They say, “first comes love, then comes marriage, then comes so and so pushing the baby carriage!” But they (whoever they are) left out quite a bit of detail in this story. In addition to those big milestones, there are the day-to-day workings of your relationship. Many of the little moments revolve around money. Sometimes these money moments are good, and other times, they aren’t. The key to success is communication and planning.
There are a few different ways to approach money management in marriage. You should regularly communicate with your partner about their financial expectations and plan for both the short term and the long term. When it comes to long term plans, you could prepare a prenup.
While prenups are best known for dictating how assets are to be split up at the end of the marriage, they actually do much more. It may come as a surprise to learn that a prenup is a marriage tool that helps couples manage their money during their marriage. With a prenup, you and your partner can decide, in advance, on issues like:
- How you will pay off debt.
- How you will save for your retirement.
- How to fund your emergency savings.
- What about future financial support?
- What will happen to future inheritance that either of you will receive?
Prenups are a great way to plan for the long term right from the get-go. It can be hard to bring up the topic of prenups because it might feel like you’re already thinking about divorce. The truth is though, that drawing up a prenup means that you start your marriage with financial disclosure and planning.
Newlywed Budget Basics
So, you’ve got your prenup, you’ve exchanged your wedding vows, and you’re ready to start your life together as a wedded team. Sometimes getting married doesn’t mean a significant change in the way you and your partner manage your money. These days, many couples live together before they get married, so they’re already used to sharing their expenses or financial gains.
Other times, couples who marry and then move in together experience a lot of change. If you have never lived with your partner before, then in addition to sharing your snacks, you’ll most likely be learning to share your finances for the first time.
Whichever boat you find yourself in, experts agree that budgeting is important in healthy relationships. Some married couples put all of their income and debts into one big pot, sharing the benefits and burdens equally. Others decide to keep most of their finances separate. Regardless of the route you and your spouse choose, there will almost definitely be income and expenses that you both share.
For example, what do you do with the cash your wedding guests gifted you? You could put it into savings or you could use it to pay off the wedding bill. Whatever you decide to do with it, it should be a joint decision because the money doesn’t belong to just one of you any more than that toaster you registered for does.
When discussing a budget with your partner, it’s important that you’re both on the same page. That doesn’t mean your spouse always needs to sign off on that impulse purchase at Target, but if you can both agree on your financial priorities, you’ll be better able to stick to your long term money goals.
Which Debts to Tackle First
At a minimum, your budget should account for the debt you need to pay off. There are different kinds of debt, and sometimes it’s more important to pay off certain debts sooner than others. Paying off high interest debt, like payday loans, personal loans and credit cards, will yield a higher payoff in the long run because you’ll pay less interest over time.
You may also need to consider paying off low interest debt. Zeroing out low interest balances isn’t as crucial as your high interest debt, but once you tackle those credit cards, you can focus even more energy on your low interest obligations.
Low interest debt, usually associated with mortgages, car loans, and student loans, is often referred to as “good debt.” It’s called this because not only do on-time payments bolster your credit score, but also because you’re gaining equity.
Debt is not necessarily a bad thing, but you do have to be careful. Oftentimes, we accumulate high interest debt before we know better, leaving our future self to pay the price of our younger self. Other times, we accumulate short term debt out of financial need.
It can be easy to put off paying debt because we are often embarrassed that we let things get out of hand. Be kind to yourself, you are only human after all. Few things feel as good as taking control of your debt though, and while it can feel like an uphill battle, it’s one worth making.
Plan for Retirement Now
Incorporating a savings plan into your budget can be difficult. Why tuck the money away for the future when you could hop on a plane and go to Hawaii now? As it turns out, there are plenty of reasons why that vacation shouldn’t be your top priority. The good news is, you can budget for vacations and when the time comes to pack your Aloha shirt, you’ll know that you haven’t sacrificed other financial obligations. Now that’s peace of mind!
In addition to saving up for vacations, you and your spouse should talk about retirement savings. The average age of men and women getting married for the first time is just shy of 30 years old. For those born after 1960, the age of retirement is 67 years old. If an individual lives to be 95 years old, then they will need to have saved about $1.7 million to have approximately $2,500 per month during their retirement. So, long story short, the earlier you start, the more money you’ll have to live off of during your golden years.
Whew! That can seem like an overwhelming amount of money to save, especially if you already have debt and monthly expenses. But this is exactly why budgets are important. If you allocate a certain percentage of your monthly income to your retirement savings, then it won’t feel so overwhelming. Remember, mountains are climbed one step at a time.
Saving for Emergencies
In addition to your retirement savings, you should also set money aside for an emergency. Emergency savings can save the day if you or your spouse are unable to work, have unexpected medical expenses, or experience any other kind of loss that isn’t covered by insurance.
The amount of money you should have in your emergency savings is personal to each couple and their financial situation. That said, there are a few rules of thumb that can help you decide how much you should aim for having in your emergency fund. There is a general consensus that you should aim to keep six months’ worth of expenses in your fund.
This may seem daunting when you add up your monthly expenses, but keep in mind that the fund is intended to keep a roof over your head and not necessarily to fund brunch. When you really look at your bare bones, must-have expenses, the total may not be as alarming as you originally imagined. Still, you can plan to save for whatever works for you.
Because your emergency fund will hopefully go untouched for months or years at a time, it’s a great idea to put the money into a high interest savings account. That way your money can make money for you while you’re not using it! You also want to make sure that the emergency funds are in an easily accessible account that won’t incur penalties when you withdraw.
Communication is Key
Budgets come in all shapes and sizes, depending on your priorities and your needs (which hopefully align). The first step in creating a budget with your new spouse is talking about it. You should discuss financial goals, money management approaches, and each other’s overall feelings about money.
Oftentimes, couples don’t have the same approaches to money. Maybe this is because you were raised differently, or perhaps one of you has more experience when it comes to financial matters. Whatever the reason, the sooner you discuss it and make a game plan that you both feel comfortable with, the better.
Budgets are fluid and require ongoing attention. That doesn’t mean you have to constantly worry about your money, but you should check in on your budget from time to time. To add some flavor to your budget breakdown, plan a quarterly budget date night with your partner. Maybe budget talk isn’t super romantic, but following it up with some wine and cheesecake helps.
If you start down your marriage journey with a prenup, then you’ll hit the ground running when it comes to budgeting for your long term and short term goals. No two marriages are exactly alike, but some general principles apply to everyone, not the least of which is the rule that money management in marriage requires communication.
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