The Beatles once sang that “All You Need is Love.” Of course, they were fabulously wealthy at the time so take it with a grain of salt. Of course, in a successful marriage, love comes first. But right after love comes a long list of financial considerations. After all, it costs money to build a life together. So before you start saving up for the wedding, it’s important to get a few serious conversations out of the way.
Research invariably tells us that money is among the top subjects of conflict in many marriages. We can’t promise smooth sailing and easy decisions at every twist and turn, However, there are ways that you and your partner can better anticipate, prepare for, and manage even the toughest days.
Speaking of managing the toughest days, if your plans include a family, you need a serious sense of what it costs to raise a child. We’ve got you covered, for at least the first year. If you’re crunching the numbers, find out exactly what to budget for a new baby.
Whether or not there’s a baby in your future, be sure to make time in your relationship to discuss these 10 key financial matters…
1. Sharing Family Goals
As long as we’re on the topic, you should probably put the baby discussion at the top of your to-do list. Not to put undue pressure on you, but this is a conversation you need to have before you can gain a meaningful understanding of your long-term financial outlook.
Sherman Wealth Management notes that “Children, as wonderful as they are, are very expensive to raise. Do you both want to have children and, if so, one child or several children? Discussions about how the children will be raised and educated are also valuable from a financial perspective.”
From the day you get the hospital bill for delivery to the day you sign the last check over to your kid’s college loan provider, you’ll be spending an enormous portion of your earnings nurturing a child and preparing to send it out into the world. So while you don’t have to make any life-altering decisions about kids tomorrow, you and your spouse need to discuss long-term family goals and what it might cost to attain these goals.
Do you envision owning a big home, having five children, and sending them all to expensive colleges? Or do you plan to spend at least the next decade traveling and avoiding procreation? Either decision carries significant financial implications.
2. Sharing Financial Goals
Obviously, if you are aspiring to a child-free #vanlife, your spouse should know about it beforehand. But life goals for most couples go beyond just children. This is part of a bigger picture, the one you hope to paint with your spouse. Your life goals and your financial goals are deeply interdependent. If your life goals include family, house, and a comfortable retirement, the way you manage your money will determine how achievable these goals really are.
This means that you and your spouse need to be on the same page, and you need to have a plan for how you can continue writing the book of your lives together. Share your life goals and your financial goals with one another early in the relationship. Marriage should be full of surprises, but your financial objectives shouldn’t be among them.
3. Listing Debts
When you marry somebody, you marry their debts. These burdens become your burdens as they impact the overall net worth of your household and can have a direct bearing on your immediate financial standing. That’s why you and your spouse have a right to know exactly what kind of debt you’ll be taking on by joining your lives.
Some debt is normal and manageable, while some debt is burdensome and problematic. All of it impacts your family bottom line. Make sure you have a detailed and open conversation about what is owed and how it might impact other aspects of your life such as saving, spending, and investment.
MyWalletJoy advises that this discussion “should include a full inventory of all debts you each owe: the types of debt, the balances on each account, and even the interest rates you’re paying. From there, you can talk about how you have each been managing and repaying debts — and if or how that might need to change in the future.”
If either or both of you bring debts into the relationship, this discussion should include plans for how to address your debt. For many young couples, this is the first major hurdle on the way to a savings plan.
4. Sharing Credit History
You can’t really have a conversation about debt without also having a conversation about credit history. As with debt, you will ultimately share the consequences of your credit score with your spouse. So if you carry a history of delinquencies, missed payments or simply a negative debt to income ratio, these are all factors that your spouse needs to know about. You need to know the same about your spouse.
If you have ambitions of home ownership, real estate investments, or a small business startup, both your credit rating and that of your spouse will factor into your eligibility for loans, borrower interest rates, and more. If either of you enters into the relationship with credit in need of repair, like maxing your card with expensive purchases such as engagement rings or cars, you’ll want to collaborate on managing this challenge together. Make sure you both understand your shared lending profile and, if necessary, discuss strategies for improving that profile.
5. Calculating Net Worth
On the bright side, it’s not all about credit history and debt. It’s also about what you own, where you’ve invested, what you’ve already saved and how much you earn. One or both of you may carry both income and assets into the relationship. Make sure you share these details with one another. Understanding what you both own and what you both earn is critical as you develop strategies for handling household expenses and planning for future ambitions.
