By Jonathan S. Kuttin
Soon after the wedding is over — and the chaos of planning has subsided — many newlyweds start asking themselves questions related to their financial situation. Should we buy a home? Should we merge accounts? Who pays the electric bill? How much should we be saving for a rainy day? Can we afford to take a trip? It’s smart for newlyweds to take some time to focus on establishing their new financial lives together.
What are the pros and cons of merging finances? How you go about commingling finances is something that all new couples should carefully consider. Some couples merge everything, others prefer to keep things separate, and some choose a combination of the two. The most important factor is that both spouses feel comfortable with the arrangement and that you have a process set up to ensure you pay your bills on time and maximize your finances.
Start by having a conversation about money habits and styles. How have you handled money in the past? Is one of you a spender and the other a saver? If two individuals have very different ways of managing money, keeping some accounts separate and preserving some independence can be a way to maintain a healthy relationship while protecting your joint financial wellness. If you’re on the same page — both savers, for example — togetherness in all things financial can create some efficiency.
In addition to careful budgeting, a good compromise is to have one checking account in which a couple deposits their income and then a separate account for each holding an agreed-upon amount that comes from the shared pool that each spouse can spend as he or she wishes — no questions asked. It’s also important that the couple agree on how much money they will save together and to establish an auto-transfer from the shared pool so that saving is easy and automatic.
Equally critical is for couples who are blending their finances to consider different “what-if” scenarios. Discuss how much each partner would be comfortable spending on things like new furniture, or how they would financially approach an unexpected situation such as a relocation.
How can you ensure you don’t go over budget? Having one joint household budget makes it easier to monitor spending and stay on track. First, create a monthly and annual budget, taking into consideration your income, monthly fixed expenses (like rent or mortgage, utilities, insurance and basics like groceries) and your savings goals. Then determine how much you can afford for discretionary expenses (like clothing, travel and entertainment). If one person is “in charge” of the budget or finances, it is important for the other person to communicate about his or her unplanned purchases. But, even the best laid plans can go astray — be sure to have overdraft protection in place to cover any purchases that fall through the cracks.
Who does what? 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 advisor early in your relationship is another way to create a mutually agreeable plan and to have regular sessions to track your progress toward financial goals and talk about money.
Jonathan S. Kuttin, CRPC®, AAMS®, RFC®, CRPS®, CAS®, AWMA®, CMFC® is a Private Wealth Advisor specializing in fee-based financial planning and asset management strategies and has been in practice for 19 years.