Arguing about money is such a common problem in marriage that it’s almost a cliché. While couples certainly fight about other issues, managing finances in marriage properly is something that can stop a lot of arguments before they start.
The key to managing finances in marriage is communication. If you don’t talk about money when you’re both in a calm state of mind, you’re certainly not going to be able to discuss it when you’re having a problem that’s related to money.
Fortunately, we’re here to help. There are some things you can do now that will set you up for financial stability in the future.
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Identify Financial Areas of Concern
Sometimes, couples make the mistake of overlooking certain aspects of financial planning. They might focus on household expenses but forget to talk about insurance.
Here are the crucial aspects of finance that should be part of your conversations as husband and wife.
- Budgeting
- Investment planning
- Tax planning
- Retirement planning
- Insurance planning
- Estate planning
- College planning (if you have kids)
The goal should be to take as comprehensive a look at your finances as possible. That way, you can plan everything and reduce the likelihood of being caught by surprise.
Long-Term Financial Goals
Once you’ve identified all the areas of your finances to discuss, you can start by opening up a conversation about your long-term financial goals. Where do you want to be in:
- One year?
- Three to five years?
- Ten years or more?
Looking at the big picture first is necessary because it can help you set the right kind of goals – what we like to call SMART goals. That means that your goals must be:
- Specific
- Measurable
- Actionable
- Realistic
- Time-bound
In other words, this isn’t the time for nebulous, poorly-defined goals.
Managing Finances in Marriage with a Budget That Works
With your goals in hand, the next step is creating a budget to help you control your spending and save money to meet your goals.
We recommend using the three bucket system for budgeting. The buckets work like this:
- Bucket #1 is the Static Bucket. It’s for your fixed expenses, the things that stay the same each month, including your rent or mortgage, utility bills, cell phone bills, and insurance premiums. It should account for no more than 50% of your income.
- Bucket #2 is the Control Bucket. This bucket is for your regular but variable expenses, including things like groceries, gas, eating out, and entertainment. It should account for no more than 30% of your income.
- Bucket #3 is the Dynamic Bucket. This bucket is for things that aren’t regular expenses, and may include extra debt payments, savings, or even a vacation or holiday fund. It should account for at least 20% of your income.
Be sure to check out our full guide to budgeting for married couples. Your budget will help you with the next step.
Automate Your Finances
One of the keys to good financial management for married couples is automation. We all get busy and distracted at times, but you don’t want your credit rating or finances to suffer as a result.
Automation works in two ways. For the things in your Static Bucket, the best way to automate is to set up an account for those budget items, transfer money into it when you get paid, and sign up for automatic bill payments whenever possible.
The items in the other two buckets can’t be automated in this way. However, you can set up separate accounts and transfer 30% and 20% of your paycheck respectively into each of the two accounts.
You may want to make the 20% transfer for your Dynamic Bucket into an interest-bearing savings account. From there, you can always transfer some to an IRA or to a checking account so you can make extra debt payments.
Pay Down Your Debt
If you’re carrying any credit card debt, use some of the money in your Dynamic Bucket to pay it down as soon as possible. You might not think it makes much of a difference, but let’s look at an example.
Imagine you have $3,500 of debt on a credit card with a 14% interest rate. If you make the minimum monthly payment of $75.83 per month, it will take you 19 years to be debt-free and you’ll have paid $3,583.18 in interest.
Add an additional $10 over the minimum payment each month, and your payment time is reduced to 4 years and 8 months. $20 over the minimum brings it down to four years, and $50 over the minimum would mean that you’d be able to pay off the debt in 2 years and 10 months.
How Much Interest are You Really Paying?
Not only is the timing more favorable, but you’ll end up paying significantly less in interest, too. You already know you’d be paying more than $3,500 in interest on the 19-year plan. Here’s how the extra payments help:
- $10 a month extra reduces your interest total to $1,278.74
- $20 a month extra reduces your interest total to $1,087.92
- $50 a month extra reduces your interest total to $756.11
If you can budget $50 a month toward debt reduction, you can save almost $3,000 in interest. That money could go toward a down-payment on a new home or car, or it could pay for a family vacation.
Two Approaches to Paying Down Debt for Managing Finances in Marriage
You can choose between two methods if you have debt to pay down. The first is the snowball method, which pays off the lowest balance first before moving onto the next balance.
The second is the avalanche method, which pays off the balance with the highest interest rate first. You should choose the one that works best for you.
We recommend being as aggressive as you can afford to be while paying down debt. The benefits and savings are clear, and this is a critical first step to successfully managing finances in marriage.
Maximize Your Retirement Savings
Once your debt reduction plan is in place, you can turn your attention to saving for retirement. You can and should take advantage of:
- Work-related retirement plans like 401(k), 403(b) and pension plans
- Individual retirement savings accounts like IRAs and Roth IRAs
- Social Security
Make sure to take advantage of employer matching funds, which many companies offer to employees who enroll in a 401(k) or 403(b) plan.
You should also Vanguard’s retirement calculator, which you can find here, or the Flexible Retirement Planner, which you can find here.
Finally, you may want to consider making some investments outside of your retirement plans. Some to consider, from most to least risky, include:
- Art/Collectibles
- Stocks
- Real Estate
- Corporate Bonds
- Government Bonds
- CDs and Money Market Accounts
You should diversify your investments to minimize your risk. It’s never a good idea to put all of your financial eggs in one basket.
Make Managing Finances a Shared Goal
Perhaps the most important financial goal you can have in your marriage is to talk about money regularly.
After all, your finances affect both of you, and your kids if you have them. Talking to your honey about money will minimize conflict and maximize your chances for success.
If you’d like to dig deeper on the topic of managing finances in marriage, be sure to check out our full step-by-step workshop with our favorite financial planner.
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