Every year, more than 2.2 million Americans get married, according to the National Center for Health Statistics. Choosing to marry is one of the biggest decisions any couple can make, and the romance of an engagement is worth savoring. However, there are practical, financial considerations as well. You need to start making wedding plans, starting with a wedding budget. There are additional financial considerations that will have a more lasting impact, such as combining finances and financial planning for the future.
There are a number of important financial decisions you should make before getting hitched. For example, where are you going to live after you marry? How much can you afford to pay for rent? Do you plan to share finances or are you going to keep your assets separate? What debt are you bringing to the marriage? Have you discussed long-term financial goals?
All married couples have to deal with these questions, and discussing them early should be part of financial planning for engaged couples. You should be frank and honest about your financial expectations, and be willing to discuss short-term and long-term financial strategies. Below are three key steps engaged couples should take to establish a healthy financial foundation marriage.
Assess Your Financial Compatibility
Money issues are the primary cause of divorce. According to a study by Ramsey Solutions, the larger a couple’s debt, the more they fight:
- Nearly two-thirds of marriages start in debt.
- One-third of those who argued when a spouse hid a purchase.
- 94 percent of couples who have a “great” marriage discuss financial dreams.
Being open and honest about finances is part of a lasting, happy marriage, so before you can engage in joint financial planning, you have to talk about how you feel about money.
Do your financial styles match? Are you spenders or savers? You want to be sure you share the same values when it comes to budgeting, retirement, and debt. For example, if your spouse has no concerns about increasing debt to maintain a certain lifestyle, that should be a red flag.
Given that most marriages start in debt, you need to know how much debt your partner is carrying before you tie the knot. Some debt, such as student loans, might be expected, but if there is substantial credit card debt, be sure you develop a joint plan to pay it down. Debt can put a strain on any marriage.
If you are considering combining finances, you will need to open a joint checking account and a joint savings account. Opening joint accounts means you are sharing financial responsibilities, including debt. If you do plan to set up joint bank accounts, establish ground rules in advance as to who has responsibility for paying bills, how you will limit discretionary spending, and how you will jointly manage the accounts.
Protect Your Financial Future
If you are concerned that your prospective spouse doesn’t share the same values when it comes to money, or if they are bringing a substantial amount of debt to the marriage, you may want to rethink sharing finances.
Prenuptial agreements are becoming much more commonplace, and not just for the wealthy. Don’t think of a prenuptial agreement as a negative. If one of you has substantial assets or debt, or if there are children from a previous marriage, then a prenuptial agreement can be a responsible way to protect everyone. For example, a prenuptial agreement can be part of estate planning, ensuring that property will be passed down or handled properly in the event of death.
If you feel unsure about sharing your finances, you can maintain separate assets and bank accounts and decide to create a joint financial plan at some future date. If you do maintain separate finances, then come to an arrangement as to who has responsibility for paying different bills.
Of course, one of the reasons to get married is to build a life together. That includes joint financial planning and accumulating wealth for the future. Prenuptial agreements and separate accounts may limit some of your options when it comes to mutual wealth management.
Start with Wedding Budgets
Any financial planning for engaged couples should start with immediate plans, such as a wedding budget. Develop a budget for the wedding itself. Based on the amount you have to spend, you can make smart choices about how much to pay for food, drinks, the venue, and so on. Also, start a separate budget for the honeymoon.
What about an engagement ring? According to The Knot, the average amount spent on an engagement ring in 2018 was $5,680. You may want to have the ring in hand when you pop the question, but many individuals say they would accept a proposal without a ring, partly because they may want to help choose their own engagement ring. You might want to build the cost of a ring into your wedding budget.
As you discuss finances, you might also start developing a joint household budget for the next chapter of your lives together. This is a good way to take a hard look at your finances, including income and debt, and to determine what you can afford when it comes to housing, food, entertainment, travel, and other expenses. This also will be a good way to better understand your financial compatibility and get more comfortable discussing money as it relates to your lifestyle.
Remember that financial disagreements are the leading cause of marital issues, so make sure you are open and honest about finances before getting married. The better your financial styles complement one another, and the more you agree on big issues such as managing debt and saving for the future, the stronger your marriage will be!