Before You Get Married – How to Have the Money Talk

by Neal Frankle, CFP ®

Before you get married, talk about money. Forget the flowers and think finances. According to Jeffrey Dew, assistant professor at Utah State University, you are 30% more likely to end up with a divorce if you and your spouse argue about money once a week or more. The question is, how do you start “the talk”?

1. Dream and Discuss

The first step is to make sure you and your honey are on the same page. The only way to know if you are is if you talk about your financial goals and objectives. This is crucial because your ultimate goals are what usually direct your spending and investment decisions. You may not be aware of it, but your financial dreams are ultimately the operating system your financial behavior runs on.

Encourage each other to openly discuss financial dreams without judging each other.

2. Prioritize

It’s unlikely that both you and your partner are going to be on the same page completely. That’s why a frank and open conversation about priorities is next on your “to do” list. It’s fine to have different goals and objectives. It’s unavoidable to have different dreams. But it’s crucial that you compromise with each other and be able to prioritize. If you are unable to do this it will be very difficult to get along financially. If that’s the case, you are better off knowing now than to figure it out a few years down the road.

I suggest you create a matrix to rank each priority on a sliding scale of 1 to 5. Rank items “1″ if they are not that important and “5″ if they are very important. And don’t rank a priority just on overall importance either. Assign a number based on how achievable it is, how easy it will be to attain, how available the resources are, if you understand what you need to do, etc.

Remember that this doesn’t have to be “all or nothing.” Most couples work on a number of financial goals at the same time. For example, let’s say you want to build up an emergency fund and your honey wants to save up for a trip to Madrid. Based on how much you to save to achieve these goals, you might come up with a plan that calls for you to contribute $200 a month to the emergency fund and $200 a month to the Madrid fund. There is nothing wrong with that.

3. Action Plan

Once you’ve come to terms with your spouse on what your joint priorities are, talk about how you’re going to achieve your goals. What actions do you each need to take? When? How much will you put in in order to make this dream come true? How much will your partner add?

Alternatively, you might decide to keep a certain amount of money separate and allow each of you to make your own priorities and build funds to achieve those priorities by themselves. There is nothing wrong with this course of action – as long as you both agree to it.

4. Going Off the Grid

Everyone needs freedom. There is nothing more stifling than for someone to have no financial power. The solution is to have each set up a discretionary account and have compete discretion over how that money is going to be spent. The other party can’t even look at it. This could go a long way toward keeping peace in the family. It may not be the best use of financial resources, but it’s a heck of a lot cheaper than divorce.

Along with this, decide how much is the maximum that any one person can spend without letting the other person know.

5. Budgeting

Without tracking your spending, it’s going to be very difficult do any of the steps above. (I recommend you read “You Need A Budget Review” for an idea about how these programs work.) Tracking your spending puts all the steps I outlined above in perspective. For example, if you spend $75,000 a year total, it might be OK to have $2,000 a year in a discretionary account. If you spend $25,000, it might not be. Budget tracking is the number one thing you can do to safeguard your relationship – hands down. It’s the only way to know if you can afford something or not and whether the expense fits in with your overall financial plan.

BONUS POINT – Run a Credit Check

If you want to keep everyone honest, agree to run each other’s credit report and score once a year and discuss it. This is crucial if your spouse has a history of hiding his spending or use of credit. If there is a problem with the score, you can discuss why. Fortunately, you can get a free credit score with no credit card and without signing up for a “free trial.”

What other issues should be discussed in “the talk” before marriage? What was your experience? Did you have “the talk”? Did it help?

 

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{ 2 comments… read them below or add one }

20's Finances October 25, 2011 at 6:09 AM

I think talking about money with your partner is extremely important. You want to make sure that you are constantly on the same page. My wife and I go over our budget each month to find out where we went over our budget (and stayed within it too).

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Neal Frankle October 25, 2011 at 6:21 AM

20′s…excellent job sir. That’s one of the secrets of my marriage as well. Nice job.

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