Personal Finance

How to Manage Finances After Marriage

married husband wife handsCongratulations! You’re married. You and your partner have so many exciting things waiting for you to share together, making memories that will last a lifetime. Marriage also comes with a lot of work and compromise as you embark upon this new phase in your lives.  Naturally, some experiences may be more challenging than others.

Take money, for instance. It’s one of the crucial variables that married couples are faced with navigating together and it can be the biggest hurdle to overcome for even the most devoted couple.

In fact, it’s the topic of money that leads to the most disagreements between spouses.  Money management, or mismanagement, is one of the primary reason for the dissolution of a relationship.

Not to be a downer here, but these are matters that couples need to address up front if they hope to keep that wedded bliss alive and well. Money is a very serious concern, particularly when the issue of merging your finances and managing them as a team is a real possibility once you join together in holy matrimony.

Too many couples turn a blind eye to the risks that come from combining their finances when they get married.  Those who don’t address potential concerns from the get-go often find themselves parting ways eventually.

This doesn’t have to be your situation. You and your partner can circumvent these mistakes by working as a partnership to devise some ground rules for spending, comprehend the perils that come with mounting debt, and remain open, honest, and compassionate with one another in addressing financial matters that can severely affect the marriage.

Trust is paramount in any loving relationship and without it the rest doesn’t matter. In order to maintain that trust you need to be real about your respective financial situations so that you can focus on each other and not your bank account once you take that walk down the aisle. The two of you have your whole lives ahead of you and money will play an important role in building your future together.

However, there’s no reason it has to be a negative factor. Managing your finances after marriage can be accomplished in a positive and supportive manner, as long as you keep some of these crucial points in mind throughout the relationship.

Seeing Eye to Eye

No marriage is without conflict and those couples who stick their heads in the sand, so to speak, and avoid it are only doing each other a disservice. Conflict can help you grow together and make your bond stronger. When it comes to money, unfortunately, that type of conflict can become toxic. Therefore, it is critical that the two of you get to know how the other thinks about it.

You don’t need to see eye to eye on every facet of your finances but understanding the way each of you approaches the spending and earning money can help you reach a compromise when an issue does come up….and believe me, it will. Sooner or later, there will be a conversation where you and your significant other come to a disagreement over the way your money is being handled.

Looking ahead is always prudent when it comes to fiscal responsibility.  Revealing your respective attitudes to spending and saving can help identify possible problems early on, before they become complications that could lead to severe disagreements and fights within the marriage.

Remember, you may very well come from different backgrounds, possibly polar opposites of one another with dissimilar income levels. One of you may have come from wealth, the other from very little, and that can shape your attitudes toward the way that money should be earned and managed. Learning to respect one another’s beliefs is a large part of growing together and learning how to compromise when your respective attitudes don’t agree.

The biggest component comes from trying to see their point of view in a respectful and caring manner. Only then can you begin to have a conversation as to the best way to solve a financial problem.

Getting to know one another before you got married probably focused a lot on each of your upbringings, relationships with parents, and it’s possible the topic turned to your families’ finances on more than one occasion. The way your parents handled matters relating to money will likely have a great effect on the way you view your own finances. Discussing the past can provide valuable insight to how each of you thinks about the subject.  However, it’s even more important to discuss the present and the future in an honest way as well.

Open Discourse

Talk about how each of you views the handling of your finances. Does one of you live paycheck to paycheck or are you both of the same mind when it comes to saving? How much debt do each of you owe? Discuss your spending habits and how you select what you like to spend your money on. What standards do each of you maintain with spending money and how do you decide when something is worth a purchase or if that expenditure is too extravagant?

A good way to get a gauge how each of you views money is to daydream what it would be like to win the lottery someday. Compare your individual approach to suddenly finding yourselves with such a large sum of money. Spend it, save it, plan for the future? All of these things should be discussed at length so you know where the other person is coming from and how they perceive this hypothetical situation.

