Once all the wedding and honeymoon excitement is over it’s time for newlyweds to go over some basic finances. This is often a confusing stage for newlyweds, should we have joint accounts or individual ones? How many credit cards should we have? Who is going to pay the bills? These are some basic finance issues that should be dealt with at an early stage. Specifics will differ in each situation but there are some basics that are applicable to all and should be discussed.
We already asserted the importance of discussing long term goals and the importance of money in money management for unmarried couples, if you have not yet approached those topics with your better half than you should do so before moving forward.
1. Review Credit History and Debt
you are happily married for 3 years and were able to save a large down payment for a nice house; you decide it’s time to buy so you go houses hunting. You find the perfect home and fall in love with it and decide to put in an offer, you shop around for a mortgage and fill in your application…..only to find out that your partner has a terrible credit history and hence your application is declined! OUCH!
Do you see a fight coming up? Having bad surprises like this will only hurt your relationship, so to avoid them just check your credit reports. Your credit reports may not be perfect but at least you will be aware of the situation and there won’t be any major surprises. Just before the wedding or right after pull your credits reports and discuss them with each other, you can do it through any of the big agencies like Equifax or Transunion or even better use MyFico. More on Credit Reports and Credit Scores.
You also should know how much debt each partner is bringing into the relationship, if you are both aware of your debts than planning around it will be much easier. Again there won’t be the surprise element, imagine you find out your partner owes $45,000 in credit card debts a month after the wedding…not a nice picture.
Pay off all or most credit-card debt as soon as possible. Reduce the number of cards both spouses have, paying off the cards with the highest interest rates first. Avoid those supposedly juicy offers from home-electronics and furniture retailers promising no money down and no interest payments – hidden interest is built into the cost. Put off big purchases until you can pay with cash.
2. Review Your Insurance Coverage
You may or may not have had insurance coverage, if you did than take them out and determine if you have sufficient coverage for your new situation – also keep in mind you may have to change the beneficiary. If you do not have any insurance policy than take some time and discuss if you need it and how much you need, see life insurance and Critical insurance articles for more details.
Also review your homeowner or renters’ insurance policy to ensure you have enough coverage.
3. Your Combined Net Worth
I have discussed the importance of keep tracking of finances and tracking your net worth. Net worth is a snapshot of your finances at a specific time, now that you are married and share your finances you need to calculate your combined net worth. You should update your net worth once a month, including both of your assets and liabilities. You should mark who the item belongs to or if it is a joint ownership.
4. Discuss the Mechanics of Your Finances
This is always the most confusing part for newlyweds, should we join accounts or not? How will we pay the bills? There really isn’t a right answer to these questions; the best thing is once again to discuss your options and make your decisions together. Here is my recommendation, have single accounts and one joint account where you both contribute for household expenses. You will keep your independence at the same time you will have a joint account for convenience of your household expenses.
5. Who will be in Charge?
Lastly you need to discuss who will be responsible for what. Who will pay the bills and how will you pay them? Who will keep track of your finances? Again this comes down to personal preference, sometimes it’s easy because one person does not like the task but other times things can get a little more iffy. The best option, I believe, is if both partners are involved in the whole process, even if you don’t like the task you should be part of it. The reason is that you never know what could happen in the future, what if the person responsible is ill or dies and what about divorce? You both should be aware of your household finances; I am always against just one person being responsible for things.
These suggestions should help you to get the right start. As you can see at this stage it’s mainly reviewing and discussing things. Once you have a firm understanding of your current situation and the mechanics of your household finance, you can move to the next steps (budgeting, saving etc.), which we will discuss next week.
What are your suggestions for newlyweds? What is your personal experience in this situation?
Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.