By Patrice G. Dollar, Lincoln University Cooperative Extension
Date: February 14, 2014
February is the month of romance. However, finances and money are not romantic. It is not the stuff of which love stories are made. Talking about money, before you tie the knot is pivotally important.
There is no way to avoid the discussion of money issues. What should you discuss? There are day to day issues such as who will pay the bills and whether or not you should merge checking and/or saving accounts. If you keep your account separate, whose money will pay what? How much should you save? What are your goals? What if your financial situation changes in the future?
If you have been married before and are becoming a blended family, the financial discussions are more complex. Deciding whether to keep finances separate or merge them, you need to consider how that decision will affect your respective children. Are you willing to help your new spouse or partner put his or her kids through college? Do you need a prenuptial agreement? Have you written wills? What will happen if you die first? Will the surviving spouse leave everything to his or her kids? There can be some sticky issues for a second marriage.
There are various models for handling income. The Equal share model is where equal amounts are put into a bank account to cover basic household expenses. Remainder salaries are spent or saved by each partner. Problems can arise if one person earns considerably more than the other partner. In which case, the Proportional share model may be more appropriate. Each partner contributes a percentage of his or her income to the joint accounts for savings and living expenses. A couple can Pool their resources, combining all of their income. However, in pooling resources, each person should have equal say as to how the money should be spent.
Calculating your cash flow and net worth should be a priority for both individuals. Your cash flow should reflect how much income you receive each month and how much is spent. It tracks your day to day expenses.
The net worth statement is a list of what you own and what you owe, a financial snapshot of your situation. Each individual should complete both a net worth statement and a cash flow statement. The statements can provide key indicators of how your prospective partner handles money.
Does your partner spend money lavishly on dinner, expensive gifts or is he or she a tightwad? Think about how your partner spends money. Are you a saver, while your partner has several credit cards with high balances? No one system will function for everyone because individual needs, values, interests, goals, skills, and personalities differ. Develop a system together; do not be afraid to revise or adjust a system that does not work.
Quote: “Money issues resolved earlier in a relationship are fewer headaches later.”