From the outside, the concept of combining your funds as a newlywed couple seems all warm and fuzzy. While there are some exciting elements to the fact that you're becoming one family, the process is often fraught with its own share of frustrations, challenges, and arguments. After all, money is the most common reasons married couples argue, ahead of household chores, intimacy, snoring and what's for dinner, according to a survey by Money Magazine.
"Finances are a serious topic that both people entering a new marriage need to be in agreement about," says Emily Stroud, MBA, CFA, financial advisor, owner of Stroud Financial Management. That's why she advises that conversations about money matters happen before couples say, "I do" rather than after they return from their honeymoon in paradise.
That's the route that April Emery and her husband took, since they had a long engagement period of a year-and-a-half. "Early on, we started to think in the mindset that both of our incomes are ours together and even consulted one another on big purchases and made sure we saved enough money for when we actually got married," she says. "It was a struggle to keep our finances in order when we had separate bank accounts, since we never really knew how much the other one had." The couple spent some time discussing which bank would be the best for their joint account and had their share of arguments over the matter, but once they agreed to combine their money, the process became easier. "We could clearly see how much we had, how much we both had in student loans and how much we could spend for groceries and wants," Emery says.
Katie Alvarez and her husband also handled the merging of their assets before they got married, even signing a prenup. "When we got married, he owned a home, and I was planning to purchase a rental property. He also had way more debt than I did and I had plans to start a business," she says. Even so, the couple is still struggling to adjust to their quasi-merged finances nearly a year out from their wedding day. "We didn't live together before we got married, so having to merge our finances, as well as our lifestyle, is still new to us."
Oftentimes couples don't think to merge their finances unless they're in a situation where doing so will make their lives easier. This was the case for Taryn Hennebicque and her husband, who purchased their first home together before they walked down the aisle. The two opened a joint bank account so that each could easily contribute to their monthly mortgage payments. "It was exciting meeting with the bank to set up our account and we celebrated by going to brunch. It felt like a real milestone in our relationship!" she says. After the two were married, however, the process became more complicated and less fun. "Between filing paperwork, mandatory in-person meetings at each bank and waiting for our marriage license to be mailed back to us from each institution because I legally changed my name, I didn't realize it would take so much time to continue merging our finances!"
Sometimes merging accounts isn't the answer. This was the case for co-founder of Honeyfi, Sam Schultz, and his wife. "Setting things up wasn't particularly hard—we just opened a joint account and moved our money into it—but with totally merged finances, we could suddenly see everything the other person spent," he explains. "My wife could see all of my online purchases and I could see her love for dining out!" Of course, that led to tension and fights and eventually the couple found a better system that worked for them. "We realized that we wanted transparency but had to balance that with independence and, while we wanted to work on money as a team, we also needed some individual accountability." For the Schultz's, that meant moving to an allowance system, where each spouse received a certain amount of spending money each month. "The allowance system isn't perfect, but since making the switch, we feel much more aligned on money."
While the process is different for everyone, there are some fundamental steps that can help you get your finances in order for when you do decide to merge your money. First, discuss a new monthly budget based on your combined incomes and spending. Sitting down and having an actual discussion about how you will handle your money once you're married and setting a realistic budget is the best way to begin the process, according to Stroud. "After you've gained a better understanding of how much discretionary income you will have each month, you will be ready to start discussing your financial goals as a married couple."
Next, you'll want to talk about the money or property that you've accumulated as a single person. What assets, if any, do you already have? "This includes checking and savings accounts, brokerage accounts, retirement accounts, real estate and even a business," explains Stroud. "Have you started saving for retirement? If you have not started saving, don't be dismayed." She suggests couples find out whether or not either partner has the opportunity to save in an employer-sponsored 401k plan. "This is the best way to systematically save for retirement every month and reduce your federal income taxes," she says.
After you've figured out what money you're both bringing to the table, it's time to come clean about any financial secrets. If either one of you has student loans or credit card debt, this is something you'll need to discuss as soon as possible, and definitely before you walk down the aisle. You also need to talk about your credit scores. "Both of these issues will dramatically affect your future ability to purchase a home or other large purchase, such as a car, after you are married," explains Stroud. "If you do have debt, do not be ashamed. Take responsibility for it and come up with a plan together to pay it off."
Last, but not least, figure out what your cash reserve looks like—or if you even have one at all. "If you don't have any money set aside for unforeseen expenses, you can get into trouble financially very quickly," says Stroud. "Many people often ask me if they should use their discretionary income to pay off debt or to create a cash reserve. My answer is saving money and paying off debt are both equally important." That's why she recommends allocating a certain percentage of your monthly discretionary income to savings goals and a certain percentage to debt repayment. "Once you are free from debt, you will be able to save even more! Saving money is the pathway to financial freedom."