Recently Engaged? The Step-by-Step Guide to Financial Planning Before MarriageBuilding Wealth
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So, you just got engaged, and you are already super excited about the married life awaiting you with the love of your life, and you are beyond yourself with joy.
Marriage is a beautiful institution, and it can be a fairy tale come true or a complete disaster that ends in an ugly way. It can make you grow and discover more about yourself or even make you hate aspects of your life entirely.
The difference between the kind of life you will get depends on how prepared both of you are in making this lifetime commitment.
Even as you are getting all excited about planning your wedding to make it perfect, it is essential that you also think about the future since that’s the direction you are going.
One of the most significant problems that causes a lot of discord and breakups of married couples is their finances. That is why it is best to deal with this matter ahead of time.
It is vital that you are both in agreement about your finances and what you are going to do so that your future is secure as far as money is concerned.
Many people would want to start a family after marriage and of course that requires money. That is why you should have a sit-down and agree about how you will attain financial security.
This article gives you a step by step guide on how to plan your finances before finally getting married. Even though you may be wrapped up in planning the wedding, you need to consider financial planning before marriage.
Start with a Full Disclosure of Your Finances
If you want to build a healthy marriage, secrets about your finances won’t do, especially if you’re going to work together on that.
That is why one of the first things you have to do is to give full disclosure of your finances — your income, credit score, debts and any other details that are important to that.
Talk about any bad financial decisions that you may have made that may affect you in the future. Evaluate everything with your partner, so you have a good idea of where you stand.
If you have something such as a criminal record, or if you have been in trouble with the law, ensure that you state that since it could affect you once you are already married.
Put everything on the table and evaluate it all so that it is clear where you both stand. Do not hide anything since this is the one mistake that people do, which may have adverse effects later.
Create a Plan to Clear Outstanding Debts
If either of you has any debts that could come in your way in the future, start with working out a plan to clear it.
Primarily you are looking for debts that are fast and easy to clear with the resources that you have. Remember not to spend all your money on that since this could also put you in a tough situation.
However, it is best to clear off what can be cleared off then create a strategy that will enable you to clear off the rest; things that you may want a plan to include mortgage, education, and car loans.
That will go a long way to helping you start life on a clean slate such that you will make any future financial decisions together so you can have a good handle on what you are doing.
Come Up With a Budgeting System
As a single person, you were used to working alone so that means you may or may not have had a budget or a system to ensure that you handle everything.
That may have worked since you only had to think about your personal needs but after marriage, you will be a family and financial accountability is very important. Start tracking your finances with Personal Capital for better planning.
It is for that reason that you have to come up with a budgeting system that enables you to discuss how much money will go into what. It will also ensure that you handle any bills on time and that there is money to do that.
Talk about who will be keeping records of your bills and spending. For the best outcome, you should take turns in doing that so that both of you are involved in the process.
When creating a budget, you need to establish all your expenses including debts and who will pay them. Factor in all your sources of income when doing this so that everything is clear.
Remember that you have to save so also agree on how much money you will save each month. If you want to save for a particular thing such as buying a new car, ensure that it is clear what the money is for.
Create a Budget for the Wedding
Many people make the mistake of not sitting down to discuss your wedding budget. This is a mistake, as you should include financial planning before marriage on your list of top priorities.
If your families take care of the wedding budget then no problem.
However, in most cases, you will have to contribute some amount towards the budget, and it is vital that you talk about it. Remember that you should not go overboard with it lest you remain broke after the lavish wedding.
Avoid taking a loan to finance your wedding since already you are burdening yourself so early into the marriage. Agree on what is necessary and create your dream wedding without plunging yourselves into a financial crisis.
If your finances are not looking that great, you could settle for something simple, and then do the big lavish wedding later on once you have a handle on things.
Make a Budget for Your Honeymoon
You may include this in your wedding budget, but it is not always the case that you will have your honeymoon after the wedding.
Some circumstances may force you to push your romantic vacation to a different time when both of you are available or in a better financial position.
Even if you have the honeymoon immediately after the wedding, you need a comprehensive budget so that you don’t overdo it. Remember that you have a life after the festivities and you should save up for that.
Agree on your destination and have a clear idea of how much you will spend on that. Even if it is meant to be a surprise have it in mind that you should not overdo it with the spending.
There is also the option of doing something simple and save up for an even bigger trip sometime later. Finances need to go hand in hand with timing otherwise everything will fall apart.
Set Your Financial Goals
If you have grown through the relationship up to the point that you are getting married, then it is a must that you have discussed your goals.
Create both short and long-term financial goals and set a time limit for that. That enables you to be on the same page such that you know what part you have to play to achieve them.
Your short-term goals can be clearing off some of your debts, saving up for further studies, and maybe saving up to start a family. Long-term goals can be things such as buying a bigger home, or college for your children.
