Marriage is a celebratory time that brings two people and their families together, but it also brings together two separate financial outlooks, backgrounds and priorities, and it is important to be prepared for this major financial change. Engaging in these conversations with your soon-to-be-spouse, while difficult, can help avoid even more difficult conversations or circumstances in the future. This article will explore different financial conversations to have prior to marriage to ensure you hit the ground running on the same track.
Discuss Your Spouse’s Financial Past and Present
When having financial conversations, it's best to just jump right into it. You're planning on spending the rest of your lives together, so there is no need to wait to have these discussions. Common discussions related to your spouse’s financial past and present include:
- What assets are you bringing into the marriage? Will everything become jointly owned? If not, why?
- What debts do you currently carry or have carried in the past? Knowing whether your spouse has a debt problem from the beginning is key to sorting it out. If you were to find out years into the marriage they'd been carrying a massive amount of debt which keeps you from qualifying for a mortgage to buy your first home, imagine the negative emotions you'd feel toward your spouse.
- Are you a spender or a saver? How have you saved or invested in the past? If they have done a great job saving and you're more of a spender who has a hard time setting aside enough money every month, or vice versa, you'll need to discuss what will keep you both happy in terms of not spending too much. Maybe that's keeping separate checking accounts, so each person doesn't nag the other over certain expenditures. Or maybe it's joining checking accounts to simplify, consolidate and help hold each other accountable. (For related reading, see: Should You Open a Joint Bank Account?)
Set Joint Financial Goals
As important as it is to understand your past and present financial pictures, setting joint goals to work toward together will be the foundation upon which you start to build your life together. Those goals may be to start a family, buy a home to settle down in, travel or retire early. These conversations should be fun and exciting. Envision the best possible life together: What does that entail? It can become a reality if it's a goal you both and agree to work toward together.
These conversations should also include family and career plans. If you plan on starting a family, will you remain a two-income household or will one parent stay at home to take care of the newborn? In terms of your careers, are you both happy where you're currently working? Do either of you plan on returning to school, taking some extended time off or starting a business?
These are big decisions that impact your finances, and it’s not uncommon for there to be disagreement. The key is to find a middle ground, understand each other's perspectives and even be willing to compromise with each other when necessary. You likely won't always agree on the the goals you set out to accomplish, but that does not mean you can’t always be supportive of each other in pursuing them.
Define Your Financial Role in the Marriage
Who will be responsible for paying the bills? Who will ensure you're increasing retirement savings every year?
Talk with your spouse and know the answers to these questions. Having defined roles with your joint finances makes it much easier to stay on top of things. If you're both scrambling to remember to pay the bills each month, or you haven't discussed who will review investment accounts and when to make further contributions, these things will probably not get done.
If one of you is more interested in investments and the other just making sure you're financially sound on a monthly basis (paying off credit cards, maintaining an emergency fund, setting aside money in the travel fund, etc.), define your roles accordingly. Keep each other up to date, but specialize in your respective responsibilities, so to speak.
Protect Your Financial Future
Thinking about our own mortality, especially prior to or soon after marriage, can be tough. But it's an essential part of any strong financial plan. You wouldn't want to leave your spouse in a scenario where you're unable to work and provide income. Or in the worst case, you've passed away and they are unable to pay the mortgage or fund your children's college education with the resulting loss of a lifetime of income.
Losing one income in a household that planned on having two can have a dramatic impact on your lives. Fortunately, there are insurance policies to help guard against these unfortunate events. Keep in mind, many employers offer life and disability insurance as part of their benefit packages for employees. Any coverage needed on top of the free benefits you receive from an employer can often be bought through your employer or in the private marketplace.
Life insurance pays the surviving spouse when the covered individual passes away and provides the funds in lieu of the deceased spouse's income. For millennials, term life insurance policies are relatively cheap for the amount of coverage they provide. Again, it's not easy to think about, but it's even harder to think about leaving your family behind with a mortgage or unfulfilled college educations costs. If you're covered, you have the peace of mind knowing your family will be financially secure should the worst case scenario ever happen. (For more, see: How Much Life Insurance Do You Need?)
Disability insurance helps guard against an individual’s inability to work and the subsequent loss of income. How much coverage is needed can be determined on an individual basis. However, disability insurance only covers up to a percentage of your base salary, often only 50-60%, so if you're in a high-commission dependent job, you'll want to make sure you have as much as 80% of your income covered.
Don't Avoid Financial Conversations With Your Spouse
The list could go on and on regarding the different conversations spouses should have regarding their newly conjoined finances. However, the key takeaway is simple: Have these conversations in the first place. Don't avoid financial conversations with your spouse. Keep an open line of communication. You should both be proactive about asking questions or working together to get a better understanding of how you'll move forward with your joint finances.
(For more from this author, see: Making Financial Wellness Part of Your Life Plan.)