For most people, the idea of getting married is about settling down with their soulmate and planning a family. However, a key aspect to consider is how you will merge your finances most effectively. This aspect focuses on aligning your financial values and devising a system that works for your unique situation.
Experts agree that this involves working as a team and requires honesty and clear communication. This post takes a look at these aspects and highlights a few tips that will help you manage your finances as a couple.
Communicate Openly and Honestly
The most crucial tip to keep in mind is for both parties to be open and honest about individual and combined financial aspects. This involves being transparent about income, debt, spending habits, credit scores, and any existing assets or financial portfolios.
Here, you want to keep in mind that financial secrecy can harm trust and hurt the relationship. In the interest of getting a clear view of the whole picture, be sure to discuss aspects such as your view on money, as well as spending and saving behaviours.
Keep in mind that a huge part of the communication process involves compromise. This is especially the case when you and your partner have different viewpoints and approaches to money (saver vs spender approach). It’s also a good idea to set time aside to review budgets, goals, and discuss changes in incomes and expenses. Your financial planning should be flexible enough to amend and tweak as needed.
Devise a Functional Joint Financial System
Once you and your partner have a clearer understanding of the dynamic financial situation, the next step is to create a joint financial system. This involves comparing the benefits of fully separate accounts versus fully joint accounts. Alternative hybrid options of “ours, yours, and mine” are an increasingly popular choice.
These involve a joint account being used to cover shared bills, while separate accounts allow for individual spending, such as for special occasions or personal items. In this process, the aim is to develop a combined budget based on spending history and financial goals.
Some experts recommend following the 50/30/20 rule, which involves a breakdown of the following:
- 50% for necessities
- 30% for savings
- 20% for debt repayments
Create an Emergency Fund
Another crucial aspect to focus on is creating an emergency fund for unplanned contingencies such as medical emergencies and job loss. A well-planned fund not only provides a financial cushion but also gives you and your partner peace of mind that you’ll be able to deal with the financial aspect of whatever comes your way.
Focus on Essentials Such as Renters Insurance
Your list of priorities should also include investing in various types of insurance. Many renters don’t realize that renters insurance for married couples protects their shared stuff from a host of potential eventualities. Renters insurance for married couples includes standard coverage for the following:
- Furniture
- Electronics
- Clothing
Couples can also upgrade this insurance to provide enhanced protection for high-value items such as engagement and wedding rings, jewellery, fine art, and musical instruments. In many instances, an upgraded cover offers additional benefits such as deductible-free claims and coverage for accidental loss.
Additionally, insurers such as Lemonade also offer bundling discounts for individuals who bundle renters insurance with other policies, such as pet, car, or even term life insurance. Since many rental agreements require valid renters’ insurance, it’s well worth investing in a comprehensive policy.
Enlist the Help of Professionals
Many couples will be delighted to learn that they don’t have to deal with all the complicated financial matters on their own. More complex issues, such as estate planning, investing, and tax optimization, may benefit from you using a financial advisor or insurance broker. These experts will not only share tailored guidance but can also assist with advice for the best policies for your unique situation.
Simplify by Automation
A significant way to ensure that bills and savings are done on time, without fail, is to automate everything. When automatic transfers are in place, there’s little chance of “forgetting” to pay an important bill or policy. You’re also less likely to be tempted to use the money for something else.
Avoiding missed payments is crucial for maintaining your credit record. Remember to include an automatic transfer option to your savings account or emergency fund to keep these current and consistent. Establish whether these transfers go from your personal or joint accounts and ensure that both parties agree with the way the split is done.
