Once the wedding bells finish ringing and you begin to start the next chapter of your life, one step you will need to take shortly after you return from the honeymoon is merging your finances. Meshing two lives into one isn’t always easy, even when you combine your finances after marriage. By working as a team, you can avoid the unnecessary stress when you follow these suggestions.
As money issues are a leading cause of divorce, spending a few extra minutes today can save a future broken relationship. You will be able to pursue a few of these steps at once. As you will find out, remember that marriage can be one of the best financial blessings ever. These tips will help you maximize your financial relationship as well.
Create Money Goals as a Couple to Be Debt-Free
When you still dated, you likely had at least one conversation about your dreams. You know, all the places you want to travel, that ideal job promotion, starting a family, buying a house, etc. Having a sound financial plan is essential to making your dreams come true.
If you haven’t done so already, grab a sheet of paper and list the financial goals you both want to accomplish as a couple. Some ideas can include:
- Saving up the 20% down payment to buy a house without PMI
- Pay off your student loans within five years
- Pay for your next car in cash
- Never miss a credit card payment
- Saving six months in an emergency fund
- Invest at least 10% of your monthly income for retirement
While every couple will have different financial goals, there should be one common theme, getting out of debt and staying out of debt.
Why You Need To Be Out of Debt
Not being in debt means your monthly expenses will be lower. Having low monthly expenses is one of the easiest ways to eliminate financial stress from your relationship. Why?
You no longer have to chase that pay raise or promotion so you can afford to pay the bills. Your wife doesn’t have to work the opposite shift as you because it’s the only job she can get to make the monthly mortgage payment.
Do you see a trend? When you combine your finances the right way, you can “work smarter not harder” as the old axiom goes. One of you can quit your job or no longer work overtime. You may also decide one of you can go back to school full-time while the other works because you can live on only one income. If you were both single, this wouldn’t have been possible, you may have had to take several years to get a master’s degree or choose to not get one at all.
How To Accomplish Your Money Goals
How do you become debt-free? Here are a few suggestions:
Track Your Monthly Income and Expenses
You won’t have an accurate guess on how long it can take to repay all your loans or to save for a large purchase unless you know your current financial picture. Combining your finances is now easier than ever thanks to the free budgeting apps like Personal Capital or Mint that make it easy to track your spending.
To become debt-free and remain debt-free, you must spend less than you earn. There are several different ways to track your spending:
- Log each expense with paper and pen at home
- Use a free tracking app like Personal Capital
- Let a “premium” program like YNAB track your spending and offer suggestions to accomplish your goals
You and your spouse need to decide which method works best for you. Using a digital app might be the easiest as it will track every transaction in real-time (so nothing gets overlooked) and you can receive spending alerts and summaries to track your weekly and monthly progress.
Another new app that can also help you and your loved one track your finances together in real time is Honeyfi. With this app, you can tag transactions so you know who made the purchase and if it was for you, them, or the household. This might actually be one of the first apps to focus on married couples’ finances.
Create a Joint Account
Take the time to create a joint checking account that earns interest. It can be an online bank or a local institution so you can make in-person deposits and withdrawals.
Your brand-new joint account has two purposes:
- Deposit both of your incomes into the same account
- Pay all bills from the same account
By paying all your bills from the same account that your employers deposit your paycheck makes it easier to track your spending. Having all your money in one place makes it harder to forget to pay your bills. You might forget one month to manually transfer enough money from a separate account to the joint account before the bank withdraws your mortgage payment or when the credit card is due.
I do think it is perfectly acceptable for you both to have a “his” and “her” spending account. This can be an account you use to buy birthday gifts, pay for a surprise anniversary trip, or for your own personal spending if you like to buy coffee on the way to work or get a pedicure every so often. Just be sure to discuss how much you both get each month. This money is put to your “fun account” after your normal bills have been paid, so that you can stick to the primary goal of getting out of debt and staying out of debt.
Make Extra Loan Payments
After you have compared your monthly income to expenses, you should have some extra money left over. This is called disposable income. Instead of using it to buy a boat, a bigger flat screen tv, or another consumer purchase, use the extra money to build an emergency fund or repay your loans early.
