Ten Financial Questions to Ask Before Saying ‘I Do’
Posted on October 3, 2007 in the Money category
.Interesting article in Kiplinger about how important it is for so to be newlyweds to be in agreement with their financial goals and expectations.
“Financial dates are a great way for couples to set priorities, build trust and increase marital bliss,” says Jennifer Openshaw, chief executive of FamilyFN, a Los Angeles company that provides financial advice. “Probably the biggest mistake couples make is not talking about money. It’s really about setting aside time so you can both plan for your hopes and dreams.”
Since quarreling over money is one of the biggest causes of marital strife, I thought it would be worthwhile to look at the ten questions you should be asking your future spouse. They are:
1. Where would you like to be in five or ten years?
I know it sounds like an interview question, but the premise behind it is good. Talking about each others future goals before you get married allows you to set priorities and identify savings goals together.
2. What are our assets and liabilities?
While we promise to love our soul mate forever, we also want to know how they have handled debt and credit in the past. Have they run up a lot of debt and are hoping that you will take care of it or have they been busy building that retirement and rainy day nest egg? There is no bad answer here, it is simply a matter of making sure that both parties understand that the other is bringing with them into the marriage.
3. Should we keep our finances separate or combine them?
This is always a tough question to answer. Some couples love the unity and trust that joint accounts foster, while others prefer more freedom and autonomy by maintaining separate accounts. You can always meet halfway and set up a joint account for household expenses, to which both people contribute based on their income while keeping separate accounts for personal spending. The bottom line is to find a system that works for both of you.
4. What about our investments?
One financial step that most newlyweds miss is to update the beneficiary information of their IRAs or 401(k)s with their spouses name. In addition to retirement accounts, you need to talk about whether or not you choose to combine your investment accounts (non-retirement) and also look at your actual investments to make sure that your portfolios as a whole are not overlapping.
5. How will we handle daily spending decisions?
This can be a tricky one for new couples, especially if one person has been used to working off a budget and one is not. My feeling is that if you are saving enough to meet all your financial goals then you should have a lot of freedom in how you spend your discretionary money. You don’t need to talk your partner every time you spend $5, but set a threshold on what amount is something that you should both discuss.
6. Who handles the details?
Somebody in the relationship needs to be responsible for physically writing out the checks or entering them in the computer for electronic bill payment. No matter who ends up handling the bills in your marriage, make sure each partner knows where to find all the different account information, including Web sites, passwords and bill due dates in case anything should happen and the other person needs to take over the responsibilities.
7. What is your tolerance for financial risk?
According to Jonathan Rich, author of The Couple’s Guide to Love and Money risk tolerance is a cause for a lot of martial strife.
“A lot of life’s most important decisions involve weighing risks,” Rich says. From investing strategies to career moves, if one of you prefers to take bigger risks in hope of bigger rewards while the other is content to play it safe, you could each end up resenting the other for his or her carelessness or for holding you back, says Rich.
Have a discussion about your individual levels of risk tolerance. If you’re on different ends of the risk spectrum, don’t even try changing your spouse’s point of view — it won’t happen. Instead, try to compromise on financial strategies that both of you can stomach
8. What are our insurance options?
Insurance is a lot more than changing beneficiary information on life insurance plans. Adding a spouse to a health insurance is often cheaper than maintaining separate plans. Look at the costs and benefits of each person’s plan before choosing. Also, basic policies like auto insurance, homeowners insurance and renters insurance can often be combined at a lower family rate.
9. How does your credit report look?
The good news is that you are going to marry the person of your dreams. The bad news is that you might be marrying their bad credit rating. A potential spouses bad credit rating can impact the amount of interest you will pay on large purchases like a car or house since lenders will consider both your histories if you are making the purchase jointly.
Get copies of both your credit reports and go over them together. Thanks to a new law, you are entitled to a free copy each year from the three major credit bureaus through AnnualCreditReport.com. Look for errors and work with the credit agencies to correct them.
10. How will we tackle existing debt?
It is very unusual for two people to come into a marriage with no debt. Whether it is student, auto or consumer debt, in all likelihood you both have debt. Look at all your accounts and see if you can afford to increase your monthly payment towards the debt with the highest interest rate. Living Debt Free had a good article on how to do this. It is called the Debt Snowball and this is how it works:
- List your debts - either from lowest balance to highest balance OR highest interest rate to lowest interest rate - and make minimum payments to all accounts.
- Make an extra payment to the first account on your list.
- After paying off the first account, take the combined amount (minimum payment and extra payment) which had been going to the first account, and apply it to the second account.
- Repeat until all of your accounts have been paid off.
So pick up some bread, wine and cheese, sit down and go through these questions with your future spouse.
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