Finances are a major part of our lives individually, and when we become a couple, it becomes an integral part of our lives together. Yet many couples, to their peril, neglect to work out this area of their relationship, or start off on the wrong foot financially.
While it may seem easier to avoid difficult money conversations altogether, skipping the “money talk" can actually harm your relationship. There's even a study to prove it. According to research published in the journal “Family Relations," couples who argued about money early in their relationships—regardless of their income, debt or net worth—were at a greater risk for divorce.
“It may be that fights about money are actually fights about deeper issues in the relationship—power, trust, etc. If these deep issues in the relationship are problematic, then these couples may be more likely to divorce," the study's co-author, Jeffrey Dew, told the Huffington Post.
As you contemplate building a life together and combining finances as a couple, you'll want to establish a strong financial foundation. You don't want to set yourself up for nasty fights, endless arguments, or worse, by failing to understand and discuss:
- Hidden credit card debt - Would you agree to take your partner's credit card debt if you found out after you got married? Maybe. At least, know what you're getting into.
- Poor credit scores kept secret - The last thing you want to find out is that you can't get an affordable home loan because your partner - guess what?!?! - has a credit score below 400.
- Misaligned financial goals - You may want to work your butt off until your 40, but your partner, may prefer a less aggressive retirement and savings approach. Both philosophies have their pros and cons.
- Daily household financial management - Are you certain that your partner is going to help you look over credit card statements and make sure bills are paid on time? How involved will you both be? Don't take for granted that your partner will under or over perform on managing the money.
Speaking frankly about your finances with your partner is one of the keys to a happy and trusting relationship.
Whether you're already married and you and your partner are always arguing over money (or the lack thereof), or you aren't married yet but are beginning to think about sharing finances, here are several money questions to ask one another, so you can...
- Gain a better understanding of your partner's current money situation
- The money values he or she grew up with
- What kind of financial goals your partner is working toward achieving
If you don't make talking about money a priority, that perfect relationship of yours—with your soul mate—can quickly descend into the deepest, cruelest depths of hell. So block out some quiet time when you are both relaxed, pop open a bottle of wine, and begin asking each other the following money questions. Your marriage will be so much stronger as a result of broaching the topic of personal finance in an open and honest manner.
What important financial lessons did you learn growing up?
The way you think about money is shaped by a number of factors, including how you were raised. Maybe your parents never spoke about money when you were growing up; it was a taboo topic. It's no wonder you have a harder time talking openly about finances.
Or, perhaps your partner grew up in a home where money was tight and “we can't afford it" was a common refrain. The money values you grow up with—even subconsciously—often translate into money habits, such as treating yourself to the frequent coffees or shopping sprees your family couldn't afford.
“It's worthwhile having a discussion about your childhood experience with money," says Rabbi Shlomo Slatkin, a relationship therapist and founder of The Marriage Restoration Project, a global initiative that hosts retreats and programs aimed at helping couples achieve relationship satisfaction and renewed commitment.
“How your parents viewed money will impact the role money plays in your relationship, and may be the source of potential conflict between the two of you. Getting conscious about the role money played in your home growing up will help you navigate some of these issues together."
So, gear up for a trip down memory lane and reminisce about money memories like these - doing so will help you grow closer to your partner:
- Describe your first interactions with money.
- Did you set up a lemonade stand at age 6?
- Have a paper route as a teen?
- Baby sit?
- What did you do with the cash you earned?
- Don't gloss over troubling money memories. Dive in.
- Remember wearing pants from the thrift store that were too short because your parents couldn't afford to keep up with your weed-like growth? Share instances when money wasn't a happy memory.
Opening up can help your partner better understand where your money values are coming from and bring you closer together as a couple. Indeed, sharing finances in marriage in the future can be strengthened by looking to the past.
Are you a saver or a spender?
“More often than not, you marry someone who does not share your same money personality," says Lauren Lindsay, a certified financial planner from Houston, Texas, who serves as director of financial planning at Personal Financial Advisors, LLC. That doesn't mean you're setting your relationship up for failure if you marry someone with a different money philosophy, though. The key is to understand and learn from one another, especially as you take steps toward combining finances as a couple.
“Usually what happens is that the spender learns from the saver how to be less of a spender and more of a saver," says Lindsay. And the frugal spouse learns the importance of splurging every once in a while.
That means that if your partner is frugal and hates eating out at restaurants, you may find yourself cooking more home-cooked meals—while your partner is likely to appreciate the occasional dinner out at a fancy restaurant to celebrate a birthday or anniversary.
What financial baggage are we bringing into the relationship?