There are several different strategies to make extra loan payments and the Debt Snowball method is the most common. With the debt snowball, you pay the smallest loan off first. If you have two loans of the same amount, you pay the one with the higher interest rate first. Continue to make the minimum monthly payments on all your loans and make any additional extra payment, even if it’s only an extra $50, to that one loan until it is paid in full. Then, you begin making extra payments on the next smallest loan.
Create a Joint Investment Account With Tax-Optimized Investing
If your employer offers matching contributions, definitely contribute enough each month to get the maximum match. It’s free money!
After that, you might decide to create an account with a robo-advisor like Betterment that will make tax-efficient investments based on the holdings currently in your portfolio. If you don’t know the first thing about investing, a robo-advisor is one of the most cost-effective ways to pay someone to manage your investments. All you have to do is decide how much you want to contribute and the brokerage decides where to invest.
By having a single account, or linking each of your investment accounts together, Betterment will coordinate the buying and selling of the individual ETFs so you will pay as little in investment gains taxes as possible.
How To Ensure You Accomplish Your Joint Money Goals
Making a plan to successfully manage your finances as a couple is one part of the equation to successfully combine your finances after marriage. You also have to follow-up on your goals to ensure you are making the progress you both desire. This can also be stressful if you don’t handle it together. For some, the follow-up is harder than making the initial goals.
Have Regular Budget Meetings
The key to any successful relationship is communication. Don’t only tell each other good news. You have other to go through the ups and downs of life. Marriage is a team effort and remember that you now have a co-pilot to help get through the roadblocks and setbacks of life.
Until you can settle into a routine that works best for the both of you, sit down once a week to review your spending and financial progress. It only needs to take 10 to 15 minutes at most and it can be very casual. Remember, this is a meeting with your best friend, not your boss. Once you develop routine, you might only decide to sit down together once a month once you receive all your credit card statements and other monthly bills to compare your actual spending to your projected spending.
In the meeting, you can discuss if you need to allocate more money for a certain spending category (i.e. you need to set aside $100 a month for the electric bill instead of $75) or which areas you can spend less so you can afford those extra loan payments or make up for the overspending in your other areas of life.
Assign One Person to Pay The Bills
Even though you both can discuss how much you spend on a monthly basis, designate one of you to actually pay the bills. This might be the person who is the most financially responsible or organized between the two of you. By having only one of you pay the bills, it’s less likely that you will forget to send payment because you thought the other person did it.
To help make this task easier, signup for as many automated payments as possible. That way, the bank or company will withdraw the amount due on the same day each month. You might also receive a discount because you sign up for automatic payments.
You might also decide to make a checklist or calendar each month to help remind you to pay each bill by the due date. And, the calendar can also remind you to ensure there is enough money in the savings account to pay the bills. If not, you still have ample time to transfer funds or delay a major purchase until the bill has been paid.
Don’t Be Afraid To Adjust Your Goals
You might realize that some goals are unattainable once you start working toward them. For example, you might realize you need 10 years to repay your home mortgage instead of 5 years at your current salary and monthly expenses. Don’t get discouraged. Keep contributing as much as possible to your emergency fund, loans, and investment accounts. Having a plan is better than no plan at all.
On a positive note, you might realize that some of your goals are easier to accomplish than you think. See if you can boost the goal to challenge yourself to either spend less on consumable purchases or make extra contributions if you are easily reaching your debt payment or investment goals. You will both thank yourselves later when you have a few extra dollars in your bank account because you stuck to your original plan and did even better.
Make sure that any goal is set is SMART. Basically, make sure it is specific, achievable, and still slightly challenging to accomplish. Just like you challenge yourself to become stronger at the gym, challenge yourselves to do better at managing your finances than ever before.
Summary
Getting married is one of the best decisions you can ever make. In addition to being able to spend the rest of your life with the person you love, you also have an added layer of financial security that didn’t exist when you were single. Combining your finances after marriage the stress-free way makes it easier to start your relationship on the right foot so you can prevent some future struggle and conflict that can test the strength of your relationship and unravel any progress you both made.