Tips on How To Combine Finances After Marriage
Money can be a source of tension for couples, especially newlyweds. But it’s not fair to blame your problems on money itself. Rather, some of your financial troubles may be avoided when you and your partner understand how to merge finances and work together to achieve your goals.
Ideally, it’s more productive to start sorting through your finances before you say, ‘I do.’ But if you’re one of the 57 percent of couples who didn’t talk about money matters before tying the knot, these five tips can help you build healthy financial habits before the honeymoon phase wanes.
#1 Prioritize financial management
Knowing how to merge finances as newlyweds doesn’t happen on its own. You must first make it a priority to discuss bills and bank accounts and ensure you each understand where your money is going. Start by making a date to discuss your unique financial situation. Consider a time when you each are at your best, such as after breakfast or during an extended lunch break. It’s a good idea to make these “money dates” a regular event to ensure you’re both aware of your ongoing financial situation.
Create a list of your own bills, debts, and other expenses, then compare them to your partner’s. While some of these expenses may be reduced or overlap after marriage, it should illustrate what you can expect from your monthly bank statement. It’s important to remember that your spouse may not agree with what you consider to be “good” money management. People view money differently for a number of reasons, including how they were raised and their experiences with finances.
As a result, handling your marital finances is never a one-and-done deal. It takes continued open-mindedness and peaceful communication to ensure both parties know how to merge and manage finances successfully.
#2 Establish long-term and debt reduction goals
Work with your partner to establish what your finances can realistically achieve. Whether you dream of retirement, homeownership, yearly vacations, or relocation, your ability to do so comes down to your combined dollars and cents.
Once you’ve defined your shared goals, determine how much money you need. If you’re hoping to retire, you’ll need to figure out how much of your income to devote to a retirement plan or other investment. For short-term goals like vacations, look into short-term investments or savings strategies, such as CDs or money market accounts.
While each of you may have existing investments, you should take time to review your collective portfolio to ensure your goals and financial strategies are aligned.
#3 Develop a bank account strategy
If you each have established bank accounts before marriage, will you keep those same accounts or opt for a joint one? Or perhaps both?
There are no rules requiring married couples to divulge all assets or start their banking strategy from scratch. Yet, having a shared account can help establish financial trust and add transparency to the relationship.
A study from the National Center for Family and Marriage Research found that couples who shared a bank account were less likely to get a divorce. Alarmingly, couples who did not combine their financial resources were 145 percent more likely to end their marriage.
However, having separate bank accounts doesn’t guarantee that your marriage will last. Some couples opt to retain their existing accounts and open a joint account. Others may grant their spouse access to their account without handing over partial ownership.
#4 Calculate a monthly cash flow budget
Overspending or not saving enough can create gaps in your financial plan that won’t be sustainable in the long term. It’s important to get on the same page with spending and saving as early as possible to ensure your long-term success, both for your relationship and your finances.
Establishing a budget can help to ensure each spouse stays within your monthly cash flow. Using your projected cash in and cash out, you can establish a tentative budget to monitor both parties’ spending habits.
- Calculate your inflow, including salaries, investment income not being reinvested, rental income, etc.
- Determine your outflow, accounting for home expenses, auto expenses, debt payments, food, and other costs.
- Subtract your outflow from your inflow to determine your surplus or deficit.
- If you have a surplus, you and your partner should decide together how to use those funds.
- If you have a deficit, you and your partner should discuss debt reduction options.
#5 Plan your exit strategy
Most people don’t enter a marriage with an end date in mind. The reality is, however, that some marriages don’t last until death. If that’s the case, you’ll be glad to have a tentative plan for dividing your financial assets.
Some couples opt for a prenuptial (or postnuptial) agreement that outlines their entitlement to financial shares if a marriage ends. Though agreement terms can vary from state to state, a prenuptial or postnuptial contract can put both spouses’ minds at ease, knowing what to expect financially in case of a divorce or death.
Some things you might include in a pre- or postnup:
- Property division
- Spousal support or alimony terms
- Marital debts
- Division of assets if one partner dies during the marriage
Despite the somewhat controversial nature of the prenup, a survey of 1,600 members of the American Academy of Matrimonial Lawyers revealed that 63 percent of respondents noticed an uptick in prenups from 2009 through 2012, with 52 percent of divorce attorneys seeing an increase in women seeking a prenup.
Determining an agreement before marriage can help both parties avoid messy and costly litigation during a marriage dissolution. However, these agreements might not be in the best interest of every couple. A consultation with a financial advisor can help you make a sound investment in your post-marital financial future.
Discussing finances with your partner or spouse-to-be isn’t always easy, but most agree it’s necessary for a happy, healthy marriage. Approaching the subject with honesty and an open mind can help you begin your life together on a positive note. Form good financial habits early, and you can conquer whatever life throws at you— together.