I attended the wedding of two friends this past weekend, so naturally my mind is filled with many thoughts intersecting on this topic, both personal and professional. The concept of marriage is exciting, but it also presents many potential challenges. Probably one of the biggest challenges a new couple will have to face is how they may choose to merge your finances. Careful planning and communication will be key because the financial decisions made at the onset can have a lasting impact on the future.
Discuss Your Financial Goals Together
The first step in mapping out your financial future together is to discuss your financial goals. Start by making a list of your short-term goals (e.g., paying off all of that wedding debt, buying a new home or car, a dream vacation) and long-term goals (e.g., having children, your children's college education, retirement). Then, determine which goals are most important to you both. Once you've identified the goals that are a priority, you can focus your energy on achieving them.
Prepare a budget (or reach out to me to help you get started)
Next, you should prepare a budget that lists all of your income and expenses over a certain time period (e.g., monthly, annually). You can designate one spouse to be in charge of managing the budget, or you can take turns keeping records and paying the bills. If both you and your spouse are going to be involved, make sure that you develop a record-keeping system that both of you understand. If you want to make your lives easier, just talk with me about my financial coaching and budgeting services. We will use eMoney and devise a budget that works and keeps you accountable.
Bank Accounts: Joint or Separate?
At some point, you and your spouse will have to decide whether to combine your bank accounts or keep them separate. Or not. I always recommend folks to keep single name accounts and then have a joint account to cover joint expenses.
Credit Cards
If you're thinking about adding your name to your spouse's credit card accounts, think again. When you and your spouse have joint credit, both of you will become responsible for 100 percent of the credit card debt. In addition, if one of you has poor credit, it will negatively impact the credit rating of the other.
If you or your spouse does not qualify for a card because of poor credit, and you are willing to give your spouse account privileges anyway, you can make your spouse an authorized user of your credit card. An authorized user is not a joint cardholder and is therefore not liable for any amounts charged to the account. Also, the account activity won't show up on the authorized user's credit record. But remember, you remain responsible for the account.
Insurance
If you and your spouse have separate health insurance coverage, you'll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate. For example, if your spouse's health plan has a higher deductible and/or co-payments, or fewer benefits than those offered by your plan, he or she may want to join your health plan instead. You will also want to compare the rate for one family plan against the cost of two single plans.
It is a good idea to examine your auto insurance coverage as well. If you and your spouse own separate cars, you may have different auto insurance carriers. Consider pooling your auto insurance policies with one company; many insurance companies will give you a discount if you insure more than one car with them. If one of you has a poor driving record, however, make sure that changing companies won't mean paying a higher premium.
