Valentine’s Day Tips for Merging Finances
Financial planning may not be as romantic as flowers and a fancy dinner on Valentine’s Day, but it could bring more peace and happiness into your relationship. Money is the leading cause of stress and arguments in marriage, so having a financial plan, especially when the dating relationship is getting serious, can reduce future stress and create a better environment for romance.
Here are tips for couples who are about to merge their finances:
1. Full Disclosure of All Debt and Financial Obligations
Get everything out in the open. Make a list of all student loans, car loans, debt on credit cards, even loans to friends and parents. Get copies of individual credit reports to share the financial past and any accounts that you may have forgotten. Don’t be afraid to have financial conversations earlier in the relationship.
2. Have a Peaceful Plan for Uniting Your Finances.
More than likely, your loved one does not handle finances exactly like you do, and this is a common source of friction in many relationships. There are three options for accounts: separate, joint and a combination of both. Separate accounts give both spouses some autonomy and are the easiest solution in the early years, but become complicated as your family and possessions grow. Joint accounts merge all income and expenses which requires communication and agreement. It can make paying bills easier, but it also means less privacy and independence. Joint/separate accounts divide up the expenses while still having an account of your own that you can control without feeling like every financial move is being watched. Both partners should have some money they can control and spend on their own.
3. Merging Debt.
One or both partners may come into the relationship with some debt. What type of assistance will be given by the spouse who has little or no debt? That has to be worked out between you and your partner. The other spouse is not legally responsible for debts that happened before marriage and it doesn’t automatically become a joint debt. Whether you and your spouse are legally liable for each other’s debts after marriage depends on if you live in a community property state (debt incurred by one spouse is owed by both spouses) or common law state (debts incurred by the spouse is only owed by that spouse unless the debt was for a family necessity). After a legal separation or divorce, a debt is generally owed only by the spouse who incurred the debt, unless the debt was incurred for family necessities.
Disagreements also seem to occur regarding how much debt is too much, and what is bad debt. The only way to diffuse this is to agree on how much debt you can handle and what purchases you will make with a credit card. The best way to deal with debt is to pay it down as fast as possible and avoid late payments. Decreasing debt reduces financial stress. The faster you pay off your loan balance, the sooner you can start saving and building a strong financial foundation. When you receive gift money, a bonus, a second job or a tax refund, use this to pay off debt. Making micropayments can help pay down your debt faster. Eat a meal at home or use coupons, and immediately apply the money you saved to your credit card balance. If you have multiple credit cards with a balance, pay off the balance with the highest interest rate and then move to the card with the next-highest rate.
4. Keep Spending Under Control.
More than likely, one spouse is considered the spender and one is considered the saver. However, in reality, both of you spend, just on different things. One may be spending on daily expenses like groceries, bills, and needs for the family while the other may make the larger purchases like computers or televisions. If you are on a tight budget, both sides need to make a plan on how much you will spend on the daily purchases and how much you will save for the big purchases.
5. Be Open About Money.
Financial secrets can ruin a marriage. Many people deceive themselves about how much they are spending, just as they deceive themselves about how much they eat. The problem comes when one partner is secretly saving, spending, or gambling thousands of dollars. If this can’t be easily confessed and explained, it may be time to get family financial counseling.
6. Emergency Planning.
Just because your financial situation is healthy today, don’t assume that you are ready for the emergency of tomorrow. A layoff, illness, accident or home repair can suddenly leave you in a financial crisis if you don’t have an emergency account. This can lead to a time of desperation and bad decisions. Have an emergency fund in a savings account that totals three to six months of living expenses. Make savings consistent and untouchable by setting up an automated deposit from your paycheck into your savings account.
7. Raise Your Credit Score.
Make it a goal for both partners to have a credit score over 720. This will this help you qualify for the best terms and interest rates on loans and save thousands of dollars over your lifetime. In addition, insurers, landlords and employers use credit reports to make decisions about your application. Raise your credit score by paying your bills on time, paying down your debt and limiting your credit applications.
8. Keep a Credit Card in Your Own Name.
Keeping a credit card in your name helps build your individual credit history. If you are worried about your partner’s spending habits, then he or she should not carry a credit card.
9. Monitor Your Accounts.
Even if you divide up bill paying and investing duties, both parties should be able to easily access accounts to know what is going on with your money. Websites like Mint.com can keep track of all accounts–investment, checking, college funds and loans. This keeps information clear and in the open for both spouses.
10. Get Help.
If arguments prevent you from getting started or making a financial plan, it may be good to seek professional counseling from a financial counselor or credit counselor. The National Foundation for Credit Counseling can help you find a certified credit counselor in your area. They can help you create a debt management plan.
11. Talk It Out.
Regularly make time to talk about your finances. It is important for both partners to actively participate in these discussions. Keep it comfortable and conversational—do not make this a business meeting. It is not a time for blame and accusations. Let it be an open forum where either spouse can bring up problems and issues and even ask for suggestions and help. Let your actions show that you are in this together.
12. Add Extra Income.
Selling unwanted items at a garage sale or on eBay is a start, but you may have skills that can make extra income. You can make picnic tables and chairs and sell them on Craigslist, or make bows and girls’ accessories to sell at children’s clothing consignment sales. You can board animals while their owners are on vacation. If you are a former athlete, you can give private lessons to kids learning how to play your sport.