Getting married may seem like the most natural progression in the world when you have found the person you want to spend the rest of your life with. However, while it should be the easiest decision in your life to make, it is the subsequent decision-making about how to merge and mange two lives together, which can take some time.
That is why there are some important steps you need to take in your personal finances both before and after you get married to make sure money matters are just as easy to deal with.
How to Establish Personal Finances Before You Get Married
When you first get engaged friends, family and even strangers will be wishing you well and while it is easy to get caught up in the excitement of planning your big day and your perfect married life, it will take more than good wishes to make those dreams a reality. Therefore, before you get married, make sure you discuss and manage your personal finances by:
Communication is important for any relationship and is especially important for the success of your finances as a married couple. The first thing you should do when you decide to spend your lives together is to sit down and bare all. This means telling your fiancée everything about your personal finances, and hearing everything about theirs. You’ll want to know about debts, savings habits and plans for the future.
As part of this discussion you will also need to put plans in place for the day to day management of your joint finances. You may choose to appoint one person to manage all bills and accounts, or you may decide to set aside time each week to pay bills together.
The decision to have a joint account is different for each couple, and you need to find what works for you. To help you initially adjust to joint finances, you may choose to keep your individual transaction accounts and open a joint account where you transfer funds to cover bills and joint expenses like rent.
Whether you keep separate accounts or open joint accounts, you should always make sure the other person is consulted in purchasing decisions. The easiest way to do this is set a price limit for purchases which need to be discussed, this means you don’t have to ask about every $5 purchase, but at $100 for example, a quick consultation can avoid going over budget, or disrupting any plans for those funds as a couple.
2. Understanding and managing credit and debt
The debt and credit card conversation is not going to be an easy one for many couples because when you get married, debt repayments are eating into the joint funds which should be being used for your future together. Plus, you’re planning a wedding and so your spending is higher than normal too, but now is a good time to get your credit under control, and stop using your credit cards if you can’t repay them in full each month.
It is also important that you know each other’s credit scores because once you are married and go to buy a house together for example, one partner’s bad credit score can make it impossible to obtain a loan. You can obtain a copy of your credit report for free and you’ll be able to see the effect of your current debts and personal loans. You’ll also be able to check for any mistakes on your credit report which could be damaging in a loan application, and if these marks against you have been made in error, the sooner you know about them the sooner you can have them removed.
Next you’ll need to calculate your net worth, which is the difference between what you own and what you owe. This will tell you how much you are worth, and if your net worth is in the negative, then you will need to do something about getting rid of some debts, and building up your asset base. You should start by making bad debt your priority to repay and this includes personal loans, car loans and credit cards.
Create a debt repayment plan by setting a goal date you would like to repay one car loan and all of your credit cards for example, and work out what you need to do to get there. Do you need to channel your savings onto your debts, or do you need to make lifestyle changes to free up more funds in your budget for higher repayments?
It is also important to think of individual debts as joint debts, even before you are married. Even though debts incurred before the marriage an in only one person’s name remain theirs after marriage, remember that you are now a team, you’re on the same side and you should both be working towards a debt free future, together.
Now that you have discussed your finances you know what is coming in and what is going out – and where it’s going. It is now time to put all of that information into a budget so you can both stick to the spending limits, make sure all bills are paid on time, and continue to spend less than you earn to steer clear of new credit card debts.
You may want to use a piece of paper, the spreadsheet program already on your computer, or purchase dedicated money management software. Regardless of the method you use, you should both be able to see at a glance what has been spent, what needs to be paid, and how much is left for a little indulgence this month.
Before you get married there are a lot of milestones still ahead of you – wedding, honeymoon, house, children…and these will all cost money, more money than you’ve probably spent on anything in your life to date. Therefore, you need to start saving as a couple in earnest, and you’ll need to focus your savings on two things – the future and emergencies.
You can do this by opening an online savings account which allows you to create sub accounts. Online savings accounts won’t give you access to your funds through an ATM or EFTPOS card but will make it easy to deposit from your transaction account, and even directly from your wages. You can then allocate sub accounts so you can save for all of the big events coming up in your life, and you can also build an emergency fund so you can avoid having to resort to a credit card when an emergency expense arises.
5. Getting expert advice
You and your fiancée probably already have an accountant each, but now is the time to merge service providers too, and look at your financial needs as a couple, with a financial advisor. Not only can your advisor help you plan for your future based on your new financial circumstances, but they can also make sure you are getting all of the benefits you are entitled to as a couple for tax purposes for example.
6. Plan for the future
With all of these personal finance strategies in place, you can finally get excited about planning your future. Discuss where you want to go and when you want to get there, and the how will come from the savings and budgeting practices you have put in place before you’re married.
However, make sure you don’t get carried away with your planning when it comes to your wedding, because now that you have a clear understanding of your finances as a couple, you should plan your wedding on a corresponding budget. After all the work you’ve put in to organise your finances before you’re married, you don’t want to return from your honeymoon to a mountain of debt.
How to Manage Personal Finances After You’re Married
Once the honeymoon is over, it is time to settle into the reality of a marriage, and managing joint personal finances. While discussing and planning for this time before you were married may have seemed easy, sticking to a joint budget and discussing every large purchase can quickly take the shine off of wedded bliss. That is why you need to continue to communicate and work together, always remembering you are working towards the same goal. You can do this by:
- Communicating. As soon as you start avoiding talking about money with your spouse, or hiding new purchases then you are going to deviate from the plan, and it will be hard to get back on track.
- Having money discussions. Instead, of ignoring issues with your finances, talk about it with your partner and if something isn’t working, work out why. You’ll then be able to find a solution together, and that is what marriage is all about.
- Monitoring net worth. Your net worth is a good indicator of how well you are sticking to your budgets and financial plans, and as a couple you should revisit your net worth each month to make sure it is going up and not down.
- Revisiting your goals and plans. It is all very well to make plans for the future, but we all know that unexpected events can pop up and change these plans. Therefore, make sure you continue to track your progress towards your goals, and readjust your ideas for the future if necessary.
In this communication it is also important to work together in practice too, and this means knowing who is responsible for paying the bills and how the savings contributions are made for example. Also make sure you have a sufficient emergency fund for your current circumstances because as your liabilities and responsibilities change, you may need more money than before to cover monthly expenses in case you are unable to work or lose your job.
Alban is a personal finance writer at Home Loan Finder, a home loan comparison website.