After getting married last year, I've become familiar with the complexities of merging my finances with those of another person. Everything from filing a joint tax return to figuring out how to manage checking accounts together is a new challenge to tackle. And let's call it like it is: Most newlyweds would rather spend their free time socializing or snuggled up in front of Netflix than plotting out a financial plan.
But money affects your marriage in a big way, in terms of meshing your financial personalities and creating a secure future together. It's a downer to bring up the d word as wedding season blooms, but 56% of divorcees say that money issues contributed to their split, according to a Credit.com report. "If people talk about money as newlyweds, they may avoid some of those major issues down the line," says Aaron Hatch, a certified financial planner and co-founder of Woven Capital, in Redding, Calif.
I talked with several financial planners and other experts about money mistakes they see newlyweds make. Here are common problems, as well as tips on how to conquer each.
1. Avoiding basic money conversations.
All the experts agree that communication is crucial--and that couples should start talking about money before they tie the knot. Yet many couples focus far more on planning the wedding than mapping a financial strategy. Some questions you and your spouse should discuss: What was your family's attitude toward money as you were growing up? How do you feel about taking risks with your investments? What are your short-term and long-term financial goals? How comfortable are you with merging your bank accounts and investments? What should the budget look like?
2. Failing to address divergent attitudes about money.
If your views toward money are on opposite ends of the spectrum, take steps to meet in the middle. If one spouse prefers to save every extra penny and the other is willing to drop hundreds of dollars on gadgets or clothes without a second thought, agree on a budget that outlines how much money you'll save each month and how much is for fun. Working toward common goals--say, saving enough for a vacation to Europe--can help you stick to your budget. Keeping separate pots of money that each partner is free to use as he or she sees fit can also relieve tensions about spending.
Even if your attitudes about money are well-aligned, designate a maximum amount that each of you can spend without consulting your partner, suggests Susan Carlisle, a certified public accountant in Los Angeles. If you're on a tight budget, maybe that amount is $50 to $100; if cash is more readily available, the threshold may be a few hundred dollars or more.
3. Leaving one partner in the dark about household finances.
If you love crunching numbers and your spouse cringes at the sight of a spreadsheet, then it makes sense for you to manage the budget and fill out the tax return. But that doesn't mean your spouse should be clueless. If one partner pays the bills and makes trades in the brokerage accounts, the other should review those accounts and actions, says Marcio Silveira, a certified financial planner and founder of Pavlov Financial Planning, in Arlington, Va.
Make a regular appointment--say, every month or quarter--to go over your finances together and discuss whether you're staying on track. Give yourselves a reason to look forward to it by going out for coffee or cracking open a bottle of your favorite wine, suggests David Weliver, founding editor of finance blog Money Under 30. It's also a good idea to keep a master list of account information, such as usernames and passwords, that both partners can access in case the person who usually manages an account is unable to do so.
4. Spending too much on a house.
When you and your spouse combine incomes, your newly increased purchasing power may tempt you to shop for the priciest house (or car or other big purchase) you can afford. (You deserve to have a swimming pool!) But instead of dropping most of each of your paychecks on a new home, aim for a monthly payment that's about 25% of your monthly income, suggests Andrew McFadden, a certified financial planner and founder of Panoramic Financial Advice, in Fresno, Calif.
If you spend a lot more than that on your home, "you lock yourself into a lifestyle that doesn't give you much flexibility down the road," says Kitrina Wright, a certified public accountant and cofounder of UniteWright, an Indianapolis financial planning firm for young couples. Think about the future. Do you plan to have kids? Do you or your spouse want to pursue a graduate degree or start a business? Will your hypothetical kids wind up going to college? If you want to keep any of those options open, you need to have the cash flow available to support them.
5. Hiding or ignoring credit and debt issues.
Whether couples purposely veil information or simply forget to grant full disclosure, they often neglect to share information about their debts, says Charles Donalies, a certified financial planner and founder of Donalies Financial Planning, in Washington, D.C. Though it can be uncomfortable to tell your partner that you're paying off a pile of credit card debt or that your credit score is in the doldrums, getting it all on the table is best both for your finances and for building trust in your relationship.
Review all your debts, and decide how you'll repay them. Some financial experts say that although one person may be bringing debts into the relationship, they become the responsibility of both partners once they marry. And it may make the most sense for your overall balance sheet to direct as much of both of your incomes as possible toward shrinking the debt. For example, paying off credit card debt with an 18% interest rate is more beneficial than investing money in the stock market and getting a return of 8% to 12%, says Silveira.
Check your credit reports together to get a handle on what accounts each of you has and to spot any problems, such as debts listed that aren't yours (it could be a sign of fraud or an error on the lender's part). You can each get a free credit report from each of the three major credit agencies--Equifax, Experian and TransUnion--once a year at www.annualcreditreport.com. Check your credit scores, too. Credit.com, CreditSesame.com and CreditKarma.com all offer free credit scores that will give you an idea of where you stand.
6. Being underprepared for the worst.
Few of us want to think about what would happen if we died or became incapacitated. But preparing for such situations can save a lot of headaches during a difficult time. After they get married, couples often forget to update the beneficiaries on retirement accounts, such as IRAs and 401(k)s, as well as any life insurance policies they have. By law, a spouse is the automatic beneficiary for most 401(k) and other workplace plans, unless you indicate otherwise. But you'll have to designate your spouse as an IRA beneficiary. Whether you want the money to go to your spouse when you die, make sure you update the accounts and policies, as necessary.
Couples should also compose wills and advance medical directives (such as living wills and health care powers of attorney) that state their wishes. It's often best to consult an attorney, but online templates at such sites as Nolo.com and LegalZoom.com may do the job if your estate plan is simple.