Marriage is a huge life decision. Your marriage will affect all aspects of your life, including your finances.
If you are planning on getting married, it’s important to start out your life on the best possible footing. This includes starting out on the right financial foot. Before you tie the knot, here are 5 tips that can help you avoid some of the financial pitfalls that can come when you combine finances:
1. Be Honest about Your Finances
Before you get married, you need to have a financial show and tell. Be honest about your debts and where you stand. Your partner should also be forthcoming about his or her finances. Get it all out there on the table so that you can see what your combined finances could look like.
Once it’s out there, you can also get a good idea of where you need to go from there. Seeing the big picture can help you figure out how to improve your finances and make a plan for achieving your shared goals.
2. Determine Your Shared Financial Priorities
Next, you need to make sure that you have some shared financial priorities. What are the things you want to accomplish together? Do you want to buy a home? Have children? Save for retirement? Use your money to travel the world? Give to charity?
If you start spending, and you have different priorities, one (or both) of you is going to be very unhappy if you are unwilling to compromise. When you aren’t spending money on the things that are important to you, it starts to feel as though you are “wasting” your money — and no one likes that feeling.
Make sure that you come up with shared financial priorities, and that on items that you differ on, you come up with a way to ensure that both partners are able to spend money on what’s most important to each.
3. Plan a Sensibly Priced Honeymoon
My husband and I didn’t have what many would consider a “real” honeymoon. We spent a couple of days in New York City. However, our honeymoon was very affordable. There are some that recommend you choose a honeymoon that you can pay off within a year. I prefer to save up for a honeymoon. Since my husband and I had something of a whirlwind romance, there was no time to save up for a grand vacation. And we had to be back at school a week later anyway.
Don’t plan a honeymoon that you will both regret as you continue to pay for it year after year. The same is true of your wedding. If you know that both of you won’t mind paying for the wedding and honeymoon for the next five years, then go all out. But you have to agree that it’s something you both feel is worth going into debt for, and worth paying all the interest on.
4. Create a Spending Plan that Works for You
More on Couple’s Finances
Work together to create a spending plan that works for your situation. If you have separate accounts, you need to figure out who will pay what bills. Should you set up a joint account and each of you contribute money to the account to cover shared expenses?
Also, figure out how much you can afford to spend on groceries, entertainment, and other items. Look at your income and your expenses, and note recurring costs like insurance premiums, housing payments, and retirement account contributions.
You will also need to find out about obligations your partner has (and share yours). While debt is an obvious obligation, your spending plan will also need to take into account the possibility of child support and alimony.
5. Be Wary of Taking on Your Spouse’s Debt
You don’t have to be responsible for your new spouse’s debt. But you have to be careful to keep it separate. Debt incurred before the marriage only becomes your responsibility (in most cases — check your state law) if you are added to the account, or if you co-sign to refinance the debt.
Think long and hard before you take on your spouse’s debt. You might find that it makes more sense to encourage your spouse to carry on with paying down his or her own debts.
What other tips can you think of for starting a marriage out on the right financial foot?