Marriage is like the Bible, Oscar Wilde quipped – it starts with a man and a woman, and ends with revelation.
Money can be the big eye-opener. It is the foundation of all your plans, since all major decisions need to be budgeted, but SunTrust Bank found in a 2015 survey that it was the number one source of stress in a relationship. YourTango, the relationships-focused publication, cited finances in the top ten reasons for divorce.
Specific discussions and plans are suggested at, or near, the outset of your life together for all the ‘biggies’. The following arguably fall into that category.
1. What is today’s goal?
A shared financial journey starts by frankly assessing your present situation and establishing a common priority. That way, you don’t start off at different purposes, with one partner working hard to pay off a mutually-used credit card while the other has their eye on that ski holiday package, only to later clash. Sounds simple, but the concrete need of the present is the vital first step when establishing the habit of discussing money. Then when that present goal or need is achieved, you have that precedent that your mutual understanding and focus can really pay off.
2. Should we use joint accounts?
A 2007 survey by SmartMoney found that 64% of couples polled merged all their finances; 14% kept everything in separate accounts while 18% adopted a mixture. Merging everything might be the efficient option as the single source of payment for debits (bills, mortgage) and one-off expenditures (holidays) you both pay for. But it is unrealistic that everything will be a ‘couples’ expenditure, since you’ll have your own independent hobbies, clothes and commitments. If the ‘mixture’ scenario is appealing – where you can independently budget your personal items and contribute to the joint account – consider how might the difference in your earnings determine what each of you contributes. Separate accounts works fine, for some couples, though clarity on “today’s goal” (as above) will be critical, as well as the mutual balance of spending and saving.
3. We’re having kids, right?
From a financial viewpoint, it is a commitment that might even outlast your mortgage repayment – with more varied outlays. If you’re an expatriate, the decision might sharpen thoughts about location: would you be happy to start a family abroad, or start afresh in the UK? If the latter, how might the UK job hunt hinder your loose schedule to settle down?
Then the milestones:
- what money are you putting aside per month for all the baby items
- How will your expenditure adjust to the single income during maternity (or paternity) leave? How many hours per week, if at all, might you employ a babysitter?
- A major topic that we will discuss in greater detail many times on this website. Suffice to say that university fees have seen steep fee inflation in the last decade. How might your IFA help establish a structured plan for this? Further, might you choose a fee-paying private school – how affordable might this be?
4. What if one of us becomes unemployed?
Not a nice thought, but better to have considered this than enhance the panic and challenge if the bad news arises.
Perhaps think hypothetically about what you might cut in the event that you or your spouse loses their job. Some might be obvious: no new car or house renovation for the foreseeable future. But depending on your savings, how might these make sense and be readily accepted:
- Put on hold any holiday plans for the year (if possible)
- eat out once a month
- cut all subscriptions save those that might help in the job hunt.
Then there is the interim. How about some part time work – whether related to the job-hunter’s profession, or not. Might the stay-at-home spouse also look for work?
5. Can one of you stop work to pursue your dream?
If either you or your spouse wants to quit employment to focus on what they most want to do, it may break down a few ways:
- You (or they) might want to re-train at university, college, or from a professional body
The immediate issues here are to square your finances with the cost of the study, and how you might adjust your household expenditure if it takes you out of work either partly or completely. This adjustment consideration might well echo the unemployment scenario above as to what must reasonably cut from your monthly expenditure.
- You (or they) start a business
This will be more complex. The cost items relating to starting a company range from licensing and office space, to materials, production facilities and employees. Working from home might only require the first of these, but inc.com, the start-up focused magazine, advises you clarify not just the total start-up costs, but the fixed monthly costs. How might these costs affect the family budget – again, if cut backs are to be made, which? Will the start-up require a loan, if so, how might its repayment affect your finances? What if the venture gets up and running but it requires a little more funding (one off items and regular payments) than expected? This last question should also cause you to consider whether you can effectively ring-fence family savings from the required investment. Further, might there be an agreed limit on money invested before your lifestyle and future is challenged?
- You (or they) will need to relocate
Essentially a job change, but full of key considerations for the spouse who would be following in tow. You will need to discuss frankly whether the idea of such a change is appealing for the other spouse, what their ‘gut instinct’ is about the location, and the potential to adjust to the local culture in a way that doesn’t leave them inhibited or uncomfortable. It is also, at end, a discussion of practicality – would the new country provide employment opportunities for the spouse too, if the new level of expenditures required two incomes to live comfortably?