When you were single, you were afforded the luxury of your own spending habits, saving and investing on your own terms. Managing your individual finances was all about you. But when you fell in love and got married, your personal finances and investments transitioned from “my money” to “our money.” You entered into a financial partnership where each of you is accountable for your combined financial success. As you start your new life together, here are five questions you should be able to answer about your finances.
What is your current individual financial situation?
Start with where your finances are today. Very few newlywed couples are aware of their combined net worth and understand their household balance sheet. It’s important to evaluate your assets such as bank accounts, taxable investments, business interests, real estate, and retirement accounts. On the heels of that, calculate and know your liabilities, such as credit cards, student loans, personal or family loans, taxes owed, automobile debt, and mortgage. Do your assets outweigh your liabilities?
By preparing a detailed cash flow analysis that goes back 12 months, you can create a realistic budget based on your historical spending behavior. Then repeat the process for the first three months after getting married to see how they compare. Communicate openly and honestly about how to divide your expenses into two groups: fixed and flexible. Your fixed expenses are the recurring monthly costs, such as your rent or mortgage, utilities, insurance, car payment, etc. Your flexible expenses include entertainment, travel, and dining out, and are typically where you can make immediate spending cuts, increase your savings, and add to your investments. Plan together to ensure you are saving consistently each month and that your combined monthly expenses are less than your take-home income.
Who will pay what bills?
Communicate openly and often about your money. Financial disagreements or misunderstandings can fester, so making sure you keep the lines of communication open is important. Have a clear process for who does what, and when. One individual may have more of a propensity or interest in financial management; if that’s the case and both spouses support that arrangement, it may be the best for your family — but make sure that both parties are informed about their financial situation. It can be helpful to have a set time each month to pay bills, do record keeping, and discuss overall financial issues. Consulting with a financial adviser early in your relationship is another way to create a mutually agreeable plan and to have regular sessions to track your progress towards financial goals and talk about money.
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