Engaged? Congratulations! You’re on your way to wedded bliss. Or are you? Of the top ten things couples fight about, money is one of the most common and can be the hardest to reconcile because it touches every aspect of your life. Even if you’ve already lived together for a while, these are the eight financial discussions you absolutely should have before you put rings on those fingers.
Discussion #1 - Debt
Who currently has what debt? How do you feel about taking on joint debt?
In most states, the debt you incur before getting married doesn’t become joint debt in name. But if your spouse declares bankruptcy because of said debt, the creditors can come after your joint assets, which means it can become your problem too. Also, if you open a joint checking or credit account, you’re also liable for what your spouse spends on said account. So before you get married, have a discussion about your collective debt. Yours, theirs, yours and theirs, and then put together a game plan to pay it off.
Having too much outstanding debt can hurt your credit which can, in turn, limit large future financial decisions, like purchasing a home. Which brings us to discussion number two.
Discussion #2 - Credit
What are your credit scores? What are the actions you can take to improve them?
Your credit score affects your financial freedom, so if you or your spouse has a score of 700 or above, you want to maintain that score. If you or your spouse has a score below that, you want to focus on improving it. The better your credit score, the less it costs you to borrow money, which could mean big savings if you plan to buy a house, a car or even take out a personal loan. Before you have this discussion, order a detailed credit report for each of you and then sit down and review them.
What are the negative marks? If the ratio of outstanding debt to available credit is high, consider paying down the account with the highest interest rate. If there are a series of late payments, set up an automatic bill pay with your bank so that payment for these bills goes out on time. If one of you has great credit and the other mediocre, consider putting the person with mediocre credit on a credit card the other already has. It will allow the added person to build positive credit without taking on another form of debt.
However, you will want to set boundaries and ensure that spending styles align - which brings us to the next topic.
Discussion #3 - Spending Style
How much of your income do you want to save each month? On which items do you want to spend more money and on which items can you be more frugal? What are your long term financial goals?
Some people are frugal with everything, some spend money like it’s water running out of the tap. But most people fall somewhere in the middle. Usually what happens is, one person likes to spend money on things like going out to dinner and shows, while the other wants to drive a nicer car or live in a more expensive home or apartment. There can also be a disagreement on how much is the right amount to save each month. So talk about it. Compromise. And while you’re at it, set some long-term financial goals like buying a house, taking a year sabbatical or saving for your child’s education.
Once you’ve agreed on how to spend your money, put together a game plan, aka, a budget.
Discussion #4 - Budgeting
How much income are you bringing in each month? What are your fixed costs (i.e. costs that don’t change from month to month like rent or mortgage, utilities, cell phone bills, car payment, student loans)? What are your variable costs (i.e. things like food, clothing, and healthcare)? How much are you saving? Is that enough to meet your long term financial goals within your ideal timeframe?
Unless you have unlimited amounts of money, you will NEED a monthly budget. Creating a budget with two people who might have different financial priorities can be difficult, but start by listing your income and then all of your expenses (starting with your fixed). If the way you’re currently spending your money doesn’t align with your priorities and goals, compromise and make adjustments where needed.
Be sure to account for special savings accounts, such as an HSA or a 401(k). Knowing how much you are currently contributing to your savings can help you plan in the future - especially with your partner helping you.
Discussion #5 - Buy or Rent?
Is it important for you or your spouse to own your home or are you fine renting?
Purchasing a home is big endeavor and usually requires planning and saving (see discussions #3 and #4). So talk about it. If you decide it’s important to you both, then talk about the changes you’ll need to make in order to make that happen.
Discussion #6 - Child Support
Do either of you have children from a previous relationship? How will those financial obligations be handled?
Even in common law states, where everything becomes joint property once a couple gets married, only the spouse who owes child support is financially liable for those payments. But that usually isn’t the extent of the financial obligations that come with raising a child. If you decide only the parent of said child(ren) will be financially responsible, you’ll also need to decide how that money gets separated out.
Discussion #7 - Personal Financial History
Has one or both of you declared bankruptcy? If so, what were the circumstances? Have there been any other financial troubles?
This is perhaps the most difficult discussion because it could touch on other issues like addictions (gambling, shopping, drugs or alcohol) or a pattern of poor decision-making. If you feel as though this conversation could get heated or emotionally fraught, seek the help of a therapist or counselor. He or she could help guide the conversation in a non-threatening way.
Discussion #8 - Who Will Manage the Money?
Sometimes this discussion is the easiest as one person generally shows more of a knack or interest for money management than the other. If that’s not the case in your relationship, be honest about each other’s strengths and weaknesses and try to make the best decision for your partnership.
Getting married is a fun and exciting time and it’s easy to get caught up in the celebration of it all. But before you get carried away, come back down to earth and have these important financial discussions. Setting a strong financial relationship between you and your partner will make it easier to have difficult conversations in the future.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.