It’s a conversation that no one looks forward to having.
A subject that consistently gets bumped to the bottom of the to-do list because it’s uncomfortable. It’s a subject many of us wish we could avoid entirely. That’s right, it’s time for us to talk about…
In a perfect world, we’d approach the finance conversation sooner than later, especially before tying the knot. Being on the same page financially is crucial when planning for a future together. It establishes the habits around spending and savings, as well as the ongoing conversations around budgets, debts, and financial planning for the length of your lives together. Most importantly, it establishes financial trust.
This doesn’t mean a marriage shouldn’t occur if either partner (or both) are in undesirable financial situations. This conversation is important simply so each partner understands how their personal finances will come together as one, and so everyone understands and accepts the combined financial obligations when entering into a marriage.
To make the conversation as easy as possible, we’ve outlined topics to discuss and questions to ask your partner before and after saying “I do”. Enter the talk positively, because ultimately it’s meant to strengthen communication and understanding. Plus, once all the hard stuff is out of the way then the real fun can begin—a thoughtful and honest marriage.
Money Questions To Ask Before Marriage
Before marriage, and even before the nitty gritty details about money, it’s important to discuss lifestyle visions and goals. You may realize that you have envisioned different futures, and this will open up the conversation to compromise and understanding.
What Lifestyle Do You Envision?
Some people have a clear vision for their future life, while others are more go with the flow. A lot of us, however, are somewhere in between. Now that you have found a partner to share your life with, it’s important to understand their vision and goals and work together to find a happy medium. Think about the immediate financial goals you need to achieve, and more long-term plans, to successfully attain the lifestyle you both envision.
When discussing “lifestyle”, consider the following questions:
1. Where do you want to live? Consider locations, including potential cities, states, and even countries. Living in Manhattan requires different financial planning then living in a suburb of Houston, for example.
2. Do you ultimately want to buy a home together?
3. If you want to buy, what kind of home do you want? A brownstone, a condo, a house in a suburb, a ranch in the countryside?
4. Do you want kids? How many?
5. How many and what kind of vacations do you want to take each year?
6. Do you have any expensive hobbies? Certain hobbies have a high financial and/or time constraints. Collecting antique cars is obviously more expensive than jogging.
7. What percentage of your income do you save annually?
8. Do you have any investment or retirement accounts?
9. Do you have any student loans or credit card debt? We’ll get more into this in a second.
Answers to these questions could have a large impact on the jobs you look for and accept, or how you decide to manage your finances. The lifestyle goals you decide on as a couple may also affect how you spend money on the immediate future, like your wedding, for example. Should you still have a destination wedding, or save some of that money for a home down payment? Start your plan by making a list of big, and even small, financial goals and prioritize them by importance over short or long term.
How To Ask Your Partner About Debt
When you enter a marriage, for better or for worse, your partner’s debt becomes your own. Disclosing your debt to your partner isn’t just responsible, it’s courteous and crucial to your financial planning.
With the American debt hitting an all-time high of $13 trillion in 2017, chances are you have some debt. Contrary to popular belief, however, debt isn’t always bad and there are also varying degrees of severity.
Firstly, one should ask their partner:
1. Do you have any debt? As we mentioned before, most Americans have some kind of debt. Whether it’s a small credit card balance, a 30 year mortgage, or student loans, chances are at least one of you has some. And that’s okay so long as you manage it well.
Something else to consider is if you or your partner doesn’t have any credit history. That person will have a more difficult time securing loans than someone with a credit history. Consider your lifestyle goals and add “building a positive credit history” to the to-do list if its not already established..
2. What kind of debt do you have?
Debt, when handled poorly, can haunt you for years to come. But believe it or not, lenders often like to see positive debt on your credit report so long as your debt to income ratio (DTI) isn’t too high. They’re able to see they’ll get their money back on time, in full, and with interest if they lend to you. Some debts, however, are worse than others, meaning they have a harsher impact on your credit score when you obtain them, and especially if you don’t pay them on time.
