Avoid the Common Financial Pitfalls of Marriage
Marriage can be beautiful. But if a couple fails to plan their financial future together, their romantic relationship may risk losing its fairy tale ending. And, as America’s popular and possibly most recognizable source of no-nonsense relationship and mental health advice, Dr. Phil McGraw, reminds us, “Money can ruin your marriage. In fact, it’s the No. 1 problem in marriages and the No. 1 cause of divorce.”
Granted, no two situations are exactly alike, but successful marriages, more often than not, are associated with open and honest relationships that include regular communication about personal and household finances. This doesn’t mean both partners have to be trained financial experts. On the contrary, open communication can give couples the opportunity to share and learn from their combined mistakes and experiences.
Now consider the following list of financial pitfalls many married couples may encounter. By taking a moment now to inform yourself, you and your partner may increase your chances of supporting each other through life’s inevitable ups and downs.
Those who don’t believe in setting a budget put their relationship’s financial health at risk. Problems are likely to arise when realistic spending boundaries are not set. Yet according to experts, even the act of taking time to collaboratively create a budget can open lines of communication that increase a marriage’s overall health and longevity.
Not Popping the Credit Question
Asking or being asked to marry is a thrilling experience. Many spend great amounts of emotional energy in the act of proposing. Often, however, little or no attention is paid to the financial implications of the marriage. For example, a bad credit rating can tarnish a good one after the two histories are linked through marriage. Boston Globe correspondent Rick Fingerman lists “not discussing your credit history with your prospective spouse” as one of the 10 biggest pitfalls you’d do well to avoid as a couple. Though sharing credit reports doesn’t sound like a fun date, it might just be an important investment of your time together if you want your relationship to work long-term.
Lax on Tax
The IRS doesn’t have a box to check for newlyweds who haven’t had time to consider the tax implications of their joint relationship. For example, your combined salaries can put you into a higher tax bracket. As U.S. News reports, high wage earners often face a higher rate of taxation after they marry. The best plan is to be proactive in this situation and make an appointment to meet with your tax professional or accountant before your wedding to learn the financial impact of your combined tax filing.
Rainy Day Blues
No relationship is exempt from unexpected emergencies. When you add up the responsibilities of maintaining careers, vehicles and housing, couples can be hit with unforeseen expenses at any time. So, create an emergency fund to which you both regularly contribute. By setting some savings aside, you’ll also be more relaxed and calmer when dealing with whatever the future has in store.
Joint Account Woes
Until recently, the jury was still out on the individual vs. joint bank account question. Some believed that having separate accounts meant spouses were tempted to keep financial secrets from each other. Others believed in the three accounts formula, whereby a joint account for household expenses is set up while each partner still maintains an individual account for personal expenses. Increasingly, more experts, including Dr. Phil, now agree that having some financial independence is good. So before you try fixing something that isn’t broken, think carefully before you cancel your personal bank account.
In today’s economy, a couple about to wed needs a financial plan. Through clear lines of communication and regular assessments, you can help your relationship be as financially sound as it is emotionally rewarding.
You might also like:
- Tips for the Couples ‘Money Talk’
- 4 Big Money Mistakes of First-Time Homebuyers
- Tax Time: How to Protect Your Personal Info
Is retirement planning part of your couples money talks? Talk to a financial professional for helpful advice.