Understanding your finances as an individual can be simple enough: There's only one person you have to discuss your spending with. But with marriage comes a new player to the ballgame and new pitfalls and expenditures to consider. Most couples get so caught up in paying for the ceremony and honeymoon, they forget to ask important questions and prepare to make important decisions. There are several money mistakes most couples make when they're new to wedded bliss.
Get to know his or her "money story"
According to Kiplinger, couples should begin discussing money well before saying "I do." Some questions to ask are:
- How much is there? Discuss the amount in your online checking account, and how much you've put away in your savings account. Investments and debt are important to share with your lifelong partner.
- Where does it come from? You're aware of each other's career, but discuss where you plan to be professionally within the next five or 10 years and how much each of you expect to bring home.
- Where is it going? Explain any recent purchases and regular expenses.
Money talk is uncomfortable and can make you feel judged. Discussing money and how it's spent helps start the conversation on understanding your spouse's financial goals and spending habits. From there you can create a money management or spending plan that works well for you both.
LearnVest suggests knowing your spouse's money story is necessary to properly address attitudes about money. According to Brad Klontz, a certified financial planner, consider how you and your spouse were raised. If your spouse was never able to afford to eat out, doing so now can make them feel accomplished. Attempting to cut that expense may trigger an emotional backlash leading to a fight.
Addressing the source of spending attitudes helps you each come to terms with letting go of unneeded expenses.
"Come clean with your credit history early on."
Don't keep credit secrets
Worse than arguing about spending is keeping it a secret. Be sure to fill your spouse in on where everything went that month. This opens the lines of communication and can make a partner who is squeamish about talking dollars more engaged in the conversation and more mindful of how to better handle money in your future.
Hiding your credit history is a recipe for disaster. When it's time to apply for a mortgage or auto loan, it's embarrassing enough to be caught in an act of denial, but worse to create a breach in trust. Come clean with your credit history early on.
Agree on a budget
According to Kiplinger, a common newlywed financial pitfall is overspending on a new house. For the first time in your life you feel financially unstoppable. As a couple you may experience the most spending power you've ever felt. Payments for your home should not exceed more than 25 percent of your monthly joint income. Don't lock yourself into a financial burden that restricts your purchasing power down the road.
Large expenses overall should be brought to the table, according the American Bankers Association. Establish a threshold for expenses. Anything below your chosen number shouldn't warrant a discussion, but anything above your agreed-on number that affects the family should be discussed.
LearnVest suggested an amount as small as $100. If one of you is going to spend more than that for any given item, hold off on the purchase until a mutual decision is reached.
It's also recommended that you have a plan for your accounts. Will they be joint accounts or separate? The ABA advised newlyweds to discuss a joint checking account with separate savings for each, or separate checking accounts to be used for private spending.
Speaking of separate accounts, it's important to discuss a month-to-month budget, and support each other in sticking to it. Once you understand each other's spending habits and can agree on what is and is not a monthly requirement, determine where the money should go each month and how much should be saved.
Plan for the future
Don't forget to discuss setting finances aside for emergencies. Citizens Law Group suggested researching and purchasing an insurance plan to make sure you and your spouse are covered in case of tragedy. Furthermore, be sure to make sure your spouse is now identified as your beneficiary for life insurance policies or retirement accounts.
"Developing a financial plan can often take a backseat to the excitement of a wedding," said Frank Keating, ABA president and CEO, in a press release. "But it's important to remember that this is not only a marriage of hearts but also a marriage of finances."
For more information about smart ways to manage your finances, contact Landmark Bank.
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