Bringing debt into your marriage can cause major stress. Worse, though, is when one spouse purposely hides credit card debt, student loans, or personal loans from the other. Doing so jeopardizes trust and can lead to fallout in the relationship. Sometimes it's unintentional—you're just disorganized and can't seem to keep track of it all.
Enlist your partner's help in adding all of your debt up and lay it out on the table for both of you to see. Emma Johnson, who blogs at WealthySingleMommy, suggests that you collect statements for each of your debts: credit cards, medical bills, student loans, car note, mortgage, home equity line, personal loans from your parents or cousin.
“If you are married or live with your partner, get them involved," she writes in Forbes. “Lay these out on the kitchen table. In paper. Feel them in your hands. Look the in the eye. I'm talking 100 percent transparency."
Baring it all financially isn't easy—in fact, 68 percent of engaged adults had negative thoughts and feelings about discussing money management with a fiancé, according to a study conducted by the National Foundation for Credit Counseling. However, having an accurate number of your debt obligations is the first step in coming up with a plan for eliminating it.
Make sure you dig in and get as detailed as possible, recommends personal money-management expert Dave Ramsey. “You need to know, 'He's got $42,321 in debt between student loans and credit card debt. He cut up the cards and started paying off debt before we ever met, and he's got a plan to be debt-free in 22 months."
Do you have bad debt or know of any collections against you? Have you ever had a foreclosure or bankruptcy?
Better to find this out now than learn that your spouse filed Chapter 11 when you try (unsuccessfully) to get a mortgage. Keeping a bankruptcy or other serious financial mistake a secret will wreak havoc when your spouse finds out—and make it difficult to regain your partner's trust.
It's important to be open and honest about past financial blunders, despite how embarrassing or shameful the admission may be. Take heart that when you marry, you don't inherit your partner's credit history, according to Experian, one of the three major credit bureaus. However, a prior bankruptcy or foreclosure will stay on your spouse's credit report for a minimum of seven years and can make it difficult to obtain joint credit to gain the necessary financing to purchase a new car or home.
What's our plan for paying off debt?
When you marry, you may become responsible for your spouse's debt—depending on which state you live in and what type of debt your partner has, according to Catherine New writing for Credit Karma. Only once you are aware of the combined debt you both carry, but also work together as a team to come up with a plan to pay it all off.
Many experts recommend you focus on paying off credit cards with the highest interest first, since that will save you more money in the long run. However, personal finance is more emotional than it is rational, which is why Ramsey and many other experts recommend the “snowball" method, in which you pay off the smallest debts first. Doing so energizes you and affirms your ability to work together as a couple to improve your financial situation—which will encourage you to make the sacrifices necessary to keep plugging away at paying off the remainder of your debt.
Managing Money as a Couple
Who will manage the finances?
Often, one spouse will take primary responsibility for paying everyday bills—the mortgage, utilities, credit card bills, etc. —and the other will focus more on ensuring proper insurance plans are in place and reviewing your investment portfolios. Dividing and conquering is a strategy that can work well, experts say, as long as you are both aware of what is going on with your money and you make all big financial decisions together as a couple.
First things first, it's important that you both have access to any joint accounts. By sharing financial information you're doing more than signaling trust and commitment, you're also enabling each person in the relationship to contribute to financial management and planning. You can't help your husband's credit score improve if you don't know how they're managing it, for instance.
Now that you have made the decision to set up joint accounts, you can consider sharing the load of managing them. David Bakke, a finance expert at MoneyCrashers says you may want to trade off on financial responsibilities like bill-paying every so often. So if you're usually the one who pays the bills, encourage your spouse to take over those responsibilities for a few months. That way, “both parties know where their money is going and how their finances are doing overall," says Bakke.
What is your credit score?
Your partner's credit score is a helpful indicator of how responsible he or she is with money, which may shed light on other aspects of your partner's ability to take responsibility and make smart decisions. Also, if you plan to purchase a home or car together, a lower credit score will likely result in your being charged a higher interest rate on a car loan, mortgage or credit card.
Each of you should request a free credit report from AnnualCreditReport to not only share with one another, but to also ensure that it's accurate and up to date. You'll be able to review your credit reports from each of the three credit bureaus and see whether any misinformation needs correcting.
Do we need or want a prenup?
If you're coming into a marriage with significant wealth, or are divorced with children from a previous marriage, yes, you may want to consider a prenup, according to Northern Trust's Wealth Management division. The prenup is essentially a contract outlining how assets will be divided should the marriage end. Similarly, a post-nuptial agreement can be signed after the wedding, outlining how property and assets would be divided.
Both the prenup and postnup require you to disclose your financial situation, which—done in an honest and respectful manner—can strengthen your relationship, say experts.
Will we keep separate checking accounts or establish a joint account? What about credit cards?
