02 July, 2009
The Business of Marriage: Top 6 Newlywed Money Mistakes
Disclaimer: The Business of Marriage series is just meant to be a collection of my observations and conclusions of how people spend. Most of the information will of course be based on The Hubbs and I. After all, we're still learning how to be married, not to mention identifying our financial mistakes. I thought it might be nice to chronicle them here. Maybe it will save some of you the crazy-making money fuelled arguments The Hubbs and I stomped through.
I know, Holy Matrimony is supposed to be a light, fun place to go for all things wedding. However, part of a planner's job (the most important part, if you ask me) is to help two different people, nay, two different SPENDERS come together and create something beautiful. During the wedding process you have a lot of time to observe how two people spend and how different their money habits are. It can be a big eye opener. Hence, this series.
We all know that the finances of the newlywed span everything under the sun, but from what I've seen, I think there are six major pitfalls that every couple can avoid. So, sit back and enjoy....if "enjoy" is really even the word.
1. Keeping Money Issues Hush-Hush. A HUGE no-no. "Mo money, mo problems", as they say. Finance starts nearly all major arguments between newlyweds. Ugly, but true. So some couple decide that avoid the arguments, the solution is to avoid the topic completely. Au contraire, mon ami. Communication is the key to any successful long-term relationship so it stands to reason that airing your dirty financial laundry is no exception.
In a perfect world, all couples would have this conversation before swishing down the aisle. I mean, there are awesome surprises that await you ("By the way doll, I happen to be fluent in Mandarin") and there are not-so-awesome surprises ( Hey babe, I forgot to tell you- I just bought an H2, fully loaded. It rocks, but now I'm $100,000 in debt"). Full disclosure is the name of the game.
2. Being Budget Shy. Okay, this is a big one, too. Let's face it, you're forcing two spending and saving habits into one household. If you don't know what you're doing this can be a lot like trying to shove 50 lbs of manure into a 10 lb bag. A hot, wet mess.
The solution? Simple, well, "simple-esque". If you had a budget before the "I do's" (5 points for you, by the way) you have to throw it out and make a new one with your spouse. Include both of your income, debts and monthly expenses. This will help ensure that neither you or your savings account will suffer.
You need to write down fixed expenses (rent, car payments, insurance premiums etc.). I also suggest adding a monthly payment to your savings account (treat it like a fixed expense). Then write down all of your flexible expenses ( groceries, miscellaneous expenses, ATM withdrawals etc). Track your spending for a few months and see where your money goes. It will help you find the places for financial improvement.
3. Letting One Person Wear the Financial Crown. So, after the dress is cleaned and the linens returned, the real work starts. Who does the taxes? Who pays the bills? What account should the automatic payments come from? Ugh. So many decisions. What to do? One of you may emerge as the financial leader, you may share the responsibility or you may trade off each month. None of these are bad choices as long as both of you are OK with the decision.
You both should know exactly what's going on with your money and you should both understand the day to day dealings of your new household. Neither of you should feel excluded. Likewise, you should know each others account information in case something should happen. Each month, get together for a little financial romp. Talk about the state of things, go over your budget, go over expenses, and review your savings.
Please make sure, if you choose to combine your assets, major purchases and savings accounts are in both of your names. This will help the both of you have access to them and maintain a credit rating. You don't want to learn during a divorce that the car and savings account weren't really in your name.
4. Letting Debt Follow You Down the Aisle. If one of you brings debt into the marriage; it will belong to both of you. Just develop a plan to pay it off. Keep in mind, should you decide to combine your finances, debt will hurt the credit score of the other person. This may make it difficult for one or both of you to get credit later. Keep existing debt in one name only. Also, don't go into debt just to pull off the wedding of your dreams. Not a good idea.
5. Making Mountains Of Molehills. Compromise, Compromise, Compromise. Try not to turn every financial hiccup into a verbal boxing match. Little things do add up and they will get in the way of financial growth, but pick your battles. Try to work a little "mad money" into your budget. This is money the two of you can spend however you wish. On the big stuff, always consult one another. It will go a long way in the long run.
6. Living Without a Contingency Plan. No one likes to dwell on the unpleasant aspects of life, but unfortunately these things can sneak up on you like a bad tan line. Assess your emergency money stash. The rule is (according to Oprah), every couple should try to have enough money to cover three to six months of living expenses. If this figure seems excessive, then you need to make sure you have plenty of insurance coverage. Life, auto, renters or homeowners. Married without a pre-nup?? Draft a post-nup with your lawyers....it's never a bad idea to protect the financial interests each of you brought to the marriage. (Sounds harsh, I know, but that's life. If you can't talk about finances with your SO, what can you talk about?) Likewise, get together and draft a living will to properly express division of property in the event of passing.
There you have it! I know finances are serious, but they are important. Not to mention most arguments between couples are started by them. I just wanted to give you a little leg up on all of that. My next post, will be fun. I promise.