Financial Matters – Stuart Burns

This month we are going to dive into marriage and money. If you are currently married or plan to marry in the future, money will be one of the most critical aspects that you will want to fully understand. Surveys have shown time and time again that the biggest topic of disagreement in marriage is money. Here is some practical advice of things to consider about money in your marriage.
Communication
Open communication is probably the single most critical factor for couples to make sure that finances do not overwhelm them or cause unnecessary stress in their relationship. Consider this example from my own life: My wife and I have never had a disagreement about money. However, when my wife and I married, we were both young and didn’t really sit down to discuss in depth our accounts and finances; after all, we were in love and it would work out. I was called back to active duty for operation Desert Storm within 3 days of our wedding. Since almost all of my pay would be deposited into my account for my wife to keep up on our bills, I knew she was going to be fine financially. Even so, as a bachelor, I had run my accounts by a “know how much money I have” system. If I bought something or paid a bill, I kept a ledger in my head of how much money remained in my account. This system didn’t help my wife who was left looking at check ledgers that I had only loosely updated. Needless to say, my ‘bachelor” ledger was way off and checks started bouncing. Thankfully we had a solid bank that understood that I was serving overseas. They brought my wife into a branch and took the time to update the ledger with her and get things current and balanced. It’s true we didn’t have a lot of time to discuss things between the wedding and me being shipped out unexpectedly, but I could have communicated a lot more about my finances before the wedding and it would have made one less stress for my wife while her new husband was overseas.
Here are some common topics that all couples should discuss and have open communication about:

  • Should we have joint or separate accounts?
  • Is either partner bringing existing debt (like student loans) into the relationship?
  • What financial goals does each partner have?
  • Starting a family/Supporting children: how will we make it work?
  • What’s your and your partner’s financial personality (impulsive buyer/frugal saver)?

Joint or separate accounts, which is better?
If you look through the many articles on financial advice, you will find arguments on both sides of this topic.
Benefits of Joint accounts:

  • Money is easier to manage from one account (all bills paid from same account)
  • Less monthly maintenance fees from banks
  • Promotes that the couple is one entity – spiritually and financially

Benefits of Separate accounts:

  • Retain some financial independence for each partner
  • Easily allows discretionary spending

So which option is better? The key is that both partners sit down, discuss, and agree on how they want to run their finances. A great friend of mine and his wife prefer to keep separate accounts because it allows them to have some money of their own without feeling they have to justify some personal spending, and it also gives them opportunity to surprise each other. Other friends have all of their finances together and find that works effectively for them. Either option can work effectively. It’s up to you and your partner to decide which option is best for you.
How to handle existing debt
It’s not bad to owe on a car loan or a student loan, in fact it’s pretty common. However, if there are existing loans/debts, then each partner needs to openly communicate the debt so that it’s not a surprise later and may create resentment.
Discuss how you want to approach the debt together:

  • How does it fit in your overall plan for your financial future (i.e. could we can pay this off in 2 years and then save for a house?)
  • Should we merge the debt (i.e. could we get a lower interest rate?)

What are your financial goals?
It’s good to discuss your financial goals up front. If you find that your goals are different than your partners, you may run into some issues with your finances that could put stress on your marriage. For example, if one partner wants to put money into savings and accumulate a certain amount of money by a specific age (i.e. $50,000 by age 50), and the other partner doesn’t see that goal as important, this could create issues. If both partners are in agreement on what they are trying to achieve and work as a team, they will avoid financial stress in their marriage and be more likely to achieve all
of their financial goals.
Finances and starting a family
I recently read that each new child will cost parents an average of $300,000 dollars (including food, clothes, school, medical, etc). So, having a family is going to impact the finances going forward in a significant way. Both partners will need to discuss how they envision the finances after starting a family. For example, if one parent stays at home, there are some financial benefits such as avoiding daycare costs, but there may also be an overall reduction in income that needs consideration. Here are a few things that you should discuss:

  • If both parents work, can we afford the daycare until school starts or make other arrangements for childcare?
  • Could we realistically afford for one parent to stay at home?
  • Are we willing to cut other spending to make up for any deficits/save for expenses?

It’s critical that you discuss the vision for your family together and both partners are in agreement, so that there is less stress for the whole family later. No one expects you to know all the answers right on your wedding day. Your finances may change before you start a family, but you should discuss some basics to make sure you agree on a vision.
Financial personality: Impulsive Buyer vs. Frugal Saver
Each of us probably knows someone who is an impulsive buyer. They tend to be driven by the “got to have it now” mentality and think about the overall consequences later. We may also know people who are highly thrifty. They live well below their means and carefully consider everything they buy, going out of the way for coupons and sales. Many of us actually fall somewhere in the middle of the extremes, but it is important when you’re joining finances with another person that you understand each other’s financial personality. I know one couple who more or less tend to fall in the extremes category. The husband tends to be an impulsive buyer, while the wife is highly thrifty. They complement each other in this case, because the wife will stop the husband from impulse buying. Instead, she will find the same item that the husband wanted to buy, but at a better price and at a time they can afford it. Ultimately both are happy and make it work for them.
Final thoughts
As you are bringing finances together, it’s important that each partner understand that you are becoming one financial entity and forge your financial direction together. Even if one partner becomes the primary money maker, both partners should discuss the direction of the finances. It really doesn’t matter which partner pays the bills directly. One partner may have more time or be more suited to maintain the bills, but both partners should know where the money is going and be in agreement on the couple’s financial direction. This is a very basic look at marriage and money. We will continue to focus on other specific financial areas in future articles.
For some great financial tools and resources go to: http://learn.bankofamerica.com/money-management/ or contact
Stuart Burns at 602-464-1381 or email at stuart.j.burns@bankofamerica.com