Don't Wait: Have The Money Talk Before You Tie The Knot
It’s spring and love is in the air, but before you make the commitment, prioritize having a serious money discussion.
This includes everything from current income, spending, assets and liabilities to future life goals and money attitudes.
My husband should have run the other way when we first started getting serious about marriage. I was an impulsive spendthrift, and he was extremely frugal (cheap). Fortunately, we learned to discuss money, to compromise and deep down we have similar values and aspirations.
Before starting “the money talk,” each person should individually get organized. It is not uncommon for individuals to not know what they own, what they owe or how they spend their money.
Creating a net worth statement (what you own and what you owe) and cash flow statement (how much income comes in and where it goes) gives you a good idea of your priorities and financial health. Revealing your financial situation can be uncomfortable or embarrassing. It can make you very vulnerable and requires a deep level of trust in your partner.
Existing debt is often a contentious topic especially if one party has a disproportionate amount. Deciding how to tackle the debt will impact other priorities.
It is important to note that your partner’s credit record does not impact your individual creditworthiness unless you are applying for joint debt. It is also a good practice not to commingle individual debt obligations.
Understanding joint income and debt obligations lays the groundwork for deciding on current financial priorities and determining how expenses will be shared. Decide how much will go to current expenses and how much will be set aside for future goals.
It is important to understand if one of you has dreams of attending college or graduate school, starting a business, living on one income to care for family obligations, or leaving the workforce early. Your future is not set in stone, but it is a good idea to talk about what possibilities lie ahead.
Financial mechanics are another area of friction. Clearly identifying who is responsible for what expenses and how those expenses get paid is a topic for discussion. Some couples open a joint checking account to pay household expenses with each contributing.
If incomes are not relatively equal, a 50/50 split may not be fair. Other couples split up responsibility for various bills and pay from their separate account. Others opt for combined checking and savings accounts. Each arrangement has pros and cons which should be discussed in advance.
Once the day-to-day decisions have been made, it is time to talk about investing and savings. Setting aside an adequate emergency fund may mean different amounts. Deciding how much to contribute to retirement accounts and whether to save in a 401k or ROTH and in whose name are points of discussion. If you have access to a Health Savings Account, will you contribute and let it grow or use the funds for current medical expenses?
Another big topic is investment choices and each other’s willingness to take risk. Will you prioritize future growth and live through the ups and downs or plan for a smoother ride with less appreciation? I also advocate for keeping inheritances separate and considering a prenuptial agreement.
These are not one-and-done discussions. It is important to have regular discussions around finances and investments. When our children were little my husband and I would have a quarterly date-night devoted to reviewing our finances. These were not always a fun night out and sometimes we needed to leave the restaurant and continue the discussion in the car before heading home.
Our commitment to discussing financial matters has helped us navigate tricky family situations and build a firm financial foundation.