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Monday, April 14, 2014

35. How To View Finances After Being Married?

Here's some recommendations:

1. Typically There are 3 Approaches to Finances in Marriage

A. Joint Finances or “Pool Everything” Approach – All income is household income (not "my" income or "your" income). All expenses are household expenses (not "my" portion of the expenses or "your" portion of the expense). This “team” approach means the spouses typically work together towards common goals. 

B. Joint with Separate Finances or “Middle Ground” Approach – This is what some people I know have determined to be best for them. Household expenses are typically split 50/50 or in proportion to each spouses income. Any additional income that each person has after household expenses are accounted for is their own money to spend, save, give, or invest as they please.

C. Separate Finances or “Independent” Approach – This approach is more like the married couple are roommates. All income or expenses are separate and there is no "sharing" of finances. Personally, I’m not a big fan of this approach.

It is up to each couple to determine how they will handle money. That said I’m going to assume either option A or B for the rest of the post.

2. Finances need to be talked about. A big source of stress in marriages often occurs when one spouse (the Planner) handles all the finances and the other (the Spender) has no input. Avoiding the subject is not a good approach. Facing the truth of your family’s financial health or lack thereof is a big first step. Doing this on a regular basis is a good habit for any married couple. Remember too that money matters carry emotional weight.

3. Decide what your goals and objectives are together. Each spouse should have a voice. Deciding the monthly budget should be a process where both spouses are involved. There are long-term, mid-term, and short-term goals that can be discussed. The areas where there is commonality such as purchasing a second vehicle, saving for retirement, paying off debt, buying a house, etc. should be pursued. A good idea might be to allow the original accounts to remain dormant and open an account together in a new financial institution. 

4. Create a Budget and Discuss Together. Put everything down on paper or type up the categories in Excel. Track your expenses using Determine what the household monthly income is and make sure to allot all of it towards various expense, saving, charity, or investment categories. If one spouse primarily creates the budget the other spouse should review and be encouraged to change at least one thing proposed. 

5. Tackle Debt Head on as a Couple. Whether it’s student loans, credit card debt, or the mortgage decide together what should be paid off first and in what order. When two people marry that becomes the responsibility, for better or worse, of BOTH spouses. There is no longer “my” debt and “your” debt. It is now “our” debt. Approach this with either the “debt snowball” (lowest account balance) or “avalanche” (highest account interest) strategy.

6. Agree Upon Major Purchases. I read recently where a husband bought a new house for his family without consulting his wife. That is just a recipe for disaster. Consider saving up and paying cash for large purchases instead of taking on a whole lot of debt. Also, agree upon what is a need and what is a want. A new boat will likely be a want. A new family vehicle that ensures the safety of the kids would likely be a need.

7. Agree Upon an “Allowance” for Each Spouse. Each spouse can do as he or she pleases with this money no questions asked. This is particularly beneficial so that she can go on her shopping sprees and he can pursue his hunting hobby.  Remember too that enjoying money is okay.

8. Schedule Follow-ups. A good time to do this is at the end of the month to discuss next month’s budget. Even if it’s 5-10 minutes it’s time well spent.  

9. Save 10 to 15% of Your Household Income Each Month. People often rationalize they don’t have enough money to save every month. Prioritizing saving should a habit every married could ideally adopts. Start an emergency fund with at least $1000. After this is accomplished start saving for retirement through 401k, 403b, IRA, Roth IRA, and low cost index funds. At the same time build that emergency fund up to 3-6 month’s worth of expenses. This will give you a safety net for the present when emergencies do happen and the future for retirement.

10. Be Honest About Finances. Keeping large purchases or debts hidden can seriously cripple if not cause a rift in a marriage.Losing a job can also be a serious challenge. The best policy is honesty when it comes to financial or other situations.

What has worked for you in your marriage? How do you view finances after being married? Leave a comment!