My finances were working out great. I had everything set up the way I wanted. Money was being saved for retirement. I had monthly transfers for some mutual funds I was investing in and I had the goals I was saving for written down and memorized. Then I met a woman. We eventually moved in together and got married. The chore of combining finances happened.
On the surface it might not seem like a big deal to combine finances, but it can be much more complicated that you think. You both have your own goals and dreams and thoughts with how to spend and save. Luckily through my experience, I can share some tips. In this post, I will walk you through 5 steps to handling finances when you are a new couple.
#1. Know Where You Stand
Before you get involved with anything, you have to know where you stand. This means being open and honest with each other about your accounts. You both should collect recent statements for all of your accounts and then list them together.
This list should include checking and savings accounts, investment accounts (both retirement and non-retirement), and student loans, auto loans, mortgages and credit card debt. Now, I realize that it might be embarrassing to admit to your loved one that you have $10,000 in credit card debt. But you have to if you want the relationship to work long term.
If you start out with a lie, who knows where it will lead in the future. And, your loved one will find out eventually. Either when the statement comes in the mail or when you are questioned where a missing $250 is, the truth will come out. When the truth comes out, bad things will happen because you were not open and honest at the start. Don’t make this mistake. Be open and honest from the start and work together as a team.
#2. Determine Your Goals
Once you have all of your accounts outlined, it is time to look at the goals you have. The goals you set should be specific in terms of time frame and dollar amount. The more specific you are with your goals, the easier the entire process of combing your finances will be.
One pitfall some couples make when it comes to goals is to only focus on joint goals and ignore individual goals. It is important to still have your personal goals in addition to your joint goals. Remember to not lose your own identity when it comes to being a couple.
#3. Create A List of Questions and Concerns
After looking over all of your accounts and reviewing your goals, you will most likely have some questions. Maybe you want to know why your partner is investing as he is. Or maybe you want to know what the credit card debt is from.
Take the time to think about things and write down your questions. After you have some time to compile your list of questions, it is time to get together again and review them so you get the answers you need.
#4. Come To An Agreement
When it was just you, you invested and saved as you saw fit. But your spouse may have other ideas or a different risk tolerance. The two of you need to come to an agreement on how you will proceed as a couple.
For example, I had an emergency fund that would cover me for 6 months if I lost my job. The rest of my money I invested. But my girlfriend at the time (now my wife) had close to 2 years cash in her emergency fund. It was because she didn’t grow up with money and that large balance gave her a sense of safety. While I would have liked to have some of that money invested, I realized that it gave her comfort and let her sleep at night. As a result, we left the large balance in the emergency fund and focused on investing future money.
#5. Review Progress As A Team
It’s natural for the person more interested in finances to take the lead when monitoring the progress but it is extremely important for both people to see how their finances are holding up. Make sure that if one person is handling the finances, you have a monthly meeting to keep the other person up to speed on what is happening and why it is happening.
In the event one spouse does not have an interest in knowing, you still have to keep them up to date. Figure out what information is important for them to know and present that to them in a way they will want to sit down for 10 minutes to review it.
It’s all too easy to keep them in the dark unintentionally, but this can and will lead to bad things in the future. The person who is not kept up to date will one day have questions and get upset when goals aren’t being reached. Keeping them updated throughout the process will limit this.
In the end, you have to work as a team when it comes to your finances. Be open and honest from the start, set joint and individual goals and make sure that both of you are monitoring the progress or lack thereof. The more you work as a team, the happier you both will be and the better your finances will be as well.