As I mentioned last week when I wrote about saving money on your wedding, your wedding day is just one day out of your entire marriage. Today I want to talk a bit about managing your money to make the rest of your marriage as smooth as possible.
Being responsible with your finances includes looking at how the two of you view money and planning how you’ll approach it in your marriage. You owe it to each other to handle this as a team. While it’s not all about number crunching, you will have to run some numbers as a family.
What are your financial priorities?
A healthy financial relationship starts with the two of you just sitting down at a table and openly communicating about your goals. Hopefully you talked about these things while you were first getting to know each other, but now it’s time to revisit them and work out a plan for achieving them.
- Are you happy with your living arrangements for the long term?
- Do you want to buy a home?
- If you’re planning on having kids, how big of a family do you want?
- What kinds of career do you and your spouse want?
- What are your “big dreams, ” and how much will they cost?
You don’t have to have a complete and final answer for these things, but you should know where each other stands. Throughout you marriage, you’ll be constantly re-evaluating your goals and you’ll need to adjust your plans accordingly.
Are you being completely honest?
In my case, the huge amount of debt that I had (student loans plus the car loan) made it uncomfortable for me to open up to my fiancÃ©. He had no debt, and here I was with almost $30, 000 in debt. Knowing that we were on the same team helped me speak up and be honest, and we were thus able to come up with a financial system that works.
Three years later, we’ve paid off the car loan, we have an emergency fund that we’re comfortable with, and we’re paying down the my student loans. We’re also saving for retirement, and we bought a house earlier this year. These things were all made possible by being completely honest about our situation from the start.
Consolidate your finances
It doesn’t matter if one of you makes more money than the other, both of you should have a voice on the family budget. Income shouldn’t determine input. You’ve decided to share your life, and that means you should also share decisions about how your money is allocated.
Create a family budget together
If you’re able to build a perfect family budget on your first try, you’re definitely a superstar. In most cases, you’ll have to come up with a preliminary plan and then adjust it over time.
The most common difficulty comes in accurately estimating your expenses. Be realistic; if you love eating out once a week and set aside just $50 for the month, you’ll quickly go over budget. Build a spreadsheet, use Quicken, or sign up with Mint.com to get a better handle on your spending habits and base your budget on hard data.
You should also plan for unexpected expenses that aren’t quite emergencies, like minor car repairs. Play it safe, and add about 15% extra into your budget, and also remember to include quarterly and irregular bills. Some examples are:
Joint vs. separate accounts
It’s also important to decide whether you’ll have joint or separate accounts, or some combination thereof. Many couples I know combine their accounts completely, whereas others keep at least a portion of their money separate.
Our main accounts are joint, but we have two small individual accounts for things like lunch, gas, and gifts. We both have access to these accounts in an emergency, and we keep tabs on all of our accounts jointly.
Once you open your accounts, set up an online bill pay system that helps you stay on top of all your expenses. You should also consider making automatic transfers to a high interest savings account to build up that emergency fund.
We love the freedom associated with automating our bills and savings. It’s been a huge relief and has reduced the time needed to keep track of our finances.
Learn to live on one income (even if you have two)
Reaching your goals is usually not easy, and almost always takes some sacrifice. In some cases, these sacrifices might include radically simplifying your lifestyle for a few years in order to get closer to what you really want. Talk it over as a couple and see how far you’re willing to go to make your dreams come true.
One choice that we made early on to live on one income. We’re actually a two income family, but by living on one income, we can pay off our outstanding debts quicker and also save up money for specific goals. This strategy also relieves some stress because my income varies month-to-month. That way I can focus on building my business for the long-term instead of making decisions based purely on short term money.
We’ve achieved this by reducing our monthly expenses and choosing to live a bit more simply.
- Rent an affordable apartment. Our first apartment was definitely small, but it was only the two of us. The rent was extremely affordable, and we were across the street from the beach. Since that’s something we love, we saved some money on recreation as we could just go out and relax at the beach.
- Pay off our cars and start saving for replacements. We paid off my car loan a year earlier than planned, which has freed up a big chunk of our monthly cash flow. Our new goal is to build up our car replacement fund that we opened as a sub-savings account over at ING Direct.
Every family is different, and so are their finances. With that in mind, I’d love to hear your stories and thoughts. What has (and hasn’t) worked for you and your family? Did you run into any unforeseen obstacles as a couple? If so, how did you overcome them?