The newlyweds’ guide to happily-ever-after finances
By Dawn Papandrea
May 13, 2016
Newlywed life is all about making happy marriage memories together, and learning what true partnership is all about.
Beyond romance and shared experiences, however, a big part of a couple’s long-term happiness is learning how to navigate finances, communicate about money decisions, and ultimately, invest in a future together. Pretty romantic, huh?
Despite its lack of sexiness, starting off on the right financial footing if you’re planning to tie the knot or are newly married, could help your marriage stay passionate for as long as you both shall live. After all, nothing will fan out those flames faster than a fight over a bounced check.
This couple’s guide to cash communication will provide a return on your investment by offering strategies for (click on the icon to go directly to that chapter):
- Navigating those “yours, mine, and ours” questions regarding pre-marital debt and assets.
- Learning what it means to practice financial fidelity and have a healthy money relationship.
- Understanding credit coupling.
- Planning for your shared future and managing a shared budget.
Being on the same financial page could help keep the marriage sparks alive. Get ready to embark on a money marriage made in heaven…
Before the big day: the money talk
Waiting until after you walk down the aisle to discuss each other’s credit history is unwise. Having a “money talk” in which both parties get financially naked, so to speak, can give couples the opportunity to address any potential problems in advance of the wedding. For instance, if one person has bad credit, it can affect you both moving forward if you plan to purchase a home together someday, since the mortgage application will most likely include both spouses’ income and credit information.
Pull your credit reports for free at AnnualCreditReport.com, and get your FICO scores at MyFICO.com or from your credit card issuer — more credit cards offer free FICO scores and trackers to cardholders. Go over your credit reports together, encouraging direct, respectful communication.
Of course, bad credit isn’t the only aspect of your financial life that is worth discussing in advance. Depending on how complex each person’s finances are, a legal contract, such as a prenuptial agreement, could be an option that protects everyone’s best interests. Speaking with a professional who can guide you is a worthwhile investment.
Keep in mind, however, that when it comes to property, as well as credit cards and other debt, how assets and debts are divided should you ever divorce may depend on the state in which you live, especially if no legal agreement is made in advance. There are nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin; and in Alaska, it’s optional) that essentially divide everything attained during the marriage 50/50, regardless of whose name various accounts are in.
But this guide isn’t about getting divorced, right? Assuming that you plan to spend the rest of your life together, once you’ve shared answers about the big money questions and achieve wedded bliss, it’s time to move on to dealing with dollars and cents together on a daily basis.
A healthy money relationship: “Yours, mine and ours”
If you really want to put a marriage through a test, forget about the “seven-year itch.” Instead, see how your union survives money troubles, dollar disagreements or secret spending. It’s a sad fact that some marriages don’t last because of fighting over money. Couples who have a healthy financial relationship, however, see money as a tool (rather than as a weapon of power) that can be mastered together.
Here are some potential dough dilemmas that newlyweds should prepare for and try to prevent:
Going behind your spouse’s back and engaging in secret spending isn’t all that different from cheating, especially when it’s taken to the extreme with secret credit card accounts. To take away the temptation to cheat financially, couples should carve out some money from their budget so they each have opportunities to splurge guilt-free. And, as with all aspects of marriage, honesty is always the best policy.
Opposites don’t always attract
Oftentimes, when one person is a spender and the spouse is a saver, not meeting in the middle can lead to bickering and resentment. Both the spender and the saver perspectives can benefit the relationship, however, so it’s important to recognize that and find ways to compromise. Discussing financial goals might be a place to find some agreement. You might agree that a vacation is a worthy splurge, but only after putting away a certain amount of dollars in savings first, for example.
Keep cash communication lines open
It might sound lame, but have monthly money dates. Pairing finances with a fun activity can take some of the tediousness out of it. During these talks, set some ground rules based on what is working and what isn’t. You might agree to discuss purchases over a certain amount, for instance, or choose not to lend money to anyone without partner approval. The biggest rule is that there is no right way — you both get to make a set of rules that works best for you.
That being said, no matter who is physically scanning statements and balancing checkbooks (because it does tend to fall to one person), both people should still be involved in the decision-making aspects of the finances as they come up. And, so that both partners are kept accountable, look over statements together to keep each other in the loop about your individual and shared assets.
Rainy day planning
Whether it is sickness, job loss or a leaky roof, taking a hit to your income or savings and/or accumulating debt as a result can lead to lots of finger pointing if you’re not prepared for it. Setting money aside in an emergency fund is the best way to combat inevitable unplanned expenses that might arise. Even if you start out with a few dollars a paycheck, keep growing it until the account can cover three to six months of living expenses.
Is there even such a thing as couple’s credit? Yes and no. Technically, each person has his or her own individual credit score. However, joint accounts can affect each person’s score, even if it’s your partner who does the charging and paying (or not paying).
