June – prime-time wedding season – is winding down.
For joyful newlyweds heading off to exotic honeymoon locales, finances are probably not first on their minds.
But considering that money is a contributing factor for more than half of all divorces, maybe they should be.
“It plays a huge role,” says David Klow, a licensed marriage and family therapist at The Family Institute at Northwestern University. “The first thing I would say with newlyweds is that they should make a conscious decision to look at and talk about money issues and how money plays a role in their lives.”
Starting that conversation is not always easy, says Mr. Klow, but it’s crucial.
“Couples need to realize how charged the issue of money is – it could mean freedom, it could mean power,” he says. “I see it show up a lot of times as representing an imbalance of power in relationships.”
One way to start the conversation is with a couple’s counselor as part of pre-marital counseling session. Having a neutral third party bring up the issue and arbitrating the conversation could help make difficult feelings about money (like shame that you don’t earn enough, for instance) easier to talk about.
Timothy Maurer, co-author of “The Financial Crossroads,” agrees that openness is key to fiscal marital bliss. The financial planner (who will soon celebrate his tenth wedding anniversary) has developed a tool, to help new couples compile their personal money history, including past high and low personal-financial moments.
Once you’ve had the conversation (or, more likely, conversations) with your significant other, it’s time to get to brass tacks. Here are some practical tips for getting a marriage off to a sound fiscal start:
Large amounts of consumer debt is a red flag. According to a study released earlier this year about marriage and debt, newlywed couples who take on significant consumer debt become less happy over time.
Couples should start to work on reducing their debt as their wedding date approaches, or in the first few years of the marriage, suggests Mr. Maurer. They can do so by cutting back on extra expenses, and putting savings each week toward paying down a credit card.
“It can be a great teamwork exercise,” he says. “It’s the beginning of a recognition that you’re joining life and finances, through good and bad.”
- Set a plan for managing household cash flow. Often that means keeping some kind of budget. You should both know and agree on how much you’re willing to pay for big expenses, such as a home and car, and smaller routine purchases, such as groceries and entertainment.
- Determine how you’ll manage your banking. One suggestion is to maintain one joint account and two separate individual accounts, so the big bills are covered, and both partners still have the independence to pull money from their own pot.
- Set realistic mid- and long-term financial goals. For a couple just starting out, Maurer recommends saving enough for a 20 percent down payment on a home. Even if a couple qualifies for a lower payment (like for a 3 percent down payment through an FHA loan) it’s important to get as much equity as possible on the property from the start, says Maurer.
- If you’re planning to have children, make sure that you can live off of half of your combined income together first. Having a child often decreases the household income as one or both partners often reduce their hours to care for the new baby, and of course, household expenses will increase significantly.
You should also start saving for college the month your baby arrives, says Maurer. He recommends that families try to put away as much as $300 a month in a 529 college savings plan as early as possible.
- Enjoy the financial freedom that marriage can bring. “Merging one’s life with another provides a lot of financial opportunities,” says Klow. “And it can be a real expression of care and love to help each other thrive financially.”