More than anything else, it’s critical that you each come clean about your income levels to each other. It’s conceivable the two of you are already well familiar with the other’s financial situation, but in case you haven’t had this discussion, you really need to do so as soon as possible. It will help with the next crucial component of financial management as a couple.

assets minus debts equal net worthDetermine Your Collective Net Worth

In order to figure out what each of you is bringing to the table, you’ll first need to conduct individual audits of your finances starting with all of your assets. That includes checking and savings accounts, retirement accounts, real estate, investments, collectibles, antiques, and anything else of real value.

From there take stock of your debts and liabilities.  This includes everything you have from loans, credit cards, rent, mortgages, tax payments, and anything that requires you to make some kind of payment on a routine basis. When you have these two numbers you’ll want to subtract your liabilities from your assets.  The numbers you and your partner are left with combine for your collective net worth as a couple.

This is also a good time to get your credit reports as well. It’s always a smart idea to check your report once a year.  The law actually allows you to obtain a copy free of charge annually. Take this opportunity to make sure everything on your report is correct and accurate.

You and your partner may then share your reports with one another if you would like so you can lay it all out on the table, whether good or bad. This should be done without any judgments and it can open a dialogue about the status of each report and how it will affect your finances as a couple.

A Word About Credit Scores

It’s not uncommon for a couple to have credit scores that fall into different categories. One of you may have a score as high as 825 and the other struggling with a credit score of 540. There’s nothing particularly wrong with that and just because you’re living with or you’ve married an individual who has poor credit doesn’t mean your excellent score can be affected in any way.

That is until you open a joint bank account or apply for a loan or mortgage as a couple.

In that case, the two of you will be co-scored which will most assuredly result in the person with excellent credit taking a hit due to the spouse’s poor score. This will only happen in instances where the two of you apply together, so it will not be an issue if you try to take out a loan based solely on your own credit history.

Before you combine your finances jointly, you’ll want to be fully aware of each other’s credit score and understand the consequences and potential complications that might come with it.

Working Together

Every good marriage takes patience, understanding, and teamwork and this is definitely true when dealing with your joint finances. When you get married you’re going to find a whole laundry list of responsibilities and commitments that the two of you are going to assume equally.

The first is often a joint checking account that you and your partner open together. Before you do this you’ll need to sit down and discuss the parameters of taking on this responsibility. Each of you will be expected to make contributions to that account so you’ll need to determine what constitutes a fair participation into your collective finances. You can set a certain amount for each week or month or merely rely on one another to deposit what the two of you consider to be an equal share.

Being responsible with a joint account isn’t only about what you deposit, it’s also about trusting each other to be smart and dependable about spending that money as well. Honesty is the best policy in all things and it’s even more critical with the operation of a joint bank account. Some couples like to set ground rules as to what the money in that account is allocated for. It can be a fund that is used to pay rent and utility bills or it can be a fun and recreation fund that is set aside to use for vacations together. This is all up to you, of course, but some rules should be in place before that account is established.

Establishing Boundaries

Just because you’re married shouldn’t mean you lose your identity. The same goes for your finances. You and your partner may opt to share everything and trust one another with your lives. There’s also something to be said for independence and there’s nothing wrong with setting some boundaries for that independence when it comes to your joint finances.

You shouldn’t need to ask permission from one another to spend money. If you see something you would like to buy or need to purchase you should be able to do so, up to a point. This is why the two of you should establish those ground rules with respect to spending limits of a jointly owned account.

This is just common sense so one of you doesn’t go out and buy a big screen TV or a new car without asking the other person for their input first. The two of you should decide what amount is too much to spend before getting the other party involved in the purchase. This number can be anything, but it should reflect the reality of your current financial situation.

trees growing financial growth conceptEstablishing Your Financial Goals

Working together also encompasses a willingness to set short-term and long-term financial goals for your future. Your first goal can be creating an emergency fund in an amount equal to somewhere between three and six months of bills. Having a safety net like this can come in handy in the event you’re unexpectedly unemployed, hit with a large unexpected medical expenditure, or need a major repair for your home or car.

Once you’ve reached your first goal of establishing an emergency fund, you and your partner can shoot for higher objectives such as saving for your first home. These goals will take longer to achieve, but when the two of you are dedicated to reaching that objective you can work with one another in devising the most effective strategy for saving. It might even make sense to speak to a financial adviser or some other professional about the best ways to tackle that particular goal.

