In May, I had the honor of officiating the marriage of my oldest son. As a preacher’s kid, I especially looked forward to the part of the service when I could share wisdom for a healthy marriage. My children would say that a hazard of my job is that I think about money and the impact of financial decisions ALL THE TIME, and I have to agree. Of course, I struggled with my desire to weave the topic of finances into the wedding service. Instead of teaching Finance 101 during the ceremony, I thought it might be better to weave marriage into an article on finances.
My husband and I have been married for over thirty years. Whether you’ve been married five years or fifty, I think we can all agree that money—and our relationships with money—impacts our marriages. As I considered what to say during the wedding, I found myself focusing on two concepts: honest, productive communication and actions that uphold your joint decisions and goals.
Fidelity’s 2021 Couples and Money study tells us that one in five couples identify money as their greatest relationship challenge. Communicating about money and honoring your joint decisions are important. But it’s not as simple as it sounds. Money can be a sensitive subject.
Our individual perspectives and biases towards money—often referred to as our “money scripts”—develop in part by watching our parents and other significant adults in our lives. Consider the following: Did you grow up in a family where money was saved or spent? Was money a status symbol or something to be kept private? Do you avoid thinking about money or is it a tool to further your goals? How do you manage money now?
These questions lead us back to the importance of honest, open communication. Do you have debts that embarrass you? Do you shop when you are sad? Do you bet on sports? Do you pay off your credit cards each month? Do you feel safe telling your partner about your financial missteps? When a couple marries, they are announcing that they are now a “we,” working together to have a wonderful life and accomplish shared goals. Past financial decisions and current attitudes towards money will impact how attainable those goals are.
I’d suggest there are four key steps that couples should revisit—at least annually—for the rest of their lives, and they rely on honest, open, and safe communication:
Do these steps sound familiar? If not, they should. These steps are the same for a person who is not married. The difference is becoming a team that needs to work together.
As you determine your balance sheet, gather the details about your debts. Debts may be a difficult topic of conversation. You may have incurred debts that you are embarrassed to disclose. Remember, honest conversations allow you and your partner to work together as a team, with understanding, motivation and accountability. Keeping secrets about money and debt can destroy your relationship and your finances.
What loans do you have? Car loan? School loan? Gambling debt? What credit card balances do you owe? Do you owe money to any other person or company? For each of your debts, provide details on the payment amounts, due dates, and interest charged. You will want a working document that allows you to see what debts to pay and the progress you are making as you pay them down.
Don’t forget to review your credit cards. Most cards will allow you to add your partner as an authorized user; fewer will allow a joint owner. Authorized users are allowed to use the card but are not held liable for paying the bill. Joint accounts allow you both to use the card, hold you both responsible for purchases, and appear on both owners’ credit reports. If you want to impact the credit score for an authorized user, confirm with the credit card company whether or not they report to the credit bureaus for authorized users.
Your balance sheet should also identify who owns what assets. Allow this information to prompt the conversation about how you want to own your future assets. My husband and I are old-school. All our accounts except our retirement accounts are jointly owned. There are three main ways you can own your assets: separately, jointly, or with a combination of separate and joint accounts. What you uncover when discussing your money biases may help you decide how to title your accounts.
Separate accounts often require more communication to ensure all expenses and debts are paid in a timely manner. A spreadsheet may help you visualize who is paying for what. Joint accounts eliminate the need to determine who is paying for what: all income goes into the account from which everything is paid. A downside is that some spouses may feel uncomfortable or controlled, as if their spending is being watched.
The easiest option may be a combination of the two. to pay for all joint expenses: rent or mortgage, utilities, groceries, etc. Individual accounts can be set up for each partner and money can be transferred from the joint account into the individual accounts each month. This money can be spent or saved based on the wants of that specific partner. Conversely, each partner could deposit their income into their individual account, then fund the joint account as the couple determines is appropriate to cover shared expenses.
You may want to refer back to the spreadsheet you’ve created to visualize who is paying for what. This document should show how much you earn, what your take-home income is, and the items that you must pay for on a regular basis. If you have a net-positive amount each month, you will want to discuss how the surplus should be allocated: savings, debt reduction, or spending on discretionary items. If you have a net-negative amount each month, you will need to discuss how to either earn more income or reduce your expenses.
For those with debt, two approaches to consider when paying down debts are the interest rate method and the snowball method. The interest rate method suggests you pay off the debt with the highest rate of interest first. The snowball method injects a psychological aspect to paying down debt. It’s been shown that individuals “feel great” when they pay off a debt. The snowball method suggests you pay off your smallest debt first, then your next smallest debt, and so on. The good feeling you get gears you up to pay down more debt. Select a method that works for both of you and stick with it.
Once you’ve determined your balance sheet and cash flow, it’s time to have a little fun! What are your goals? What actions can you take to help you meet these goals? Would you like to retire by age 50? If so, how much money do you need and how can you build your retirement accounts to attain that goal? Do you want children? How will you pay for daycare? Will you pay for college? Where do you want to go on vacation?
Address the financial need and timing of each goal. Determine what actions you need to take to achieve your goals. For example, if you want to have the flexibility to retire early, you will want to pay close attention to how much you both are saving in your employer retirement plans. We have a great article detailing additional financial steps to adopt early in your career to achieve financial stability: Financial Playbook for Young Adults
Another action item to consider as a couple is how you invest. Investing styles, much like spending and saving styles, will impact your goals. Are you more aggressive or conservative when investing? Does your family live longer than the average or do you expect to die earlier? At Bragg Financial, we believe you need to own a diversified portfolio and, depending on your needs and goals, you need a certain amount of “safe” money versus invested money. We’ve written a couple articles on diversification that may help you think through how to invest: The Ugly Truth of Diversification and Putting All of Your Eggs in One Basket.
Many couples will take a divide-and-conquer approach to their finances, where one handles the day-to-day finances and one handles the long-term investments. While day-to-day financial decisions may not cause ruin in the future, the long-term decisions could. If your investments are concentrated in the stock of one company, they could have the ability to make or break what your retirement looks like. At Bragg, we believe your retirement savings should be well-diversified so that one specific company cannot break your plan.
There are a few other financial decisions you must pay attention to when getting married.
A recent survey by the American Institute of Certified Public Accountants found that 73% of married or cohabiting individuals agree that financial decisions are a source of tension in their relationship. Of that group, 47% admit the tension has negatively impacted their relationship. You’ve committed to each other. We suggest you also commit to regular conversations about money and your goals. Make sure each person feels safe communicating their needs and is comfortable with how you will tackle your goals.
We believe that honest, productive communication, combined with actions that uphold your joint decisions and goals, will make your marriage stronger and hopefully lead you through a life filled with happiness.
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.