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Weddings can be expensive. Then, after the wedding is over, most couples look to buy a home. Of course, then there's deciding when to start a family. It all costs money. Whether you've been cohabiting for a while and finances have already been merged or you've never really talked about finances at all, the engagement period is the perfect time to sit down with your partner and put together a budget. Here are some things to consider when becoming financially prepared to start your life together.
Joint Accounts or Multiple Accounts
When you merge finances, there are a few options for how your money can be managed. Some couples prefer to have joint checking and savings accounts that all income goes into and all bills are paid out of. Other couples have joint accounts for paying household bills and separate accounts for personal savings goals and personal spending. Still another option is having completely separate finances where each person is responsible for paying their share of the bills out of their own accounts. No matter which way you choose to handle your money, the next steps are crucial to keeping financial peace in your new household.
Income, Debt and Goals
In order to get your budget and your marriage off on the right foot, both partners need to disclose their income and their existing debts. While in many cases you are not responsible for the debt your partner incurs before marriage, all debt will affect the ability of your household to reach savings goals. Additionally, when incomes are revealed, one partner's income may be substantially higher or lower than the other's. This can not only affect saving but also how the money is handled as listed above. Some couples choose to keep accounts separate due to disproportionate debts or uneven incomes. They then deposit the proper percentages into joint accounts for use in paying joint bills only. Discussing debts and incomes prior to marriage saves a lot of stress down the road.
After discussing debts and incomes, you should discuss your financial goals, both short-term and long-term. Some common goals couples have during their engagement are saving for a wedding, saving for a honeymoon, and paying off debts prior to marriage. Long-term goals include saving for a home down-payment, starting a new car savings, and saving for retirement. Don't forget to discuss any intermediate goals you may have. For instance, you always dreamed of taking your family to Disney World one day. Expensive vacations should be agreed upon and saved for as well.
Do the Math
After putting the income, debts and goals on the table, it's time to figure out how much can actually be saved each month towards meeting those goals. List out fixed expenses including monthly debt payments. Take the total household income minus the fixed expenses to get money leftover for either saving or spending. It's important to remember to save for expenses that while not regular, can be expected such as gifts, car repairs, haircuts, clothing, insurance, etc. This is another discussion that is best to be had before marriage. Couples may have different expectations on clothing spending and other discretionary spending. Not to mention that in order to meet goals, some luxuries may not be considered affordable anymore. Having the discussion early on leaves no room for surprises after the vows have been said.
Stay on Track
Just as your marriage needs care to remain strong, so does your budget. You should track your spending and go over your budget with your partner monthly in order to make sure that you're both still on the same page.
To ensure that you're ready to say "I do," plan to have a budget talk with your fiance. The beginning of a wonderful life together can start with a serious discussion about your finances. If you and your fiance are ready to put your first home on your list of goals, give a trusted loan officer a call for assistance on where to start.