Finally, you can focus on even longer-term monetary goals such as retirement or starting a college fund for your child. However, be careful what type of accounts you select for saving towards these goals as many that are designed for long-term growth come with penalties for early withdrawal.  This could leave yourselves open to tax liabilities as well.

Separate But Equal

For some couples, managing their finances successfully means not combining them jointly but instead keeping each partner’s earnings separate. That’s not to suggest they’re keeping their financial situation a secret, but merely each managing their own money and chipping in with all of the bills and other liabilities equally. They’re splitting the rent or mortgage, the cable and electric bills, even the groceries and other incidentals right down the middle 50/50 or in some other predetermined arrangement.

These couples still operate as a couple, each one providing input in the way expenses are handled and money allocated each month.  However, they do it all from separate checking accounts or credit cards. Sometimes, a married couple will maintain a joint account while still holding on to their separate bank accounts as well. It’s all in how you decide to work it out.

Budgets are Important

Let me rephrase that…budgets are extremely important. Remember how money was the number one cause of fights between couples? Build a budget together and you’re going to dramatically reduce the possibility of getting into an argument over expenses. It’s just a fact. Now, if you willfully disregard that budget or spend more than you should (and knowingly do so), then I can’t help you with that and you’re just looking to get into a fight with your significant other.

Getting back to the importance of budgeting your finances; tracking how much you spend on monthly expenses will help you better allocate your income to the essentials and determine if you’re spending too much in some areas. This way you and your partner can decide how much should be spent on items you need and items you want.

Gather up all of your necessary household costs, transportation expenses, and discretionary expenditures like eating out and going to the movies.  This information will give you at least a ballpark figure of what the two of you spend each month. Then you’ll want to consider setting aside 10% of your income to that emergency fund we discussed, maybe another 10% to your retirement, and 10% should go towards paying down any debt you may have hanging over your heads.

That leaves you with 70% of your income to live on. That should be your total spending each month and anything outside of it can be discussed between you and your partner to see if it’s worth the extra expense.  If so, you may want to consider cutting back on other less important expenses to make up the difference.

Don’t Spend Like Crazy

Many married couples make the critical mistake of overspending right after they get married because they want one of everything and think this is the time to buy it. However, when you’re starting out as a new couple, you don’t want to dig yourself into a deep hole of debt. That can be a fatal error to the relationship even if the two of you made the decision together to spend extravagantly.

When those credit card bills are high and the bank account is getting low, the first instinct you’ll have is to blame each other for the mess you both got yourselves into. So take some time to discuss which purchases should be made now and which ones can wait until you’re a little better equipped to afford them.

Setting those spending limits we discussed earlier will come in handy for both of you at this juncture, even if you’re only making purchases that don’t exceed those same limits you may have imposed on using the joint account. You can still do a little discretionary spending and enjoy yourselves now that you’re married, but keep an eye on how much of your cash you’re blowing through in that first year of wedded bliss. You may be creating problems for yourselves later on down the line.

Keeping it Equal

If this is going to work correctly, it’s vital that both of you understand the way your finances are going to operate as a couple. Even if one of you doesn’t have much of an interest in managing the household cash flow, it’s never a good idea to let one partner handle all of the joint finances for the two of you.

With both of you participating in financial decisions and household budgeting, you will avoid problems that might arise when one partner isn’t aware of how much is being spent and they go over budget unintentionally.  This will also help should something happen to the person in charge of the finances the other partner is left without a clue of what’s going on. So the two of you should have a full comprehension of every financial move you both make.

Our Final Thoughts

Above all, be sure to communicate with your spouse. Communication an essential element of any relationship, but when it comes to money it’s even more important. Partners should discuss any financial issues with each other in total transparency and honesty.

This level of openness can often minimize problems before they become larger issues and prevent couples from getting too far down the road in debt. Speaking with one another is also critical when one partner is spending more than they should and it threatens the current and future finances of the couple.

The last thing you want to do is ignore the problem, or any such important financial concern, because it will only serve to make matters worse and it could threaten the marriage. Be upfront and candid with one another, trust your partner, and discuss any big decisions as a team.

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