You made it through the wedding planning and budgeting process, and started your life as a married couple. But have you decided as a couple how will you handle your finances? (Marriage can be like doubling an income, as long as you avoid doubling these expenses. Check out Marriage: For Richer Or Poorer?)
TUTORIAL: Budgeting Basics
Handled improperly, marriage and unaddressed money issues can wreak havoc on a relationship. In 2009, The New York Times reported the findings of a Utah State University study which indicated that "couples who reported disagreeing about finance once a week were over 30 percent more likely to get divorced than couples who reported disagreeing about finances a few times a month."
The best way to avoid financial disagreements with your new spouse is to address challenges openly, have a shared plan of action, and to understand how credit and the financial system works. Maxine Sweet, vice president of public education for Experian and Wedding Planning Expert Kimberly Schlegel Whitman offer their expert advice for the top five money matters facing recession-era newlyweds.
1. Fight the Newlywed Homeowner Fantasy
Though you're starting a new life as a married couple, one's financial past does not go away so easily. Particularly if one spouse owns real estate that has lost significant value in the housing downturn, it's important to be realistic and plan for your new financial life together, with a broad vision on the long-term. If you're swept away by the fantasy that a newly married couple should purchase a home together to begin a new life, it's time for a reality check. Schlegel advises couples that own a home they can't sell to consider staying in the existing home until the market improves. If you're itching to buy housing right after marriage, consider renting as a temporary option to build savings and a solid financial foundation. Agree as a couple how long you will stay there, and how you will start saving and building your assets for home buying in the future. "The most important thing is to protect your credit history, so that when you are positioned to be able to buy a new home together, you can get approved, and at the best interest rate," says Schlegel.
2. Save for Worst-Case Scenarios
While the economy is making a slow recovery, job security is still wavering in many industries. Though double income may leave you feeling like money is pouring in, Schlegel advises married couples to have savings amounting to at least six months (preferably nine) of your total monthly income as a couple, in the event that one spouse loses a job, or some other disaster strikes. Choose an interest-bearing savings account together, and establish an automatic savings plan (ASP), so that a portion of each spouse's paycheck is deposited to the account regularly. Destroy the ATM card so there is no temptation to dip into the funds.
3. My Debt, Your Debt
While joining finances can be a "rite of married passage" for couples, Sweet urges newlyweds to remember that as a married couple, you are both responsible for debt incurred on a joint account. If you decide to consolidate finances, joint accounts will be reported on each of your individual credit reports, and both spouses are financially responsible for any debt incurred. Likewise, a missed payment will negatively impact both of your credit scores and histories. If you live in a "joint property state," which are predominantly located in the Western part of the United States, Sweet reminds that both spouses are held liable for debt, even if your name is not on the account.
4. Maintain Your Individuality
While financial planning should be a joint activity after marriage, Sweet also recommends keeping at least one individual account in each spouse's name open. This approach will ensure that each individual has easy access to credit in case of an emergency. If you do find yourself facing divorce one day, having an established account in your name will also help you rebuild your individual credit history. (Does signing a prenuptial agreement put your marriage on shaky ground, or is it just smart planning? See Marriage, Divorce And The Dotted Line.)
5. Understand Credit as a Married Couple
In today's tightened lending environment, credit is more important than ever. Sweet reminds that while each spouse will always have an individual credit history, even after marriage. Lenders will often consider both of your financial standings when you apply for credit jointly, especially for major purchases like a car or home. Missing just one payment on one of your individual accounts, could impact your future ability to open joint accounts.
The Bottom Line
Money and marriage can be a challenging and stressful issue for many. For recession-era newlyweds, the unique circumstances presented in an economic downturn make sound financial planning as spouses even more critical. Use these five steps as a guide to pave the way for your new job as joint money-managers, and ensure that you'll start your new financial life as a married couple on the right foot. (Strengthen your marriage by discussing these financial pitfalls. Refer to Top 6 Marriage-Killing Money Issues.)