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Editor's note: This article is adapted from Kiplinger's 2008 Success With Your Money guide. Order your copy today.
Once upon a time, you found that special someone to spend the rest of your life with, and now the two of you are ready to ride off into the sunset.
Not so fast. You'll have a much better shot at a fairy-tale ending if you take a little time at the beginning to sit down and talk about money. It may not sound like the most romantic topic, and many couples even consider it taboo. "Money is the biggest loaded piece of information you can talk about, bigger even than sex," says Peg Downey, a financial planner and partner at Money Plans, in Silver Spring, Md.
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But sorting out the dollars and cents is a sensible way to enter a lifelong commitment and to ensure that financial squabbles won't lead to a split. Couples should share their financial histories (along with any skeletons in the closet). What assets -- and debts -- are you bringing to your marriage? Are you a spender or a saver? How did your families handle and discuss money when you were growing up?
When my fiancé, Dave Hodas, and I recently went through this exercise, it was, in some ways, an awkward conversation. We learned, for example, that my credit score was about 100 points lower than his stellar score of nearly 800. On the other hand, he owed close to $10,000 in credit-card debt, and he has taken out a hefty student loan to pay for flight school in Richmond, Va.
Dave was reluctant to have his past debts become my problem. But I felt that we were a team, and with our issues laid out, we could deal with them together. For example, we found out that even after marriage, each of us will maintain our own credit score. My lower score won't directly affect his unless we want to buy something jointly -- a car or a house, for instance. Then my lower score might mean that we'll have to pay a higher interest rate.
Our solution: Raise my credit score. Dave, 27, earned his top score with years of good spending habits. I confess that I've been late with payments at times. With guidance from Dave (and Kiplinger's), I've reined in my delinquent habits and already improved my score. Until it gets even better, we'll hold off on applying for any big loans together.
Curtailing my expenses will also help us save to pay off Dave's debt. We continue to chip away at it by always paying more than the minimum amount on the monthly statement. As for the student loan, we think of it as an investment that we can pay out of future income once Dave earns his wings.
It may be a long while before we settle all of our financial issues. But full disclosure has helped us set a course for the future and realize how we need to adjust the way we handle our money.
Joint or Individual Accounts?
There is no universal right answer to the question of whether to merge your accounts or keep them separate. What's most important is to agree on what works for you.
Married for three years, Jude Escaño, 30, and Therese Lizardo-Escaño have decided on joint accounts. They found that merging their money made it easier for them to keep track of their expenses. "It also helps us keep our marriage transparent,"says Therese, 28. "Because we know how everything is being spent, we can ask questions if we have any."
On the other hand, Michelle and Bruce Baker have gone the individual route since their marriage 13 years ago. Michelle was working toward her doctorate in pharmacology at New York Medical College when Bruce, now 43, became a professor at the University of Kansas. With their long-distance marriage, the Bakers figured that maintaining separate accounts was the easier option. And because it worked for them all those years ago, "we never went back," says Michelle, 37.
Another option in the great joint-versus-individual debate is to have both. In January, Andrew Kim, 27, proposed to his girlfriend, Stephanie Layton, also 27. "I didn't know how to approach joining finances initially," says Kim, senior investigator with government contractor USIS in Falls Church, Va.
POSTED BY: Wishing (October 18, 2008 10:13 PM)
Wish I had read this and done this years ago. Money has been a nightmare for us. Follow these simple steps and your life will turn out better. Guaranteed. Don't follow these steps and you'll have many, many regrets.
POSTED BY: Joint & Indiv (October 19, 2008 09:30 PM)
My husband and I have a joint account and individual accounts where we get an "allowance" each month. All of our pay goes into the joint account; all household expenses come out of the joint account. Any extravagant (non-household) thing we’d like to do comes out of the individual accounts. We save up for expensive “toys” we may want.
POSTED BY: Smitty (October 20, 2008 10:04 AM)
I must admit that we have never understood the logic associated with keeping separate accounts. We view it as we're in this together and money is just one aspect of that. I believe separate accounts can lead to issues that wouldn't happen otherwise. One friend of ours just found out his spouse had run up a 30K debt on her "individual" accounts. That wasn't good. The marriage will survive, but they are definitely merging all their money and having complete transparency on it.
Money is just one of those things that a couple needs to manage. It needs to be managed not avoided.
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