Four words no one wants to hear soon after his or her wedding day: "We made a mistake."
I'm talking about financial choices, not your choice of spouse. Unfortunately, many newlyweds set themselves up for failure soon after they say "I do." If you bring bad money habits to your marriage or fail to come up with a plan to merge your financial lives, you could potentially doom your relationship to money trouble and endless arguments. That's not exactly "happily ever after."
On the other hand, nothing says "I love you" like the desire to start your marriage on the right financial foot (roses, schmoses). Here are six common pitfalls that trip up new couples. Steer clear of these, and you'll decrease the money tension and increase the harmony in your new life together.
1. Keeping money secrets
Money is one of the most common sources of arguments in a marriage, so it's best to simply avoid the subject altogether, right?Wrong! Some of the most heated arguments stem from failing to discuss financial backgrounds, expectations and attitudes from the start. (See "Financial infidelity is rampant.") Communication is key to the survival of any relationship, and baring your financial soul to your partner is no exception.
Ideally, you want to have this conversation before walking down the aisle. After all, there are good marital surprises ("I didn't tell you I'm a gourmet chef?") and bad surprises ("I didn't tell you I have $20,000 in credit card debt?"). Full disclosure is in order here, and that includes your shoe fetish or gambling habit.
2. Not having a budget
Now that you're settling into your new life together, it's time to discuss the B-word. No, not "baby" -- I mean "budgeting." You're merging two spending habits and two saving habits into one household. So even if you had a budget when you were single (pat on the back), you've got to make a new one with your husband or wife to include his or her income, debts and monthly expenses. That will help to ensure you have enough money left over for that other B-word: "Bahamas."Your first step is to write down your fixed expenses, such as rent, car payments, insurance premiums and student-loan payments. (See "Your 5-minute guide to budgeting.") You should also make a habit of contributing to your savings or investments as if you were paying a fixed bill each month. Then write down your flexible expenses, such as utility and phone bills, transportation costs, groceries, trips to the ATM and miscellaneous purchases. Track your spending for a couple of months to see where your money really goes, then find the spending leaks and plug them. Building a budget is a great way to set common spending and saving goals, identify problems and work together to fix them.
3. Giving one person the financial reins
The honeymoon's over, and it's time to get down to the nitty-gritty of the daily finances. Who will physically pay the bills, monitor the investments and crunch the tax numbers? One person may be more inclined toward these tasks, or you may decide to split the responsibility or trade off each month.There's nothing wrong with letting one person take over the family finances, as long as both partners are OK with that decision. But that doesn't mean the other partner should be excluded. It's important for each person not only to feel involved in the big financial decisions but also to have an understanding of the day-to-day finances. Each of you needs to know both partners' account information, passwords and bill due dates in case anything were to happen to the other person. (See "Don't take your passwords to the grave.")
And no matter how you divide the responsibility, it's a good idea to have a regular "money date" each month or so to make sure you're both in the loop. You should go over your budget, review your savings progress and discuss upcoming expenses. How's that for keeping the romance alive?
Also, if you choose to combine your finances after you wed, make sure that major purchases and savings accounts are held in both of your names so that each of you has equal access and can maintain a credit rating. You don't want to find out in the event of a divorce that your name wasn't actually on the car title or savings accounts. Considering keeping separate accounts? Read "New his-and-her banking."
4. Dragging debt down the aisle
What's his is hers, and what's hers is his. Whether you decide to combine your finances or maintain separate accounts, if one of you brought debt into the marriage, it becomes a problem for both of you. You'll need to work together on a plan to pay it off. However, you should never officially commingle your debt. Doing so could hurt the credit scores of the other partner and make it difficult for one or both of you to get credit later. Keep existing credit card and loan accounts in the original holder's name.If you can help it, it's best to avoid beginning your marriage in the red. Many newlyweds make the mistake of going too far into debt to pull off the wedding of their dreams, go on an exotic honeymoon or buy new furniture and appliances. Before you dig too deep a hole, you should sit down together to determine which expenses are necessary and which are worth a splurge -- and come up with a plan to pay for it all before you spend it.
5. Sweating the small stuff
Marriage is about compromises and simply letting some things slide. So she squeezes the toothpaste tube from the middle, and he doesn't put his socks in the hamper. Big deal. You'll both soon learn to pick your battles and save your energy for issues that really matter.That goes for picking your money battles, too. I remember my first financial argument with my husband. We had been married two weeks, and we were doing our grocery shopping together. He wanted to buy the brand-name chocolate chips, and I felt strongly that we should save 75 cents and go with the off-brand chips. After a lengthy and heated exchange, we divided up the rest of the shopping list so we wouldn't have to look at each other for the rest of our outing. Then we drove home in a huff. Lesson learned: Never go grocery shopping when you're hungry, tired and irritable. Oh, wait. Financial lesson learned: Don't sweat the small stuff. Was the argument really worth 75 cents? No way.
Of course, if all the little stuff is adding up to a big drain on your finances and causing you to live beyond your means, bring it up at your next money date and work together to find ways you can both cut back. (Ah, there's that compromise idea again.)
But take note: It's important that you build a little "mad money" into your budget for each person to spend at his or her own discretion. (Can you imagine asking your spouse for permission every time you wanted to buy a cappuccino and a muffin or grab a drink with some friends after work?) But as far as the big stuff goes, make it a rule to consult each other on major purchases. You don't want to come home and unexpectedly find a new Mercedes in the driveway -- and the bill that goes with it.
By the way, I now go grocery shopping alone. We decided as a couple it's what's best for our marriage.
6. Failing to plan for an emergency
No one likes to think about bad things happening, but in all the excitement of your engagement, planning your wedding and moving in together, it's easy to overlook this important aspect of financial planning. One of the best gifts you and your spouse can give each other is financial security and protection from life's storms.First, assess your emergency stash of cash. Every couple should have enough money available to cover from three to six months' worth of living expenses. You never know when the car will break down, one of you will lose a job or you'll have an unexpected medical bill. Need ideas? See MP Dunleavey's column "Why I'm saving up $15,000 this year." If that figure seems out of reach, start here: "Why you need $500 in the bank."
Then you need to make sure you have adequate insurance coverage, including health, auto, renters or homeowners insurance and possibly life insurance. Learn more about the types of insurance everyone should have and how to get the appropriate coverage.
Did you get married without a prenuptial agreement? It's not too late to protect the financial interests each partner brought to the marriage. Consider drafting a post-nup with your lawyers. Plus, make sure you each have written a will to divide your assets in the event of your death or your spouse's.