Once the wedding bells have stopped ringing and the honeymoon is over, it's time to focus on the realities of married life. Sharing a home and combining finances can be a difficult task for many newlyweds. Fortunately, with some planning and good communication skills, it's possible to overcome these problems. While it would be helpful to have an accounting degree, it isn’t necessary when creating a budget. You just need a nudge in the right direction.
According to mint.com, over 90 percent of married couples say they argue about budget management. Why is this? Imagine pooling all of your finances into the same account right after the wedding and all of a sudden $1,000 is taken out for a shiny new set of golf clubs or an uncomfortable but super-modern couch. That money came out of your latest paycheck, so if your significant other didn’t mention the purchase, a problem could be on the horizon. Lucky for you, if you prepare a budget and dedicate yourselves to following it, these types of situations will be few and far between.
Deciding How to Combine Finances
The first financial challenge you will come across as a married couple is deciding how income will be combined. Many couples each have their own bank accounts and expenses before they were married. Now it's up to you to decide whether to maintain separate finances or combine your resources and expenses. Here are a few common methods:
A single bank account. This is the simplest method of managing money. In this type of arrangement, both partners pool their incomes together into a single joint account, and all purchases are made from that money.
Separate bank accounts. This is the opposite method from the one listed above. Under this method, you would each have your own bank account and either pay individual bills or ask your spouse for money each month to pay their share of the bills.
A hybrid approach. Some people choose to operate a household with three bank accounts: one joint account for household expenses and individual spending accounts for each partner.
Once you've decided which method to use, you'll need to create a budget. Set aside some time to create one based on the below tips.
Devise a realistic family budget. When you sit down together, make sure you have all of your personal financial information in front of you. This includes past bank statements, money in savings, debts and income. This way you can both see in black and white what you spend your money on.
If possible, create a spreadsheet and list the bills that tend to not fluctuate. This includes your rent or mortgage payments, insurance, utilities, car payments and any other loans. Then compile a list of outgoing cash that is typically spent each month. Don’t forget to add your grocery bills, eating out, going to the movies and anything else that is considered a hobby or extra expense.
By putting this document together, you can see exactly where your money is going. If you do see that there is more money going out than coming in, find out where you can make some cuts.
Prioritize purchases. After the bills are paid, see where the rest of your money is going. If something is going to be spent with shared money, make sure that both parties are fine with the purchase. Be sure to discuss any major purchases and be prepared to listen to the other person's point-of-view.
Streamline bills. While organizing your budget, you may notice that there is some overlap. A household needs only one electricity provider or cable account, for example. Others will require some negotiation. Decide whose Netflix account you'll use, what magazine subscriptions you'll keep or which phone provider to use. Many services offer discounts for bundling, and you will save money by adding the other person to your cell phone contract or auto insurance policy.
Discuss debt. If your spouse enters the marriage with substantial personal debt, you will need to discuss how those debts should be paid. Unless you choose to refinance a debt together, your spouse's consumer debt is not your legal responsibility. But you may still choose to help pay it if you wish to work toward a debt-free future together.
Plan for the future. After all incoming and outgoing money is allotted for, you still have one more bucket that needs to be filled. Saving for the future might not seem important now, but it is never too early to plan for retirement, a house, children or unforeseen problems.
According to Julia Layton of money.howstuffworks.com, it is wise to have a few different savings accounts. An emergency fund with three to six months of living expenses should be created in order to pay for life’s unknowns like job loss, health issues or home repairs.
The other two savings plans couples should build into their budget are for buying a house and retirement.
Try to take at least 10 percent of each person’s income and place it in an interest-bearing account. It may not seem like much to start, but over time you will see your earnings transform into a nice little nest egg.
As with so many aspects of a successful marriage, negotiating your financial future requires communication and understanding. By taking the time to identify your concerns and discussing them as a couple, you can strengthen your marriage and improve the health of your wallet.