance policy, updating the beneficiaries on your accounts, creating a will or even insuring your home or car, have a plan in place so that you and/or your partner are taken care of in the event misfortune or tragedy strikes.
   
   

6. Define responsibilities
   

   No two marriages are the same. Likewise, no two couples manage their finances the same way.  It’s important to discuss which financial responsibilities each person will take on in order to stay on track.  Some things to consider include:
   • Joint accounts or individual accounts?
     Will you each have your own checking accounts with a joint savings account? Will you have both a joint checking and joint savings account? Likewise, will your continue to keep your own individual credit cards or will open new joint credit cards?
   • Who pays the bills?
     Will one person handle paying all the bills? Or, will you divide them up in a way that makes sense so you are each responsible certain bills? For example, one person would be responsible for paying the mortgage/rent and all utilities while the other person is responsible for insurance, groceries and car payments.
   • Who pays for miscellaneous purchases?
     If you decided to have joint accounts, the answer to this question is easy. If you opt for individual accounts, this subject can create tension. Discuss how you will handle paying for date nights, birthday presents, holiday gifts, household repairs or projects, health-related expenses and any other random expenses that are sure to pop up. Doing so before they pop up will help eliminate stress and arguments in your marriage.
     
     

7. Communicate often and openly
   

   Discussing your finances and setting financial goals is not a one-time event. In fact, it should be a frequently discussed topic after “how was your day, dear” and “what’s for dinner?” Incomes can fluctuate, emergencies happen, and financial expectations change. It’s important that you discuss your financial situation often and adjust your goals and budget as needed in order to keep your marriage and your finances healthy. The Ramsey Solutions study reports that one in three people who say they argue with a spouse about money have hidden a purchase from their spouse because they knew their partner would not approve. Not only does this mess with your financial health, it also messes with the health of the marriage by breaking down trust in the relationship. Ensuring that both of you have a clear understanding of your financial position at all times is a win-win situation.
   
   

8. Track your progress
   

   In order to meet your financial goals, it’s important to track your progress on a frequent basis. Whether it’s monthly, quarterly or annually, documenting your progress and consistently working to improve upon your financial situation will help keep you on track for financial success. For example, if you are working to eliminate debt, track your total debt balances to ensure they are consistently going down. If your goal is to increase your savings, review your saving balances to ensure they are consistently going up.

A personal banker from FNBO can help get you started on your new financial journey by setting you up with the products and services that will help you reach your goals.  Stop into your local FNBO branch or give us a call for more information.