SUSAN L. HIRSHMAN, CFA, CFP, CDFA, and author of Does this Make My Assets Look Fat?, is here to help couples get money savvy even before they say “I do.”
What’s a good first step an engaged or newly married couple can take toward organizing their finances together?
The most important piece of advice is to “open up.” Discuss money emotions (what does it mean to you and how was it treated in your family growing up?), current balance sheet and monthly cash flow, spending patterns and views of credit, goals, and expenses.
What kind of goals can a young couple establish now that will pay of in the future?
Financial goals are all about a balance between the present and the future. So one must have a detailed focus on what cash is coming in, what cash is going out (fixed costs and discretionary costs), what are your financial/life goals in three to five years, 10 years, and greater than 10 years?
Is it possible for couples to anticipate future spending on children and begin saving for them long before they have kids?
Yes, time is your most powerful investment tool. Separate your goals into must have, nice to have, and aspirational. Say you have an extra $100 a month to save and you are planning on having a baby in two years and also to start putting money away in a 529 plan for your future child’s college education. Since the $100 is not enough to cover both goals, you need to prioritize. What is most important to you? Are both equally important? You are the only ones who can decide.
What are some common unanticipated expenses to plan for?
Unexpected expenses include job loss, job retraining, increase in housing costs, car repairs, unexpected pregnancy, health issues, extended family needs (help to parents, siblings etc.). Create an emergency account that covers at least one month of living expenses. The ultimate goal (though difficult) is to have one to two years of living expenses.
How can couples continue putting aside money for personal pre-marriage passions so that they do not become a burden?
I believe in a yours, mine, and ours approach. What are the joint goals and expenses that you both will contribute to (ours) and after that it is up to each other to spend their “mine.”
What can a couple do early in their relationship to prevent finances from causing strife?
Talk, talk, talk! Compromise is most likely called for. Fights happen when you have competing goals and values. Get this worked out before you commit to each other, otherwise you are setting yourselves up for a life of tension. Everything is a tradeoff. For example, travel versus a second bathroom? Space versus commuting? Be really honest with each other.
By Alexandra Fairweather
Photo Courtesy of Susan L. Hirschman