Money milestones: How to prepare your finances for marriage

Share
More
Money milestones: How to prepare your finances for marriage

Updated November 1, 2019: Establishing a solid financial foundation before you get married will start you and your fiancé off on the right foot. Planning ahead can help couples avoid conflicts and work toward mutual goals.

This means you should make some financial decisions with your partner now to set your marriage up for success. It’s a good idea to start getting your money in order well ahead of your wedding day.

Here’s how to prepare your finances for marriage.

1. Determine how to pay for your wedding

The average cost of a wedding is over $33,000 according to a 2018 survey by The Knot. Many couples go into debt to finance their big day. But taking on thousands of dollars in wedding debt can add a lot of stress to a new marriage.

You should budget for a wedding and honeymoon that leaves you debt free (or at least with a plan to quickly pay it off). Whether that involves saving and careful budgeting, asking for help from family members or just doing the deed at the courthouse depends on you and your partner’s plans and desires.

There are still ways to have an awesome wedding on a tight budget. You can keep the guest list small, look for affordable food caterers or borrow a friend’s backyard for the reception. In the long run, memories of celebrating with friends and family will probably outshine expensive venues, lavish flowers and luxury decorations.

2. Establish your financial goals

Each partner may have their own financial goals in mind, including buying a home, starting a family, paying down debt, saving for retirement or traveling. Discussing these goals as a couple and choosing which ones to focus on will help you work together. Building a future takes planning, sacrifice and commitment, so you should both be on the same page.

If you and your partner have different goals, you’ll need to prioritize what’s important. Not sure what you should be striving for (or how to get there)? Consider hiring a financial planner to analyze your finances and help you put together a plan.

One important priority for any couple should be an emergency savings plan. Every marriage has its share of ups and downs, and an emergency fund can help you weather times of financial struggle. Paying down debt and saving for retirement are two other priorities that will convey long-term benefits.

3. Do a financial inventory

Even if you decide to keep your money separate, it helps to have transparency. Each partner should do a complete inventory of their income, debt, retirement accounts, bank accounts and assets they are bringing into the marriage. This can help you both understand what you’re getting into when you say “I do.”

Knowing each other’s finances can help you create a budget, tackle debt and pursue your financial goals (some couples choose to enter into a prenuptial agreement to protect their assets, but there are pros and cons to this strategy).

“Talk about debt before tying the knot. It is far more common than I realized that there are debts one partner is keeping from the other. This is going to add strain, frustration, unpleasant surprise and all sorts of problems in a new marriage,” Garrett Konrad, partner at investment advisory firm IFC. “So know what you are both getting into and start talking about any existing debt now.”

It’s also a good idea to know the state of your partner’s credit, especially if you and your spouse jointly apply for credit cards, mortgages, auto loans and other financial products. If someone’s credit is in bad shape, you will want to work on building it before you start submitting applications.

4. Decide how to split financial responsibilities

Decide how to split financial obligations like bills, savings and everyday purchases. If one spouse is the sole breadwinner, they will likely be responsible for the expenses. If you and your spouse earn roughly the same salary, you may split your expenses down the middle. Or you may contribute a proportional amount of money to the household based on your incomes.

Make sure to talk to your partner before you decide how to combine (or maintain separation of) your finances.

Should you open joint accounts?

Sharing bank accounts and credit cards is easier in many ways. Each spouse can access money when they need to. It’s simpler to split expenses when it doesn’t involve moving money between accounts. It’s also easier to keep track of your spending as a couple.

Joint bank accounts do have their downsides. If one spouse enters the marriage with a lot of debt, for example, the other spouse may become resentful if the money is mostly being used to pay one person’s debts.

Konrad recommends consolidating finances and assets as it helps spouses move forward as a team. It also helps avoid surprise assets, debts and incomes when a spouse hasn’t been completely truthful, he said.

Should you maintain separate accounts?

Separate accounts allow each spouse to maintain their financial independence and manage their own income. This may be a viable solution if your partner isn’t great with money or you both wish to keep a level of financial autonomy.

The downside is that there will be more work involved in splitting expenses, especially if one spouse constantly has to transfer money to the other. As an alternative option, each spouse could maintain certain bills in their name that they alone are responsible for.

Should you have both?

Some couples choose to maintain joint accounts for mutual expenses and separate accounts for discretionary spending. This lets you split expenses but have your own “fun” money.

Want to learn how other couples do money? Check out our annual Couples & Money survey.

5. Create a budget

A well-defined budget is critical for success. If you and your partner live together, you may already have one. If you’re moving in together after you get married, you will need to establish one. Either way, work on creating or revisiting your budget now.

You can create one together using this simple spreadsheet. Focus on necessities such as rent, bills, savings and the priorities you established based on your financial goals, then see how much you have left over for discretionary spending.

Whether both spouses control the finances or one person holds the purse strings, open communication and transparency for everyone is important. This is a good idea for several reasons:

  • If one spouse passes away or is rendered unable to manage the money, the other spouse would easily be able to take control.
  • Both spouses can make smarter decisions regarding their spending if they’re aware of their financial situation.
  • Both spouses can work together toward common financial goals.
  • A lack of transparency makes it too easy to have secrets or keep one spouse in the dark.

Plan to discuss your finances on a regular basis. While talking about money isn’t always easy, it’s the best way to make sure you continue to work together for common goals and the financial health of the marriage.

6. Make sure you both have adequate insurance

Life insurance

Life insurance is a crucial safety net for married couples. It protects spouses and children from financial disaster in the event of a death.

Compare life insurance plans to find the policy that fits your needs. The primary focus should be income replacement, but remember that stay-at-home spouses make valuable household contributions as well, such as providing care for children. Even if you’re the sole breadwinner, a life insurance policy can help your partner afford funeral arrangements and other expenses that arise.

There are several options for buying life insurance for spouses, but the simplest is a separate term life insurance policy for both individuals, with each of you naming each other as the beneficiary.

Health insurance

Once you are married, you and your spouse can be covered on each other’s health insurance plans. Leading up to your marriage, evaluate if you can save money or get better coverage by moving one spouse onto the other’s health plan.

7. Create an estate plan

Estate plans dictate what happens to your finances and assets after you die, as well as who will care for any minor children. If you die without an estate plan, the state will make these decisions for you, which can be time-consuming and may not reflect your actual wishes.

Both you and your spouse can create an estate plan, such as a will or trust, that names the other as beneficiary.

“Depending on your state's laws there are many different arrangements and defaults if you don't put together a plan of your own,” said Konrad. “Talk to an estate planning attorney to evaluate if you need a plan now or not.”

Have an existing life insurance plan, work retirement plan or any other plan with designated beneficiaries? Adding your spouse as a beneficiary will ensure that benefits go directly to them in the event something happens to you.

Not sure where to begin? Check out our guide to estate planning.

Recommended reading

Image: Aleskander Nakic