A successful journey of financial transformation is a personal journey, too. Finances are so intertwined with our personal lives that they can uncover deep rooted beliefs, memories, and even trauma that have led you or your partner to where you are with money.
This is why combining your finances after marriage often brings feelings of stress, anxiety and shame that can lead to contentious marital disputes. As scary as that sounds, this is also one of the greatest opportunities to deepen your love for each other.
Here is a guide on how to make the transition into combining your finances as a couple successful.
Dream And Set Goals
Step 1: Dream about the future with your favorite person.
This is where the fun begins and, in my opinion, the most important step toward achieving joint financial freedom. Your objective is to set aside some time to discuss your life dreams and aspirations both as individuals and as a couple. When I did this with my wife, we set aside an evening. We ordered our favorite food, along with snacks and refreshments, and had a great time sharing our greatest dreams and aspirations about the future. The key is to share, listen and have fun with it. Don’t worry about the money in this stage. Just let your deepest dreams and financial and family aspirations flow. You might be surprised at how many of these things you have in common.
Here are some question prompts to get you started:
- What do each of you value?
- Where do you see yourselves in five to 10 years?
- Where do you see yourselves in 10-plus years?
- Where do you see your family?
- What do you want your life to feel and look like?
- Do you want to become debt-free? Go back to school? Open a business? Travel the world? Move across the country? Be financially independent early? Be a rockstar?
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Make this your own and have fun with it.
Step 2: Distill your dreams and aspirations into financial goals.
Review your list of aspirations and establish financial goals for the ones that matter most to you and your family. Give each goal a timeline and determine how much you need to save to achieve it. You can use this saving for goals calculator to help put the numbers into perspective. The goal here is to create a starting point to build off of. So, don’t get discouraged by the numbers.
These goals will serve as financial guiding posts that will provide you with the motivation to set financial change in motion.
Step 3: Take a money personality quiz.
We each have money personalities that can both help with and get in the way of achieving our financial goals. Take this quiz from NerdWallet to determine what you and your partner might need to do to navigate the your money detracting habits and make the most of your money attracting ones.
Take Inventory Of Your Current Financials
To take the first steps toward your financial future, it’s important to assess where you currently are so that you can prioritize your next steps accordingly.
Step 1: Get to know your cashflow.
Begin with listing your expenses in three buckets: the essential/non-negotiable expenses such as housing, utilities, and groceries; the variable/negotiable expenses like eating out, traveling, and shopping; and the savings and paying off debt bucket (retirement savings and paying off loans or credit card debt). The 50/30/20 rule can provide a good framework that you can use to build your future budget off of. You can check out an app like HoneyDue if you are more of a technophile.
Step 2: List your assets and liabilities (net worth).
List out your assets. These are things that you own and have value, like cash, retirement accounts, vehicles, homes, and brokerage accounts.
List your liabilities, which are the things that owe money on. These are things like student loans, car loans, mortgages, and credit card debt. Take this opportunity to list them out by balance, interest rate, and minimum payment owed. You can use a debt calculator to help you get organized.
Lastly to get your net worth, subtract what you owe (liabilities) from the things you own (your assets). For example, if your total assets are $100,000 and your total liabilities are $80,000, your net worth is: $100,000 - $80,000 = $20,000.
Step 3: Know your credit.
Use your personal credit card, banking sites, and a credit bureau website like Experian to get your free FICO scores. Use a site like CreditKarma to get your free vantage scores. Use annualcrediteport.com to obtain a free copy of your credit reports. You can do this for free on an annual basis. I encourage you to review each report, and check and correct any errors and inconsistencies.
Note that taking this assessment can get emotional. It’s important to be as objective as possible with your finances and avoid blaming and shaming. Plan to tackle everything together instead. Remind yourselves that the past is the past, and your financial future will be written together. You’ll both come out stronger on the other side because of it.
Align Your Finances With Your Goals And Values
Review your expenses, and ensure they are aligned with your values and future vision. Consider making adjustments so that your day-to-day financial habits are driving you toward the future you want to create. This may require making trade-offs between extra spending today versus saving for the future or eliminating spending in areas that no longer serve you.
Implement The Mechanics Of Combined Finances
Start with a baseline of accounts that make the most sense to combine, and then be open to change your approach as needed to find the best fit for your personalities.
Step 1: Establish a joint checking account to pay the bills.
Consider keeping a buffer of roughly 10% of monthly expenses.
Step 2: Establish joint savings accounts.
Use one for emergencies and possibly more for your other goals.
Step 3: Consider opening a joint credit account or adding your partner to existing accounts.
Take your spending habits, and credit strength in consideration as you move toward this step. If one of you is a spender, you might want to add them but not provide the physical card just yet.
Your goal is to use credit wisely, ideally getting to the point where you can pay off your bill in full each month. This will help you maintain and strengthen your score and rack up rewards.
Step 4: Consider a slush fund for each of you.
This is a budget where you each get to spend or save anyway you want, no questions asked. This approach helps many couples with the transition and maintains that sense of spending freedom that might be important to you. Start with a reasonable amount (Less than 5% of expenses between the two of you) compared to your goals and needs as a couple – and go from there.
Consider Assigning A Household CFO
The goal is not for this person to be solely responsible for the household finances, but an opportunity for the spouse that might have the greatest interest, knowledge and skills around personal finances to be in charge of organizing, and keeping track, as well as establishing regular meetings. If this doesn’t work for you, divide and conquer the responsibilities as you see fit.
Check In Regularly And Reap The Benefits
In summary, establishing a successful financial life as a couple is a multistep process that gets better every time you revisit it. So, be sure to block out time in your calendars for regular check-ins.
You’ll soon see that instead of being a source of marital friction, combining finances becomes a source of strength that not only deepens your love for each other but makes your dreams and aspirations for the future come true.
