It doesn’t matter whether you’ve been together for 3 years or 30 years – money can be an emotional and stressful topic in a relationship. Add to that the stress of a recent engagement and wedding planning, and it’s easy to understand how handling (or merging) finances as you prepare for marriage can be quite difficult. In this three-part series, we’ll explore the various dimensions you’ll want to consider as you make decisions about structuring your finances approaching/during marriage.
Understanding financial habits
The most important thing to keep in mind as you approach any conversation with your partner regarding money is that it is very common for financial habits to differ widely between individuals. In fact, in a survey from SunTrust Bank, 47% of respondents said they and their partner do not have the same spending habits. And among those with stress in their relationship, 35% said finances are the most common cause of that stress.
Financial habits are developed over a long period of time, and are often informed by what we’ve learned from our parents – sometimes for better or worse. And as a result, that means that financial habits can feel daunting to change or adjust when you’re now trying to make a decision as a couple.
Because financial discussions can be sensitive and stressful, it’s absolutely essential to approach financial conversations with openness, transparency, and understanding. After all, you both want the same thing, and getting it all out on the table is an important first step.
When is the right time to start?
So when exactly is the right time to get it all out there? Well that’s up to you. Some couples prefer to only share a limited amount of financial information until marriage/engagement, while others may find that it makes sense to share information earlier on once they’re sharing a budget (i.e. if you live together).
Couples often approach financial discussions gradually over time. For example, you may decide to openly discuss income levels, how much you each contribute to joint activities, etc. when dating or deciding to move in together. Then after getting engaged, you may start discussions about how or whether you want to merge your finances into joint accounts upon marriage. And of course, once married, you’ll inevitably have ongoing conversations about budgeting, childcare, appropriate housing costs, etc.
Don’t feel like you have to tackle all of these topics at once. You’re building a lasting relationship with your partner, and will have plenty of time to tick all the topics off your list.
Don't make assumptions
As an investment advisor, I can attest to the fact that it’s important not to make too many assumptions about anyone’s financial situation. There are a number of factors that can affect someone’s current/future financial standing, many of which aren’t transparent or immediately obvious.
INCOME -- Often people make assumptions about their partner’s income based on societal stereotypes about that particular field. (For example, assuming doctors, lawyers, or software engineers must make a certain amount because they’re traditionally viewed as high-paying professions.) But in reality, not all companies pay the same level of income for the same role (especially across different locations), and compensation structure can differ considerably.
SPENDING -- Habits can vary widely, and are not always transparent. It may be the case that someone who makes a large income could have relatively little in the way of savings because they spend freely. And in contrast, it could well be the case that someone with a lower income has amassed a great deal of savings because they keep to a strict budget. Don’t assume that knowing someone’s income tells you all you need to know about that person’s financial situation.
DEBT -- Student loans? Credit card debt? Car payments? All of these can greatly affect someone’s financial profile, and their credit score. It’s worthwhile to discuss your various outstanding debts to make sure you’re not blindsided later on.
OTHER SOURCES OF MONEY – It’s also important to remember that there are often external factors that affect someone’s financial situation outside of their paycheck, spending habits, and debt. One common example of this is family inheritance.
The reality is most people will eventually receive an inheritance of some sort. People often think of inheritances being relevant only to people who come from very wealthy families, but in fact anyone who has successfully navigated retirement (i.e. not run out of money while still alive) will leave an inheritance to loved ones.
Stay focused on the bigger picture
Remember that in a healthy relationship, it’s not about seeing who is ahead. It’s about understanding your joint financial commitments, and making good decisions together to achieve your goals over time.
Want help navigating the process of merging finances? Contact Paceline for a complimentary portfolio review. And stay tuned for part 2 in this series where we’ll discuss the considerations for merging your finances.
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This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.