Congratulations, you've found Mr. or Ms. Right, fell in love and now the Big Day is right around the corner. If you're planning to say "I do", save yourself some arguments later by talking about your money now.
More important than the cake, flowers or the invitations is preparing for your financial future together. Make a date to sit down, discuss your goals and expectations and come up with a plan for an effective merger of your financial lives. It may not sound romantic, but considering that quarreling over money is one of the biggest causes of marital problems, a money talk may be just what Cupid ordered.
Financial dates are a great way for couples to set priorities, build trust and increase marital bliss. Probably the biggest mistake couples make is not talking about money. It's really about setting aside some time so you can both plan for your hopes and dreams.
1. Where would you like to be in five or ten years? This question is the best way to start a money conversation. For example, does one of you want to go back to school or start your own business? And if you plan to raise a family, how many children do you want and when? Discussing your hopes and dreams together will help you set priorities and identify savings goals.
2. What are our assets and liabilities? Before you can create an effective strategy to reach your goals, each person should fill out a worksheet detailing his or her assets and liabilities. Once you know where you stand right now, it's much easier to move forward.
3. Should we keep our finances separate or combine them? Some couples relish the unity and trust that joint accounts foster, while others prefer more freedom and autonomy by maintaining separate accounts. Or you can have both - some couples set up a joint account for household expenses, to which both people contribute based on their income while keeping separate accounts for personal spending.
The key is to find a system that works for you. Make sure you consider your individual money styles. If you are a saver and your partner is a spender, for example, you might find managing an all-purpose joint account too nerve wracking and opt for a combo approach or separate accounts entirely.
4. What about our investments? Whether or not you choose to combine your investment accounts is, again, entirely up to you. Nevertheless, it's important to view your portfolios as a whole to make sure you aren't overlapping. If you both hold shares of the same stock, for example, you could be placing yourselves at risk should anything happen to the company.
5. How will we handle daily spending decisions? One of the first tasks newlyweds should tackle is creating a budget. Sit down together and plot out how much you expect to spend on food, clothes, eating out and other household expenses.
You should also take this time to discuss other spending issues, such as how much each of you can spend without consulting the other. You don't want to discuss every purchase, but you don't want to come home from work and unexpectedly find a new Mercedes in the driveway either.
6. Who will be responsible for paying the bills and preparing the taxes?
One of you may be the bread winner, the other the physical bill payer but it is good to have a date every month to go over the budget, review your saving strategies and progress and discuss upcoming expenses, such as holidays. Paying your bills electronically is a great way to reduce the burden of this task.
7. What is your tolerance for financial risk? One of the biggest culprits in marital money fights is a mismatch of risk tolerance. A lot of life's most important decisions involve weighing risks. From investing strategies to career moves, if one of you prefers to take bigger risks in hope of bigger rewards while the other is content to play it safe, you could each end up resenting the other for his or her carelessness or for holding you back.
Discuss your risk tolerance to see where you both stand. If you're on different ends of the risk spectrum, try to compromise on financial strategies that both of you can stomach.
8. What are our insurance options? Adding a spouse to your health insurance may be cheaper than maintaining separate plans. Consider your specific health needs, then look at the costs and benefits of each person's plan choosing. Combining your car will probably also save you money. You'll want make sure you have enough homeowners insurance to protect your combined possessions. And what about life insurance? Do you need it? If you already have some, either privately or through an employer, do you need to change your beneficiary information?
9. How does your credit report look? The good news is that simply marrying a person with bad credit will not drag down your stellar record. What's his is his and what's hers is hers. So, if you apply for a car loan by yourself, your spouse's credit report won't even enter the picture.
But when it comes to applying for joint financing - say, you plan to buy a house together - lenders will consider both your histories. It's better to know ahead of time of any potential problems than to receive the shocking news in the mortgage lender's office that you're stuck with a higher interest rate, don't qualify for as much money as you'd planned or that you're being turned down for the loan entirely.
10. How will we tackle existing debt? Make a pact to pay off your debts. Start with the balances that carry the highest interest rates. You may choose to work individually or collectively to pay off debts you accrued before the wedding, but don't add each other's names to your obligations.
Frances O’Hanlon Mortgages & Investments Ltd is regulated by the Financial Regulator.