- Credit card debt is the worst kind of debt. If you’re able to pay off your entire balance on time every month, then you won’t pay interest and your credit score will thank you. A general rule is to use as little credit as possible—a balance below 20% of your limit, if possible—and to pay off as much as you can as soon as you can. Remember that credit card debt accounts for a whopping 30% of your credit score, so any default could really, really hurt.
- Auto loan debt isn’t quite as bad as credit card debt, but it is considered “unproductive”. This means that the purchased item (car) is depreciating in value, and should you default, the lender won’t ever get their money back in full. It’s still risky, but if it’s paid in full and on time, it can help you build a positive credit history.
- Student loan debt is incredibly common. The U.S. has over $1.48 trillion dollars of student loan debt and over 44 million borrowers, so future lenders and renters won’t be surprised when they see it. If your DTI is too high, however, they may see you as a risky investment. Student loan debt can be considered both productive and unproductive debt. If all works out well, the debt used to pay for your education means you’ll get a great job that provides you with enough income to pay the loan back on time and in full. Job security, of course, isn’t a guarantee.
- Mortgages and home loan debts are the least severe. Although the housing market is never a sure bet, homes are typically an appreciating asset, and therefore considered “productive” debt. Banks are generally confident they’ll get all their money back—and even more—should a home loan default and trigger a foreclosure.
3. What are your repayment plans?
Depending on the kind of debt you have, repayment schedules and terms will differ. It’s important to know how much you’ll be paying back per month and when, so you can factor that into your budget and monthly expenses.
Debt, simply put, is money owed to other people or companies. And no matter how you slice it, talking about money you owe can be uncomfortable. Your partner, however, is exactly that—a partner—and it’s always safer to get the crunchy stuff out of the way so it doesn’t become an issue later.
Money Questions To Ask After Marriage
Now that you’ve tied the knot (congrats!), your finances are now married as well. Now the real financial work begins. You can start making plans for the long-term and start taking the steps to achieve them.
1. Should you consolidate your bank accounts?
Before jumping the gun and consolidating your bank accounts, make sure you fully understand the ins and outs of each other’s financial situation. Whether you decide to consolidate completely or just have one shared account, the decision is very personal and specific to your relationship.
What works well for many couples is to open a joint checking account and committing a portion of your individual income to deposit automatically into the account on a regular basis. The money deposited could be used for bills, savings, entertainment, etc.—the choice is ultimately up to you. The amounts will vary depending on what you’ll be using the joint account for. This gives each partner some financial independence and control, but starts the harmonizing of accounts
2. Should you file taxes jointly or separately?
This is ultimately a question you should come prepared to ask your tax professional. There are lots of benefits of filing jointly, including exemptions for married couples and married couples with children or dependents. When you file jointly, your combined income puts you in a higher tax bracket and may qualify you for some additional tax breaks.
There are very specific situations where filing separately may be the better choice. For example, if one partner has a lot of out-of-pocket medical expenses. Those can be determined when you speak to your tax professional.
Because we live in a time where there is an app for everything, even financial planning is automated and streamlined. Some of our favorite apps for planning, budgeting, and tracking goals are:
- Mint: available on web, iOS, and for Windows, Mint has a clean and beautiful UI that makes it a pleasure to use. Sync all your online bank accounts for easy monitoring, transferring, and budgeting all in one place.
- YNAB: You Need A Budget is a powerfully intricate personal budgeting system that aims to help you save the most money you can. It helps you be honest about your expenses and savings, and assigns a job to every dollar you earn.
- Simple: Simple makes banking easy and fun. Set goals and give yourself “easy wins” to increase your financial confidence. Keep track of your bills and always know how much money is safe for you to spend.
We know financial conversations can be uncomfortable and complicated. That doesn’t mean they should be avoided or put off until the last minute, however. When two people plan on spending the rest of their lives together in marriage, they’re not just joining their homes, social lives, and family. They’re also joining their financial lives as well.
So rip off the bandaid early, make a solid plan, and jump into married life with eyes wide open. You’ve got this.