Traditionally when two people get married, one of the changes they make as a married couple is to combine at least a portion of their finances. Maybe they start with a joint checking account and combine more and more of their once-separate financial worlds as time goes on. Even if couples choose not to technically combine their finances with a joint bank account, they are likely still involved in one another’s finances in some way or another.
It’s no secret that financial problems are one of the top causes of divorce. We’ve heard it all before, one of them is a saver and one is a spender, they have different ideas on how to invest their money, the list goes on. Unexpected financial issues can happen to anyone, getting laid off, an unexpected illness, a business fails, etc. Therefore, it is important to have a plan for when things happen and to be on the same page with your spouse.
Financial Conversations to Have With Your Current or Future Spouse
It is always best to have these conversations before there is a situation and to have a plan. Plans can range from simple budging to more in-depth goal-based planning. Here are a few different topics to talk about with your future or current spouse:
- Saving and Spending: Talk openly with your partner about how they view money. Attitudes towards money come from many places, such as parents, one’s current financial status, global economic trends, etc. Learning about your partner’s savings, how they allocate their money for purchases, savings, 401(k), etc. can give insight into your partner’s spending and savings habits. These answers are critical to successful long-term planning.
- Salary and General Income: It is frowned upon to ask someone about their salary and income. But it is pivotal for partners to be aware of what one another is bringing into the household for planning purposes. Knowing the total household income and its growth potential is critical to determining a fiscally responsible lifestyle for you and your partner.
- Goals and Desires: A family’s financial goals can be broken down into three parts: needs, wants and wishes. Once your financial needs are met (food, shelter, healthcare coverage, etc.), you can focus on your wants and wishes, from starting a family and buying a new home to paying for college, and retiring at age 50. Your financial plan will prioritize needs over wants and wants over wishes and, based on the input, determine your likelihood of success. If the results aren’t successful enough, you have some decisions to make so you have a greater probability of success. (For related reading, see: How to Create a Budget With Your Spouse.)
- Debt Situation: Asking your partner about their debt is not taboo. In fact, it is critical to know and incorporate that information into your financial plan. Debt is not only a liability, it affects one’s credit, which could mean not being able to purchase a home or having to pay a higher interest rate. If your spouse or partner has debt or credit issues there are several steps you can take as a team that will help improve the situation and their credit score.
Having these less-than-romantic conversations sooner rather than later is key for you and your partner to be on the same page financially. Improving one’s credit score, reducing frivolous spending and starting a savings program are great ways check your financial compatibility. There are a lot of complications and issues that arise with a marriage, you don’t need financial matters to complicate things further.
(For more from this author, see: Using Trend Following Investing to Beat the Market.)