Suze Orman: 6 Things To Do With Your Finances Before You Get Married
Planning a wedding involves more than choosing the perfect venue or selecting a stunning dress. One of the most important aspects of planning for marriage is ensuring your financial future is secure — because runaway wedding costs can derail even the most stable of relationships before they get started on happily ever after.
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Financial guru Suze Orman has long emphasized the importance of financial preparedness, especially when it comes to tying the knot. It’s not just about getting ready financially for the big day; it’s also about setting your pending family up for a comfortable future.
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Suze Orman on Weddings
Whether it’s a tiny ceremony or destination wedding, the big money moves in life come down to budgeting for family, marriage, weddings and all those financial details entail. Before you pay for a wedding, make sure you and your partner have had big discussions about bank accounts, debt, down payments and general alignment on savings goals.
As Orman has said, “If you cannot talk money to the person that you are about to marry, you are doomed for failure because money is going to run through your relationship more than anything else.”
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6 Money Moves Orman Says To Make Before Marriage
When it comes to financial decisions, there is probably some room for improvement on a few items for both you and your fiancé. Here are six essential steps Orman recommends taking before you say, “I do.”
Marry Your Finances Because You’re Both in Charge
Before you walk down the aisle, it’s crucial to have an open and honest discussion about finances with your partner. Discuss your incomes, debts, credit scores and financial goals. Transparency is key to building a solid financial foundation together. Understand each other’s spending habits and attitudes towards money to avoid future conflicts because, according to Orman, “You both have to share equally in all money decisions. From the monthly spending to the long-term retirement planning. I don’t care if one of you ‘likes’ to handle finances more than the other.”
She added, “You can delegate who takes the lead on things, but that does not mean that the other person can just tune out. There is to never be any decision made before it has been fully discussed and understood by both of you. Fail to do that, and I have to tell you, your relationship is at risk of failure.”
Creating a joint budget helps you manage your combined incomes and expenses. Identify your monthly incomes and list all your expenditures, including rent, utilities, groceries and discretionary spending. This will help you see where your money is going and allow you to make adjustments to ensure you’re living within your means.
Divide Your Cost of Living Based on Income
As you boil your collective budget down to brass tax, make sure you understand the difference between equal and equitable. Orman breaks this down best when assessing how each person should allocate their funds for your communal cost of living.
She said, “The division of your cost of living should be based on your incomes. To determine how much you should be paying, add up your combined take-home earnings, then figure out what percentage each of you brings in. Let’s say your take-home pay is $3,500 and your boyfriend’s is $2,800, giving you a total monthly household income of $6,300. Your income is 55 percent of that sum and his is 45 percent. So if your mutual expenses are $3,000 a month, you pay $1,650 and he pays $1,350.”
Emergency Funds for Everyone
An emergency fund acts as a financial safety net in case of unexpected expenses like medical bills or car repairs. Start building this fund as soon as possible to provide financial security and peace of mind for both you and your partner.
Orman recommends keeping both of your emergency savings funds separate. She went further to say, “Your personal reserve should equal three months of your living expenses, while the joint account should cover six to eight months. I recommend a hefty joint fund so that if one of you were to lose your job or become ill, you would have enough to get by for a while. At the same time, if the relationship doesn’t work out, you will have your own nest egg to fall back on.”
Consider a Prenuptial Agreement
Discussing a prenup can prompt important conversations about financial expectations and responsibilities within the marriage. While it may not be a romantic notion, a prenuptial agreement can be a wise financial decision, according to Orman. It not only helps protect your assets but also potentially your spouse’s debts such as credit card bills, student loans and medical balances.
Massive loans or credit card debt can be a significant burden in a marriage. Work together to pay down high-interest debts like credit card balances or personal loans. Create a debt repayment plan that you both are committed to and consider consolidating debts to secure lower interest rates.
Set Financial Goals: Yours, Mine and Ours
Setting financial goals is vital for a successful financial partnership. Discuss both short-term and long-term goals, such as buying a house, starting a family, or saving for retirement. Establishing clear, achievable goals will help you stay focused and motivated. Regularly review and adjust your goals to ensure they align with your evolving priorities.
Orman breaks it down like this: “I want you to have at least three separate checking accounts. The ‘Ours’ account is the joint account that is always sufficiently funded to cover all your household’s essential spending and saving. That includes everything from the rent/mortgage to the monthly automatic deposits you are making into retirement accounts.
“If there is more money left over after meeting all of your monthly needs, I think it is healthy for you both to also have separate accounts as well. The ‘Yours’ and ‘Mine’ accounts are how you avoid fighting over different spending habits. Because you are already meeting all of your essential needs through your joint account, you are both free to spend (or save) the money in your individual accounts as you want. No discussions or arguments necessary.”
Retain Your Own Credit Cards
In this day and age, almost everyone has at least some credit card debt to pay. However, Orman would advise you to not bite off more than you can chew when it comes to your merged finances.
She said, “It’s fine to have joint credit cards, but I also want every person to always have a credit card in their name only. Use it responsibly each month: make a few charges that you can pay off in full when the bill arrives.”
She concluded, “We never know how marriage or any relationship may play out. I wish all of you endless happiness. But my job is to protect you from life’s what-ifs. Having your own credit card and using it responsibly will play a big role in helping you maintain a strong FICO credit score that isn’t tied to anyone else.”
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This article originally appeared on GOBankingRates.com: Suze Orman: 6 Things To Do With Your Finances Before You Get Married