This wedding season when couples exchange vows "for richer or for poorer," they are likely counting on the former, but they probably have made no plans for avoiding the latter.
“You have a wedding rehearsal to know where you will stand during the ceremony,” observes Bill Hardekopf, CEO of LowCards.com a web site for comparing credit card rates and features, “but a ‘budget’ rehearsal would be just as useful for knowing where you will stand financially once you are married.”
While a pre-nuptial conversation would be helpful, it is a hard one to have without fear of sounding like a gold digger. Even after the wedding, it is a conversation many couples delay having as long as possible.
“People will talk about religion in public restrooms, they’ll gab about sex in taxicabs,” observes CNBC correspondent Sharon Epperson in her new book, The Big Payoff: 8 Steps Couples Can Take to Make the Most of Their Money — and Live Richly Ever After. “Yet we never talk about money — how much we make, owe or save — even with our girlfriends. But when you marry, it is something you need to talk about.”
This is especially true given how frequently money issues are cited in divorces.
“The reason money is so hard to talk about is that it is not just currency. It has meaning,” says Lynne Hornyak, a Washington D.C. psychologist and money coach. That meaning is infused with history, a very personal history. “How we learn about money within our families influences us throughout our lives. Which is why knowing what "money" means to one another is crucial for determining how it will be dealt with during marriage.”
How does one start such a conversation?
“Start talking to yourself,” advises Hornyak. Once you can answer all the same questions you want to ask your partner, let them in on the conversation.
But make sure it is a well-timed conversation and one conducted under stress-free conditions. Also, it should not begin: "How could you spend this much on…"
“Nor should these conversations be about one partner trying to change the other’s behavior,” advises Hornyak. “They should be about learning to work together to complement and accommodate each other.”
Regardless of how and when a couple initiates the conversation uniting their hearts, minds and wallets, here are some tips for making it a fruitful one.
Develop A Payment System That Works For You
There is no right answer for handling marital financial duties. But other than the first time, jointly examining and discussing each bill and expense seems unrealistic, especially if two working spouses are involved. It will become impossible once children enter the household. Instead some couples find letting the more ‘enthusiastic’ partner handle the routine financial chores while keeping the other informed, is more efficient. Others employ a ‘his’ and ‘her’ system, similar to that used by roommates, which can get territorial and complicated.
Whatever the system, it should be agreed to in advance. Assuming financial duties without prior discussion can breed resentment and accusations of being controlling or usurping the financial power in the relationship, creating a quick divide in the union.
It Takes Two to Budget
The "b" word is not about being judgmental, but about prioritizing expenses to ensure the essentials are always covered.
Epperson is a proponent of diverting a household’s cash flow into streams of yours, mine and ours. She suggests designating roughly 90 percent of the total household income as ‘ours,’ allocating 60 percent of that to household expenses and 10 percent each to retirement plans, longer-term goals (like college or a new home) and the remainder to a reserve for unforeseen expenses (like roofs or car repairs).
“But there are times when you want your own money,” she adds. By allocating the remaining portion of the household budget — five percent each — to fund ‘yours’ and ‘mine’ accounts, it makes discretionary purchases that may be hard to justify when you are sticking to a budget possible, like greens fees, marked-down designer shoes and other similarly consuming passions that seem ‘nonessential’ to one’s life partner.
When couples exchange their ‘I do’s’ they are agreeing to spend more than just eternity together. They could be accepting legal responsibility for one another’s finances.
This makes exchanging credit reports and scores a priority and one easily accomplished through a Web site like http://www.annualcreditreport.com/, says Epperson.
And if there is a mismatch in prior credit management, Hardekopf suggests keeping existing credit cards and loan accounts in the original holder’s name to avoid harming the other partner’s score.
He also warns couples to resist the urge to apply for mortgages, auto loans, credit cards, and new furniture financing in the same year. Creditors view multiple new credit requests as the first sign of an out-of-control consumer. This perception can reduce credit scores and increase interest rates.
Epperson suggests using such exchanges of credit information for determining how many credit accounts should remain open. It is also a good time to ensure both reports are error free and review opportunities for reducing interest rate costs through debt consolidation or repayment if one partner has sufficient savings to offset the other’s debts.
Coordinate Employer Benefit Plans
Once married, it pays to review each partner’s employer benefits plan. Sometimes switching to family coverage under one plan can yield better coverage despite the added premium cost. Similarly, allocating more to one partner’s flexible spending plan may generate greater tax benefits. Retirement plans can also vary widely in attractiveness from employer to employer. Especially where a newlywed budget prohibits maximizing contributions to each plan, choosing to fund the one with the better matching program and more appealing investment options is optimal as long as the other spouse is named as beneficiary.
Plan for the Future
Epperson also recommends planning for future loss. Not just by ensuring that disability coverage is sufficient for a two-income household and that newly combined personal property is sufficiently insured, but also for the ultimate loss, of one another.
“And if you are planning to have kids, consider putting a little money away from the start of your marriage,” advises Epperson. It is not just the cost of college that she has in mind, but getting a head start on meeting the cost of adding children to the household—from unpaid maternity leave to daycare, camps and higher family vacation expenses.
Keep talking…for as long as you both shall live
"What you want today is not necessarily going to be what you want ten years from now," says Epperson.
This is why the "money talk" is not a one-time thing, but a continuing dialogue for couples committed to living happily ever after.