These future ambitions should figure into your discussion, both in terms of your potential long-term earning and purchasing power. Sherman Wealth Management advises you to evaluate the household income you are hoping to achieve with your spouse and to consider what costs might enter into achieving this goal. Sherman Wealth Management asks, “Will reaching those aspirations include additional education? Will it mean switching jobs several times early in your career? Will it mean working 80 hours a week for decades? As a couple, understanding financial expectations and future net worth aspirations will help you plan a life together that will meet both of your needs, financially and emotionally.”
Understand your shared financial baseline—properties, savings, assets, investments, and salaries—and work together to build your worth from there.
6. Saving and Spending Habits
Now that you’ve got a clear picture of your joint assets and debts, you need to have a discussion about how each of you approaches finances in the present day. In other words, each of you brings a certain attitude toward spending and saving to the relationship.
MyWalletJoy says that “Talking through day-to-day money management can also help you see where you’re aligned and where you’ll need to compromise. Share your budget and the process you use to make spending decisions. See if you each consider yourselves more a saver or a spender, and how that will affect your dynamic as a couple.”
Chances are, by the time you’ve reached the stage of matrimony, you’ve had plenty of time to witness one another in action. It may be pretty obvious which one of you is likely to place a bonus check in an interest-bearing account and which is likely to use it for a much-deserved spending spree. Ideally, you’ll reach a happy middle ground that combines responsible financial management with the occasional indulgence.
7. Dividing Household Expenses
In addition to your discretionary spending, there are some bills that are simply inescapable. From mortgage or rent to utilities and media service providers, life costs a lot. How you divide these responsibilities may depend on a number of factors including the size of your respective incomes and each of your debt loads. Discuss your household’s major monthly expenses and figure out how best to divide and conquer.
Sherman Wealth Management says that “A realistic understanding both of your current incomes and current debts is important so you can create a realistic budget based on your combined income and expenses.”
And don’t be afraid to remain flexible on this front. Your income and your spouse’s income are subject to change. So too are rates for utilities, rents, and more. Revisit this conversation regularly to make sure that the balance of payment responsibilities continues to work for your household. The more open you are with one another about your finances, the more readily you’ll be prepared to pick up the slack for one another should the need arise.
8. Setting Up Joint and Separate Accounts
There’s no right or wrong way to divide or combine your finances. Some couples merge all financial accounts. Others maintain completely separate banking and investment accounts. And some couples split the difference, keeping both separate spending accounts and establishing joint accounts for things like savings and investments.
There’s no one-size-fits-all way to do this. This is simply a matter of preference. The most important thing is that these preferences are indeed shared. Make sure you both clarify your feelings on what you believe should and should not be merged. Having this discussion in advance can prevent miscommunication or even hurt feelings in the future.
9. Planning for the End of Life
Nobody likes to talk about death, but it’s an important part of joining your lives. You have to prepare both one another and any children for the event of your demise. This requires a number of difficult but essential conversations about life insurance, wills, and trusts.
Sherman Wealth Management notes that “the process of obtaining a will or trust is fairly straightforward; it’s the discussions that lead up to it that provide the most value. Both of you should have a good understanding of what you have and what you want to happen, should the unthinkable occur.”
Other matters you should discuss include burial wishes, funeral planning, and the identification of adoptive god-parents in the event that both of you face an untimely tragedy. Make sure you have these important conversations as you build your life together. Death is hard enough but failing to plan for it can only compound the grieving process and lead to heartbreaking legal entanglement.
10. Planning for Retirement
In a sense, retirement is the big picture here. As you make your financial plan together, retirement sits in the distance filled with both promise and challenge. As you build your household budget, prioritize your saving and spending, build investments and acquire assets, you will always do so with some consideration to how you’ll live in your retirement.
But that means you have to identify your retirement goals first. As a couple, you’ll need to share these goals. Will you own a full-sized home or do you plan to downsize to a more modest apartment? Do you plan to travel extensively or will you spend this time with family? What kind of lifestyle do you expect to lead?
Answer these questions first. Once you’ve done that, it’s time to consider exactly how you’ll finance these ambitions. This is a great opportunity to speak with a financial advisor. Don’t be afraid to reach for the sky, but make sure that you fully understand the cost of your retirement dreams. A financial planner or advisor can help give you a clearer sense of these costs, as well as a sense of your progress toward affording your desired lifestyle.
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Need a little guidance on how to prepare for that last major professional transition? Retirement should be a time of excitement, personal exploration, and renewal. But it can also be scary if you haven’t prepared accordingly. For more, find out How to Start Planning for Retirement.