Okay. No one is perfect. We all have a few money bad habits. A penchant for shoes, loans to friends who never make payments, a credit card bill unpaid too long. As you join your financial lives, owning up to your money gaffes is absolutely imperative so you can avoid major muddles later. A study funded by Smart Money magazine and Redbook found that more than 70 percent of couples talked to their partner about money at least once a week. Here are the major rules of what NOT to do.
1. Don’t keep money secrets
The most heated arguments come about when you’ve tried to hide a financial infidelity. Or at least that may be how your spouse sees it. Sometimes it’s just a difference in attitude, background and expectation. Most people have been away from their parents and earning incomes for several years before marriage without being accountable to anyone. “Whoops! Didn’t I tell you my credit score was below 600?” is not something your spouse wants to find out after you’ve started looking for a home loan. So, spend time talking about your debts, past poor purchases, and financial frailties. Together as a team you’ll be able to work through them and be stronger as a couple.
2. Don’t skip making a spending plan
Let’s face it; a budget is just too tedious and confining. Think of it more as a spending plan where you decide what your spending priorities are going to be and how they match against your goals and income expectations. You’ll be combining two spending habits as well as two saving habits into one plan. Write down what your income is likely to be; conservatively. Don’t count that raise until is shows up in your paycheck. Write down the bills that MUST be paid every month including the pro rata portion of those paid only once or twice a year. Don’t forget debt payments, savings, and ATM cash. Lastly, try to estimate those things that seem to go up and down every month like food, clothes, restaurants, and utility bills.
Although there is generally never any ‘extra’ money, don’t gloss over finding some to save on a monthly basis. Otherwise, emergencies will persistently cause you to come up short and become a major source of marital stress down the road. There are several good budget worksheets on the web, or call me and I will help you find one tailored to your specific needs.
Designing your spending plan is a great starting point for discussing short and long term goals like vacations, kid’s college, and eventual financial freedom. So you’ll get a chance to build your relationship while you talk about spending.
3. Don’t push the money job on one person
Which one of you sits down and pays the bills? Who files the taxes? Who makes the investment decisions? While one of you may have stronger skills and be more interested in finance, it is a mistake to hand the job(s) to one of you alone. The result is that the second person loses perspective, the chance for valuable education, and potential skills that may be called upon in a crunch. You may need to cover when the other is sick, traveling, or overly busy at some point in the future. I’m not advocating that every financial detail be a joint effort. It’s more important to be included in the discussion of some details on a regular basis about the day-to-day activities. Share the passwords and account information regularly as well as occasionally sit with the person as the bills are paid, the checkbook balanced, and the investments researched. And lastly, set aside time for a regular chat about your progress on spending plan, debt, emergency funds, and investments at least monthly.
4. Don’t let your debt become a ball-and-chain
A Dunn & Bradstreet study found that people spend 12-18% more when using credit cards than when using cash. Your wedding alone probably gave you credit card debt before you even began your marriage. The perfect wedding, the beautiful honeymoon, and the new furniture needed to blend your lives can add up to a lot of dollars to pay back.Regardless of which spouse brought the debt into the marriage, paying it off and keeping it off is now a job for both of you. Come up with a plan to pay debt off. Merge that into your monthly spending plan and review debt regularly.
If you find after a few months that your debt isn’t going down, try a few tricks. Take a vacation from your credit cards by putting them in a drawer. Put all nonessential purchases on a 30-day wish list before buying. Put a big-red sticker on your credit card to remind you of the evils of overspending. Get help. Anything. Before your debt becomes a huge problem in your marriage.
5. Don’t let everything become a battleground
Don’t sweat the small stuff. A few lattes’ a week will not make you go broke. Nor will getting your nails done monthly. It’s not one thing that will cause money breakdown, it is lifetime patterns. Buying name brand cereal vs. off-brand for a dollar less is not the issue, but whether you must always buy name brands adding $50-$100 a month more to an otherwise stressed financial shortfall. Marriage is about communication and compromise. While it may be simpler to blame your spouse for their ‘spendy’ ways and pick an argument about the cereal, that ultimately won’t solve the problem. Discuss your spending plan and the little items that go into it at your regular money chat. Make a goal of finding the next wasted $100 a month together by turning it into a brainstorm not a blame game.
6. Don’t forget emergencies
As a consumer and as a financial planner, I’ve noticed that the majority of money surprises are predominantly bad ones. An unexpected medical expense, a car that breaks down, a roof that leaks, other life events whose solution always seems to require money. So it’s vitally important that you put a little away every month for the unexpected. Even if you can only start with a little, just start. If you don’t have three months of living expenses stashed away, (currently regarded as the minimum needed) start with a smaller goal. Start with $1000 as your goal. Then, increase it to $1500. Don’t fall into the trap of waiting till your credit cards are paid off. Having emergency cash can help break your dependence on credit cards.
7. Don’t automatically merge all your money
The Smart Money magazine study found most couples (64 percent) merge all of their money into joint accounts when they get married. However, this isn’t always the best option for everyone. Having your own personal account with some splurge money can help avoid fights over the little expenses like lattes and haircuts. It’s fine to have a joint account that the household and family bills are paid from if both contribute proportionally from your paychecks.It’s also important to keep old credit card debt in the original person’s name even if you are both working to pay it off. That will give you some control over your individual credit scores and make sure you both maintain individual credit history. Lastly, retirement accounts such as IRA, Roth, and 401(k) are required to be in one person’s name. Both of you should be saving for retirement, not just one. An exception would be temporarily when one of you has a 100% employer match and that is the total saving the two of you can afford right now.
8. Don’t ignore your credit score
Right now we are in a credit crisis caused by home mortgages given too freely the past several years. This has caused the banks to go the other way requiring better credit and higher down payments for home loans than in the past. A better credit rating can get you lower interest rates and lower monthly payments. If your score is low, it can take years of diligent, on time payments to improve. Better to start now before you are ready to buy a home. Check your credit on the web by searching for “free annual credit report.”
Wow. That’s a lot to talk about. Blending two lifestyles is part of the joy of marriage. No one is perfect; so take it slow and bear your financial soul to your soul mate.