Check Your Romantic Ideas about Money at the Altar

On the surface my newly wedded friend and her husband appear very compatible. Both have similar personalities, temperaments, interests, and goals, both want two children, boy and a girl, and both prefer dogs to cats. Their fiscal compatibility, however, is another matter altogether. Their spending habits and styles of handling money and bills are radically different. He’s a spender who thinks nothing of dropping $1,000 on a virgin wool Armani suit, and she’s a saver who bristles at the idea of frivolous spending.

Is their nuptial train destined for derailment?

For them, and for millions of other couples, pooling finances after years of making their own money decisions and combining incomes can cause marital conflict.

Newlyweds often mistakenly think that money matters will just fall into place. Successfully merging finances requires communication, compromise, honesty and trust—the very ingredients that, in part, form a good partnership.

Whether you’re a newlywed, engaged to be married, or a seasoned couple still trying to reach a compromise after years of struggle to implement a money management system you both can work with, you’ll first want to get a few things out in the open, namely, your salaries, what you’ve saved, what you owe, what you own and what financial goals you share. Totaling your assets (all that you own) and liabilities (all that you owe) will give you a good idea of your current financial situation and will help you move toward your goals. Next, consider asking yourselves these questions.

How many accounts do we want? One, two or three?

Couples’ approaches to banking and bill paying are as different as their relationships.

They range from separate accounts where expenses are divvied up to joint checking, savings and credit card accounts. There are pros and cons for each accounting method.

A joint account for everything is handy, but requires a mutual ease with each other’s spending and banking habits. By pooling money, however, you’ll have a larger amount saved, and since financial institutions generally pay higher rates on higher balances, your money will work harder for you. A word of caution to women: merging everything into one account may inhibit your financial viability should something go awry in the marriage. Women are more likely to struggle financially after divorce or a spouse’s death, which is why it’s imperative that she establish credit in her own name and have some money of her own in the marriage.

Separate accounts for each spouse are good for independent partners because they provide a sense of freedom. However, while separate accounts may give partners spending autonomy, they’re not very practical when it comes to paying household expenses. Additionally, you will have to pay account fees such as ATM withdrawals on both accounts.

“Spooling” which is dividing plus pooling is one way to enjoy autonomy while merging resources. Establish a joint checking account for household expenses, a joint savings account for shared goals, and to ensure spending autonomy, separate accounts for each spouse.

Another option is to open a joint checking account and money market account. Put just enough in your checking account to qualify for a higher interest rate and such perks as free checking, and put the rest in a money market account, which earns a little more interest than a savings account.

Who is responsible for paying bills?
In most couples, one person is responsible for paying bills. While this is the most efficacious approach, the partner who isn’t handling the money matters shouldn’t be left in the dark. The couple should have regular discussions of money matters; this is particularly important in case something happens to the partner who does the banking.

How should we handle spending?
It’s both counterproductive and unhealthy for couples to debate every $10 purchase. On the other hand, setting no spending boundaries is dangerous: a spouse may wake up one morning to find a Porsche parked in the driveway. Working out a reasonable budget together — one that separates fixed expenses such as mortgage and car payments, utilities and household expenses from variable expenses like clothes and entertainment — encourages couples to establish spending priorities.

In the course of developing a budget, couples should also discuss how they’d deal with an unexpected shortfall such as job loss, injury, or a major auto repair.

How can we pay off our debt?
Creating a budget will help you figure out how to pay off credit card debt and student loans in an agreed-upon time frame. To repay your debt in a hurry, consider curbing your discretionary spending on clothes and entertainment and applying the money toward paying off debt. Or, if one spouse gets a raise, put the extra money earned toward the debt. Every dollar you pay in interest means one less dollar you can put toward your goals.
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