Your goals all depend on you and how much growth you see in your future. You can prioritize in whichever ways as long as both of you agree to work towards that.
Luckily, there are ways to build your credit together as a family using apps such as Credit Sesame.
When discussing your goals, also factor in possible negatives that could affect you. For example, if one of you is planning to quit their job to explore something different, you have to consider that.
Think about the impact your decisions will have on your vision for your marriage. That is why you need to be very open to one another and discuss your lives and what your feelings are about where you are.
Talk About Insurance
It is difficult to live without insurance coverage, and it is an important matter to discuss. Discuss the insurance needs that you have and how you will meet them.
Things such as car insurance and health insurance are absolutely essential, so you need to discuss them. Talk about the providers that both of you have dealt with and agree on whether you should switch to one provider or have different ones.
It is essential to think about your future, so you have to plan in case something happens that leads to you being deceased, you need to know that your family will be fine.
Open up about life or disability insurance, and if either of you is open to getting it in case, some unfortunate even happens.
Check on what different providers offer as well as costs and factor that when you are budgeting. That will ensure that all your premiums are paid on time so that you may continue to protect your family.
If you are homeowners, you also need to decide on your homeowner’s insurance coverage so that you and your family are well protected.
Will You Have Children or Not?
It is an essential discussion to have so that you may factor it in your planning. Do you want children or not?
That is a conversation that must have sprung up in the course of your relationship so you must know the answer. However, it is best to revisit it just in case one of you has had a change of heart.
If you are going to have kids, talk about approximately when that is so that if you don’t want them immediately, you can also think about family planning until you are ready.
Right from conception children take up a lot of money, so you have to be ready to meet all of these needs. That is another reason why you should give serious consideration to your health plan.
Think About a Prenuptial Agreement
Talking about a prenuptial agreement is a sensitive topic for many, but it is one that you must have if one of the spouse substantial assets or even a previous family.
It helps in ensuring that all the rights and duties of the spouse are clear. It also helps in defining what happens in the case of death, divorce or separation.
Things that are in a prenuptial agreement include such things as the assets, the estate, contributions of the spouse as well as what happens after divorce.
A prenuptial agreement addresses such things as how much of the deceased estate will the other spouse get. It also clarifies about alimony and how it will be made.
It will assist you in having everything in the clear so that no one feels left out and to avoid those people that get into marriage for all the wrong reasons.
Agree on How Finances Will Be Managed
One of the most popular questions that engaged couples ask is whether or not to have a joint account. It always seems like a great way of ensuring that everything is transparent.
However, just like in everything else there are pros and cons to making that decision, and it is crucial for you to evaluate them together.
Decide whether or not that is a viable option for both of you and why and if you cannot agree you can continue keeping your accounts and designate specific duties to one another.
On the other hand, you could opt to calculate how much each person should contribute towards the bills and give it to one person to pay them. Make sure you agree on what works for both of you so that there are no issues.
It is a good idea just like you have a date night; you should have finances date nights where you check on your progress and make any necessary changes to your plans.
Remember Your Personal Financial Goals
Sure, marriage is all about partnership and working together, but it is important to remember that you are an individual. That is why you need to have your own individual goals to attain.
Even if you have a joint account come up with a way that each of you can still come up with an individual goal and work towards achieving it.
However, even while you have your plans and goals remember to involve your spouse so that he or she can have an idea of what you are up to and also give a helping hand.
Adjust Your Tax Withholding
You will have to file your joint tax return after you get married, so it is best not to have any surprises at that point.
That is why you have to change your tax withholding to the recommended amount based on both your earnings. If your returns are simple without any complications, all you need to do is fill in the W-4 forms at your place of work.
However, there may be complications, and that is why it is a good idea to consult an accountant for more guidance. It is vital that you do this as early as possible so that by the time you are officially walking the aisle everything will be clear.
It allows you to rest easy knowing that you are starting a new life together without any complexities.
Identify Each Other’s Spending Habits
When you have similar spending habits, it can be a problem, but it is the same case when you have different spending habits as well.
This is another part that requires a lot of honesty and considering that you know each other quite well, it should be an easy conversation to have.
If one of you is a spender while the other prefers to save, you have to come to an agreement where the both of you are comfortable. Spending is not a bad thing as long as it is controlled, and you do it with your financial vision in mind.
Therefore, have this conversation early enough to enable you to reach your goals together.
In conclusion, it is essential to have a partnership with open communication not only when finances are concerned but every aspect of your life. Financial planning before marriage is a must.
That ensures that both of you are on the same path and if not, at least you know where the problem is. When doing your financial planning, it is a good idea to talk to a professional.
He or she will provide life-changing information that will come in handy as you work on your finances. Take it a day at a time so that you address pretty much all aspects as far as money is concerned.
What do you consider essential financial decisions to make before marriage? Share your thoughts in a comment below!
Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.