And how to avoid falling for the main source of marital conflict
Apart from the usual suspects like the inheritance and education you receive, the industry you work in, and how long you work before you retire, certain highly intimate events in your life have a significant impact on your finances.
One of these events is getting married. Marriage can make you or break you financially.
However, just as importantly, finances can make or break your marriage too. If you are one of the lucky ones who get married to someone with a similar financial aptitude, you are much likelier to make it in the long run.
But even if you haven’t, don’t worry. A checklist may not solve all your problems, but it’s an excellent place to start and help shine the light on all those differences in opinion that were hidden in the dark during the honeymoon period.
1. Discuss your individual budgets
The standard advice for couples is to combine budgets — assuming both people have a working budget in place. But that may not work for everybody. For starters, not everyone has or requires a budget. I’ve never had a budget in my life, and it would stress me out to even have one, let alone then be accountable for it to my partner. Second, budgets work differently for different personality types. Some people keep strictly within the decided categories, while others are more flexible.
Instead of making a combined budget the source of conflict, it makes sense to continue with the individual budgets (or absence of one). There need to be some modifications, and then you are good to go:
- Divide up the expenses in the ratio you want (it doesn’t have to be equal, but it does have to be consensual). All of your expense categories will definitely go up compared to your single life, but now there are two of you to pay. You can decide whether you will divide the categories themselves (for example, rent by one partner, everything else by the other) or whether you will split each bill.
- Evaluate what that does to your individual budget. It may be that your current surplus (if there is one) might reduce, especially if you are the one contributing more to the household. But it may also be that it increases because certain expenses are more economical as the number of people sharing them increases — a prime example being housing cost.
- Discuss this increase or decrease in both your budgets. The effect should be as intended (for example, trying to increase the surplus for the partner who is attempting to max out his or her retirement account). If not, the expenses need to be shuffled.
- This one is important — actually delineate HOW these expenses will be handled. Is each partner going to pay the ones allocated to them? Will you have a common credit card to pay — who will be responsible for paying off the credit card then? Is everyone going to contribute to a joint account and have standing instructions for the payments? If yes, which partner is primarily responsible for checking if the requisite contributions have come by the payment date and that the standing instructions are working?
2. Share your current and future financial goals
There are as many financial goals as there are people. But broadly, your goals might be debt payoff, building an emergency fund, a house, a car, expenses for children, travel/other hobbies, and retirement.
You may also have certain negative goals, like not getting into debt.
Sharing these goals is essential because even the most meticulously planned goal can be upended by your partner if they so want.
- List down the current goals in the order of priority, as a team. You might have individual budgets and accounts, but goals need to be in sync.
- Some goals might need tinkering with. For example, if one partner already owns a house, the goal might get deleted for the other partner, or it might change to ‘pay partner to purchase equity in the house.’ Similarly, your emergency fund will also change to 3–6 months of the sum of your modified budgets from Step 1.
- Check if your respective surpluses match up with these goals. If not, either some current goals will need to be downgraded or even eliminated, or your surplus needs to increase.
- Divide the goals up, just as you did the expenses. Again, the division can be category-wise (for example, one partner contributes to the family emergency fund while the other fast-pays his student debt). Or it can be a contribution (both partners contribute — equally or not — to the emergency fund).
- Try and align your future goals. They do not have to be identical, but if one partner aims to retire at 30 while the other wants to live in LA on a four-figure salary, the goals are just too far apart to be practical.
- Specifically, try and align your approaches towards retirement. While both partners do not need to retire at once, there are drawbacks. While women retiring early can cause some of them to be unhappy, men retiring first can lead them to get depressed. A synchronized approach might help.
3. Check your insurances, beneficiaries, and tax status
Although not directly related to the money in your account, these tick-in-the-box items can have a much larger effect on your marital bliss than your bank balance.
Broadly, these are the ducks to get in a row after getting married:
- Evaluate any additional requirements for life insurance and health insurance. For example, if only one partner is working, his or her life insurance may need to be bumped up. If one partner is out of health coverage, their name may have to be added to the insurance.
- Evaluate if you can derive any economy of scale. For example, one spouse’s workplace insurance may be cheaper than the others. Car insurances could be bundled together.
- While at it, update your beneficiary and nominee information in all insurances, accounts, and other financial assets.
- Speak with a tax specialist and decide what status you would be filing taxes under. The status has many consequences, including which deductions you can claim and what slab rate you are taxed at, which is why it would be worth your money to consult a specialist for this one.
- If you have a will, update it. If not, consider drafting one.
4. Share your current assets and liabilities
This is a tough one. As long as everything was about the future, everyone could wear rose-colored glasses. Things get thorny when it’s about the past.
But with money, the past is never truly the past. Any and all money mistakes stick with you in one of two forms — you are either still paying for it (literally), or you will never repeat it, even if this time around, it isn’t a mistake.
And these are both important for your partner to know. If you are still paying for it, it might have come up in the ‘current goals’ discussion. If not, go ahead and discuss it anyway. It might help them understand why your ‘money personality’ is the way it is.
Why am I only talking about liabilities here? Because that is the part which is more difficult to share. Naturally, if we have accumulated assets, our pride will make us very happy to share that information. Not so with the drowning credit score.
This step is essential not only because ‘sharing is caring,’ but also to ensure that, as a family unit, your asset allocation is correct. For example, if the ideal allocation for your situation in life is about 50% equity and 50% bonds, it’s important that this allocation is checked on a comprehensive level and not at the individual partner level.
5. Schedule a time every month to discuss ongoing issues
Like most marital issues, even financial issues arise from a lack of communication. But money is such a taboo that it’s difficult to slip it into daily conversation.
The solution is to set aside a specific date and time every single month to discuss money — no other issues allowed. For example, my husband and I take maybe 15 minutes on the 1st of every month. If there are any major purchases or goals that are impending, we will discuss that. If we have any new ideas for generating income, that will be on the agenda. If nothing else, we update our family net worth to keep track of where we are with respect to our goals.
It may sound daunting, but it’s a simpler alternative to living in anxiety about when you can speak about your maternal aunt requiring a loan without it dissolving into a fight about that one time she insulted your partner.
Here are some indicative topics that you can start with if you are absolutely at a loss for how these meetings are to be conducted:
- If your income is variable, how was the last month for you? What went right, and what went wrong? How are you expecting things to pan out in the coming month?
- If your income is fixed, were there any changes in work? Are there any expected pay-raises/cuts, promotions, chances of being laid off or furloughed?
- How were the expenses that you usually deal with? You don’t need to discuss the electricity bill every month, but if anything unusual occurred, that could be discussed.
- Are you able to deal with the expenses allocated to you while also putting away enough into your savings?
- Are there any new goals that you want to aim for? A purchase, a trip, a child?
- How is the family doing net-worth wise? You can choose to update the net-worth every month or every few months, but update you must.
The tiniest bit of financial planning at the beginning of your marriage will boost your chances of having a successful partnership. It isn’t me saying that — it’s the numbers!
Surely, a few minutes a month is a small price to pay for happily-ever-after.
May your successful love story be crowned by a successful money story too! So, get checking and get cracking.
I have put together a handy little Personal Finance Crash Course e-book, covering everything from budgeting and investing, to retirement and goal planning. Click here to check it out, and thank you!