Deciding on which accounts to share jointly and which ones to keep separate is actually a confusing issue that sometimes causes tension and conflict down the line if you don’t know what you’re getting into. Here’s a quick briefer to joining your finances:
Joint card accounts can be a fantastic way to pay for shared family expenses and effectively manage that part of the budget. Because there are two of you on the account, it could be a great way to earn bonuses and rewards points. The downside is that your credit can be harmed if payments are late or missed — even if you don’t use the card. Also, it is difficult to get removed from the account if there is debt on it.
Good for: Just think — if you pay for venue deposits, flowers, catering and other wedding costs using your joint credit account, you can quickly rack up rewards points, not to mention the protections most cards offer against damaged or undelivered goods. You might even score a free flight for your honeymoon out of it!
Adding your spouse as an authorized user on your account is a bit different. If managed well, both account holders’ credit reports benefit. However, if the account is not in good standing, negative payment activity can show up on both cardholders’ reports, damaging both credit scores. The major difference is that an authorized user can get himself or herself easily removed from this type of account, and can subsequently get the account information removed from his or her credit report.
Good for: If one spouse has spotty credit, adding him or her as an authorized user is a way to “piggyback” on the other’s good habits to improve credit score.
Sharing finances, vows
Deciding who will pay for what could be tricky, especially in the first year of marriage. Some couples prefer to pool all of their money with each person getting a personal allowance to do with what they please. Others keep things separate, except for shared household expenses.
Things can get more complex if there’s income disparity, or if one spouse doesn’t work at all. Whichever approach you take, the key is to come up with a plan that both parties are comfortable with.
One expert solution that works for many couples is to calculate joint monthly bills (with the help of a financial planner if necessary), and contribute to a joint account in proportion to your individual income. So for example, if one partner earns $50,000 and the other brings in $100,000, their joint bills of $3,000 would be split so that the higher earning partner pays $2,000 to the other’s $1,000. Individual expenses can still be kept separate and paid for from individual accounts.
Those who have a tighter budget to work with might turn to a more extreme solution called “microbudgeting” to better track spending and saving. You can use smaller, more narrow categories of spending and tracking on a weekly rather than monthly basis, which can help you zero in on the financial habits that are working well and those that aren’t.
“Till debt do us part”
No newlywed ever wants to imagine being divorced, but it’s not a bad idea to know how debt might be handled should that day ever come. As mentioned above, if you live in a community property state, all assets and liabilities incurred during the marriage are typically split down the middle. Even if you live in a state without these laws, the judge may assign one of you to repay the balance on an individually held card that you might not have ever used.
Also worth noting is that if post-divorce an ex-spouse neglects to pay on an account that is in the other ex-spouse’s name, the account holder doesn’t have much recourse. (Can you say, “’til debt do us part”?) The card issuer wants to get paid, and it’s the primary card owner who is legally on the hook for the debt, no matter what the divorce decree says. If divorce is the unfortunate outcome of your marriage, it’s in everyone’s best interest to try to settle debts prior to the proceedings. Or better still, live as close to a debt-free lifestyle as possible.
Planning a future: Buying a home
A common newlywed goal is to save up and buy a home together. As with other money matters, this huge undertaking — which often comes with a 30-year mortgage commitment — needs to be thoroughly discussed so that both spouses understand the financial implications.
And, because it’s rare that both parties will be able to contribute equal amounts to the down payment and mortgage payments that follow, there are some decisions that will have to be made in regards to ownership and responsibility.
Questions to discuss include:
- How are you going to pay for it?
- Will the mortgage be held in one or both names?
- Who is contributing what to the down payment?
- And how will all that matter should the day ever come that you part ways?
Ideally, you should postpone buying a home (or any major purchase) until you both have strong credit, enough income to support home ownership, and savings. If one spouse’s credit is poor, you could end up with a subprime loan, and pay thousands of dollars extra over the life of the loan.
Financial counseling for couples
Whether it’s creating a budget, figuring out savings goals, or managing a financial crisis, couples shouldn’t hesitate to get some advice from an objective outsider. Not only will it help your bank accounts, but it could save your relationship. Working with a financial adviser means that no one person is on the hook for a poor decision, and emotions or biases (that could come from well-meaning family members, for instance) won’t prevent you from getting solid advice.
One reason to work with a professional might be to figure out how to weigh your immediate concerns (saving for a house or paying off debt) with your long-term goals (retirement, college savings for children). Having a game plan in your 20s and 30s could help you in your 50s and 60s, and as you grow old together.
Happily ever after: Growing stronger financially as a couple
Being prepared for ups and downs — including financial ones — can help newlyweds face challenges together and grow stronger as a couple. By not letting money matters muck up your marriage, your relationship will grow richer each year.