There has been a great deal of talk about how Millennials view marriage differently than prior generations. The percentage of individuals under age 35 who have never been married is nearing all-time highs. Pew Research identified the top three reasons people aren't getting married as not finding the right person, not being financially stable, and not being ready to settle down.
While finding a partner for life is by itself a significant challenge, basic money management is perhaps a bigger challenge to the institution of marriage itself. Just recently, my wife and I had one of our regularly scheduled "money talks" and we talked about our own money history. These talks really aren't anything too fancy or intimidating, but they provide us with an important opportunity to review our family spending and plan ahead for any unexpected bills or expenses that may require some adjustments. Unfortunately, my wife and I didn't always have these money talks in the early days of our marriage. This lack of awareness of what the other was doing led to some financial stress that could have been avoided if we had communicated more intentionally about money before we got married.
As a financial planner who has worked with hundreds of couples, I can safely say our experience was not unique. Money arguments have been identified as a leading predictor of divorce. That is why having a financial plan and taking time to engage in meaningful money talks on a regular basis can be a make or break decision for couples. However, if you or someone you know is thinking about getting married, be sure to talk about more than how much the wedding will cost or where you will spend the honeymoon. Here are 5 essential financial moves that I undoubtedly would have told myself to make prior to getting married:
1. Complete a financial wellness assessment. Before you share your financial story with your significant other, you need to know exactly where you stand. Your financial wellness assessment should include important information about your current financial status. At a basic level, complete a net worth statement and review your recent expenses. Then, create a spending plan so you can start proactively telling your money where you want it to go in advance. Some other important financial measurements include your savings ratio, debt to income ratio, and emergency savings. But a financial wellness assessment should also include a quick examination of your financial attitudes and confidence about your knowledge of money matters. You should also ask yourself a simple question: do I have a written financial plan? If you answered no, that can quickly be fixed with a simple, one-page financial plan.
2. Create a debt reduction plan. You don't necessarily have to completely eliminate your credit cards or student loan debt to walk down the aisle with confidence. But it is recommended to at least have an action plan in place to do so as quickly as possible after exchanging your "I Dos". Many couples delay getting married until after student loan debt or personal loans are less overwhelming. Bringing the baggage of debt into a marriage can be a major stressor on a couple. That's why couples should spend time understanding each other's current debt obligations. But instead of just identifying the potential problem, focus on establishing a debt reduction plan to deal with student loans, credit cards, car loans, or other obligations as quickly as possible.
3. Be sure to make time for a little show and tell. You aren't alone if the thought of getting financially exposed in front of a future life partner seems less than ideal to you. A survey from the National Foundation for Credit Counseling found that approximately 70% of adults had negative thoughts and feelings about discussing money with a fiancé. Showing your financial goods prior to getting married requires trust and honest communication. Your show and tell moment could include a sit down talk where you share the previous steps that were discussed. You can even go beyond the financial wellness assessment and take a look at your credit reports together. Just remember that this process is not designed to dwell on the past. It is a way to use the past to guide future financial decisions in your life together. But if some financial baggage exists, it is better to expose things early on so you can create effective solutions as a couple.
4. Schedule regular money talks that aren't ridiculously boring or judgmental. Don't stop with a one-time show and tell event. Make financial planning a regular event. This is the best way to avoid having your partner become your biggest financial enemy.
Some topic ideas:
- What important financial lessons did you learn growing up?
- What are your future vacation plans? How much will this cost? How often do you plan on taking trips?
- Will you be renting or owning a home within the first few years of marriage?
- Do you have any specific career goals or future dreams of self-employment?
- What does financial independence mean to you?
- What do you look forward to doing the most when you have achieved financial freedom?
5. Decide how you want to manage your finances as a couple. Figuring out how to consolidate accounts can be a challenge. Sometimes it helps to establish a joint checking or savings account before getting married to set aside funds for the wedding or honeymoon. You also need to discuss how you currently handle day-to-day financial decisions. Are you a better long-term planner or are you well-organized and prefer to pay the everyday bills? This will help you start creating an initial game plan on how to consolidate accounts and whether it makes sense or not to keep separate accounts initially.
How will you make major financial decisions? Will you have spending rules such as a 24 hour waiting period for purchases over a certain amount? Do you feel comfortable using credit cards for everyday purchases to receive cash back rewards or does the thought of using credit go against your financial belief system? Are you going to use automatic budgeting tools like Mint, YNAB, or Every Dollar? These are all important decisions that need to be made before walking down the aisle.
As a financial planner, I truly enjoy it when I get a chance to speak with a couple about their financial life goals prior to getting married. Unfortunately, this doesn't always happen because the rose colored glasses of love can make people believe it's not important and could hurt the relationship. In reality, not having these talks early on can hurt our relationships and lead to major financial arguments. Isn't it about time that we start realizing that the money talk isn't a taboo topic for couples before the wedding bells ring?