While there are several different ways to approach your finances as a couple, many financial experts offer the following tips for combining finances:
- Open a joint checking account to use for shared expenses, like paying the mortgage and groceries and your upcoming vacation.
- Keep individual checking accounts in addition to the joint account.
- If your salary is much lower—or higher—than your partner, you may want to contribute an equal percentage (but different dollar amount) of each of your incomes to the joint account to pay for essentials, suggests Sophia Bera, a LearnVest certified financial planner. “For example, Leesa and Steve might agree to contribute 45% of their take-home income to this shared fund. If Leesa takes home $6,000 a month, that's $2,700 a month; for Steve, 45% is $1,800. They can use this pot to decide how much they can afford for a mortgage and other shared expenses."
- Transfer an agreed-upon portion of your paycheck into your personal checking account for holiday gifts, clothing, or other personal splurges that fit within your budget.
Doing so “helped us keep a part of our individual independence intact," writes Mikey Rox of WiseBread. “We're allowed to treat ourselves every now and then without having to ask permission or fear retribution."
Spending & Budgeting
What is the most you'd be willing to spend on shoes, a car, a vacation?
You already have an inkling into your partner's spending personality, but it's important to gain a true understanding of whether he or she is a saver or a spender at heart. Finding out how much he or she would spend on luxury items is a good indication of their overall approach to spending—and how reckless they may be when it comes to money,suggests the New York Times.
And be sure to discuss any expensive hobbies. If your partner is obsessed with fancy sports cars or stiletto heels, it's a good idea to get a handle on the spending that comes along with his or her passion. Even small obsessions—Legos, video games, makeup, or handbags—can add up.
You don't want to get into arguments about limiting your partner's hobby—but you do want to make sure that he or she spends responsibly even in areas that are very tempting. Use a budgeting app like Mint.com, You Need a Budget, or Every Dollar to determine how much “fun money" you each have every month to spend on these hobbies and splurges.
How much do you earn?
Don't act like that's a dumb question! According to Fidelity Investments®' 2015 Couples Retirement Study, 43 percent couldn't correctly identify how much their partner earns—and 10 percent were off by $25,000 or more.
It's important to know exactly how much income you will have as a household before you combine finances as a couple. Not 100% sure? Get out your most recent pay stubs and do the math. Your household income determines your lifestyle, such as:
- Where you will live
- What kind of vacations you can afford to take
- How many children you can afford, and whether you be able to send them to private school if you so wish
Which expenditures do we need to discuss before purchasing?
It can be difficult to suddenly need a partner's “permission" before making a purchase—after all, you don't want to feel like a child requesting your parent's permission to buy a coveted toy. Come up with a dollar amount—say $300—that if the purchase exceeds, you agree to discuss as a couple before making the purchase.
“Marriage requires teamwork as well as compromise," says clinical neuropsychologist Christine Weber, Ph.D., who suggests that couples consult one another on purchases over $100. “If one member makes important monetary decisions without the other person's knowledge, it can undermine the integrity of the relationship and its financial stability."
Establishing Shared Financial Goals
Have you started to save for retirement?
You'll gain a good sense of how future-oriented your partner's thinking is by finding out the size of his or her retirement account, says Trent Hamm, the founder of The Simple Dollar, a popular personal finance blog. Don't fret if your significant other is way behind you in terms of savings for the future, especially if you are younger and time is still on your side. The key is how willing he or she is to ramp up investments for the future (once you have a plan in place to tackle any outstanding debt, of course).
Knowing what your respective retirement account balances look like will also inform your lifestyle in the coming years as you buckle down to ramp up your retirement savings, or—if you're both in the blessed position to have ample accounts—you can afford to live a little knowing that you'll be financially OK as you age.
What are our one-year, five-year, and 10-year financial goals?
Money coach and psychotherapist Olivia Mellan suggests this useful exercise for determining your financial goals as a couple: Each of you should sit down and make a list of individual short- and long-term money goals, such as paying off credit card debt, heading back to school, or saving for a down payment on a house. Do this individually, and then compare the two lists.
It's OK if your lists aren't exactly the same. But before combining your finances, be sure that you can create a combined list outlining short-term and long-term financial goals about which you are both in agreement.
The answers to the questions are just as important as having the conversation
To keep finances from getting in the way of harming your relationship, experts recommend you schedule regular date nights every few months to review your budget and reaffirm your shared financial goals. This will give you the opportunity to calmly discuss your financial roadmap when you're not in the heat of the moment, upset about a late credit card payment, or seemingly unnecessary splurge on the part of your spouse.
Money is one of the most common causes of arguments among partners, according to the American Psychological Institute. That's why having open and honest conversations around the questions suggested here is important to strengthen your relationship and help your partnership make it for the long haul.