If you are like many other Americans, you despise talking to your partner about money and you don’t know how to prepare financially for marriage. But, if you don’t openly communicate about your finances, you leave a lot of financial variables unknown. In fact, according to Experian, 25% of spouses don’t know their partner’s annual income and 40% are unaware of their partner’s credit score.
While this may not seem like it’s that big of a deal at the moment, it could cause some conflict when you attempt to make a big financial decision. For instance, let’s say you want to purchase a home but don’t know your partner’s credit score. If your partner has bad credit, it may harm your ability to obtain mortgage approval. Wouldn’t it be better if you knew this before you began to get excited about buying a home?
As challenging as it may be, having these tough money conversations, before you get married, can help you avoid financial heartache. So, if you want to achieve a successful and long-lasting marriage, here’s how to prepare financially for marriage before you say your vows.
Create Your Financial Goals and Objectives
Most likely, each partner has their own financial goals and objectives. Some of these goals may include the purchase of a home, starting a family, or traveling around the world. Now that you are creating a lifelong partnership, you will want to create financial goals together. As a couple, you can decide which objectives you want to focus on and how you can support each other to achieve both your joint and individual goals.
Take time to map out, in detail, what you envision for your future as a couple. Don’t limit yourself to a 5 or 10-year plan. Discuss your retirement aspirations and your preferred lifestyle. Discussing your dreams will enable you to figure out where you and your partner share common goals and where you will need to compromise.
Take Inventory of Your Finances
Even if you think you may want to manage your finances separately, it’s crucial to be as transparent as possible. Taking inventory of your financial situations can help you get a better idea of your joint financial picture. Each person should make a list of all of their income, debt, retirement savings accounts, bank accounts, and other assets they are bringing into the marriage.
You may also want to include your credit scores. This is especially true if you plan to apply for credit cards or a mortgage soon. If one partner’s credit isn’t up to par, this will give you time to work on it and make improvements before you apply for any forms of credit.
Understandably, you may have some embarrassment about your accumulation of debt or your credit score. Despite this, it’s extremely important to share your financial status with your partner. If you understand each other’s financial situation, you can create a debt repayment plan, a budget, and financial goals together.
Divide and Conquer Financial Responsibilities
Now that you understand your partner’s financial situation, it’s wise to divide and conquer your financial responsibilities. You’ll want to determine how you and your partner will split the bills, retirement savings, and other expenses. If one spouse makes more than the other, they may have more financial responsibilities. On the other hand, if you both make about the same, you may decide to split all bills and expenses equally.
Before you make any decisions about who pays for what, make sure to have the appropriate money conversations so you’re on the same page with each other. The more clarity you bring to your finances now, the easier it will be to make adjustments as you build a life together.
At this time, you may also want to determine if you will have a joint account, maintain your accounts separately, or do a little bit of both. Each decision comes with its own set of pros and cons. For example, if you choose to combine all of your accounts and one spouse has a large amount of debt, the other spouse may become resentful that they have to help repay it. On the other hand, if you merge your accounts it can help you better manage your debt as a team and hopefully repay it quickly.
Keep in mind, there is no right way to manage your accounts. Each couple has their own financial needs that may require a different style of management.
Develop a Budget
Developing a well-thought-out budget is imperative to the success of your marriage. If you currently live with your partner, you may already have one. If you’re moving in together once you’re married, you may need to create a budget ahead of time. Whatever your financial situation is, you will want to revisit or develop a budget.
You may want to start by creating a spreadsheet identifying your financial priorities. This should include your expenses and savings contributions. Once you have all of your fixed and variable expenses outlined, you can determine how much discretionary spending you have. Once you have a budget in place, you may want to consider using certain tools and resources to help you stay on track. For example, using a budgeting tool like Qube can help you and your partner create positive spending habits and will help you stick to your budget.
Even if only one partner is going to manage your finances, both partners must have a good handle on your financial situation. Too often, only one spouse will manage the finances, leaving the other spouse in the dark. While it may not be a day-to-day issue, it can cause concern if the spouse who manages the finances passes away. Some other reasons it’s important that both partners have a good handle on their finances include:
- It helps the couple make better financial decisions together.
- Both partners can see their progress toward their financial goals.
- It improves both each partner’s financial confidence.
While it is okay for one partner to fully manage your assets, make sure both partners are in the loop. This will help with the success of your marriage.
Schedule Routine Check-Ups
Now that you and your spouse-to-be completed a financial inventory, created financial goals for the future, and developed a budget, you will want to schedule regular financial check-ups. Taking the time to meet with your partner about your financial progress will help you prepare financially for marriage as well as celebrate your financial accomplishments.
Avoiding the review of your finances regularly can veer your financial plan off course. Reviewing your finances regularly will help you stay motivated. It will also allow you to evaluate where you can clean up your habits, or even where you can loosen up.
Overall, it’s important to revise your financial plan often, to assure that you are still on track. Conducting check-ups will also allow you and your spouse to assure your goals and objectives remain the same. If not, these conversations will enable you to initiate the discussion if they’ve changed and how you want to move forward. Ultimately, these check-ups will benefit your finances as well as your marital communication skills.
Assess Your Insurance Needs
Learning how to prepare financially for marriage takes time. And with all of the hustle and bustle of starting a new life together, it’s common for couples to forget about insurance options, such as life insurance. Finding the proper insurance can help you avoid future financial devastation. For instance, life insurance is a crucial safety net for couples. This is because life insurance helps protect partners and children from the financial burden of death.
If you rely on your partner’s income, you must purchase a life insurance policy in the unfortunate circumstance of their passing. Start comparing policies and find the right life insurance plan that will fit within your budget and financial needs. Even if you don’t rely on your partner’s income to support your lifestyle, you can select a life insurance policy that will assist you in paying for funeral expenses.
Before you get married, you may also want to review each partner’s health insurance plan. Even if your employer offers health insurance, your partner’s plan may make more sense for your health needs. Review each and determine which one will help you save money while getting the best care available.
Develop an Estate Plan
An estate plan determines where your assets will go and who will take care of your children once you’ve passed. If you forgo the estate planning process, you leave these decisions up to the state. Creating an estate plan will help ensure the fulfillment of your wishes upon your passing.
Create a trust or a will that defines your beneficiaries and where you want your assets to go. Keep in mind, this process may be time-consuming but worthwhile. Since every state has different estate laws, try partnering with an estate attorney for guidance.
At this time, you may also want to review all of the beneficiaries on your accounts. Updating your beneficiary information will help assure that your assets will go to your partner in case of your death.
The Bottom Line
We get it, talking about your finances with your soon-to-be spouse can be challenging. But, these money conversations don’t have to be hard. The more open and honest you are now, the easier it will be to manage your finances as a couple in the future.
Transparency about your financial situation will help you and your spouse build a foundation of trust and honesty. It will also enable you to discuss your future aspirations as a couple, combining your goals into a lifelong plan of action. As the saying goes, “Two are better than one”. Create a partnership that emphasizes this value, and work as a team to achieve the lives you’ve always dreamed of and how to prepare financially for marriage will be a thing of the past.