Love and Money
mix well and enjoy
TLDR: This article outlines the key financial discussions couples should have at different points in their relationship. Beginning with who pays on the first date, the article progresses through increasingly complex financial conversations, from moving in to getting married to having one parent leave the workforce. The key in most phases is transparency about debt and assets, aligned financial goals, and shared responsibility in money management.
Key milestones in your relationship journey each involve particular financial questions. Knowing the questions and answers in advance will help you prepare for each stage of life.
First Date
Who pays?
If you asked them out, you pay.
If they asked you, you pay.
If they offer to split the bill, you say you will pay this time, and they can pay next time. See what you did there? You got a second date out of it.
Moving In Together
Moving in together requires deeper money conversations:
Cash Flow: Ensure your partner is financially responsible enough to pay rent on time and help with bills. Remember, when you sign a lease together, you are both responsible—if they do not pay, you are on the hook.
Expenses: Equitably share utilities, food, and subscription costs. If one covers subscriptions, the other might pay more for groceries.
Responsibilities: Discuss how you will share household duties. Aim for fairness.
Marriage
This phase requires ongoing financial conversations throughout the engagement:
Life Goals: Discuss homeownership, children, and career changes, as each has financial implications.
Financial Goals: Discuss your thoughts about money and whether your goals align.
Debt and Assets: Be completely transparent about what you owe and own. Financial secrets cause many marital problems, so lay them out and work together to build your combined account information.
Credit Check: This is a great time to run your credit reports and review them together. Check for hidden debt and deal with any red flags. Close cards you don’t use and ensure you have access to all accounts.
Spending Plan: Create a new spending plan, agree on your priorities, and execute the plan.
Emergency Fund: create a joint emergency fund to cover job loss or other emergencies that can befall your new coupledom.
Prenup: Consider one if you enter the relationship with significantly more assets.
Accounts: Decide whether to combine finances or keep separate accounts. If you choose separate accounts, have clear reasons. For example, you may want to keep things separate if it is a second marriage or one spouse has significant debt or assets.
Money Management: You need a strategy for paying your bills and managing your money. I recommend that both spouses manage their money. You may split responsibility, but both should be involved in the process. Consider a weekly or monthly financial check-in (look at your savings/spending and talk openly about finances). Look for my future posts on family money meetings.
Benefits: Compare workplace benefits and choose the best options as a couple.
Insurance: Consider whether you need life insurance. If both spouses are working and you receive free life insurance through work, that's probably enough. When the family starts growing or one spouse has much lower income than the other, these are good reasons to reevaluate, and decide if you want a term life insurance policy in place.
Retirement: Align your goals and save as a team, take advantage of the better retirement plan between you.
Buying a Home
Buying a home is a next-level money conversation about your biggest purchase:
Selection: Create a shared list of must-haves and score potential homes against it.
Budget: Know what you can afford before house hunting. Include a buffer for moving costs, new furniture, and fixing things once you move in.
Deed: Both names should be on the deed to avoid complications later.
Mortgage: Understand that failing to pay means losing the house. See my future blog on mortgages.
Maintenance: Budget about 2% of the home's value annually for upkeep.
Emergency Fund: Increase your emergency fund to cover the mortgage and maintenance costs of the home.
Having a Baby
Children change your financial picture:
Living Space: If needed, consider moving to a bigger place before the baby arrives.
Budget Update: Add a line item for child-related expenses, such as baby gear and supplies, and future education savings.
Education Savings: Consider tax-advantaged accounts to save for college. Start saving when your children are born, giving yourself time to grow your money and reach your goal.
Healthcare: Choose the best health plan for the baby's birth year. If you know the baby is coming and can adjust your insurance, pick the health plan with the best benefits and the least cost.
Emergency Fund: Keep it fully funded now that you have more responsibility.
Childcare: Explore daycare options, costs, and alternatives.
Benefits: Update healthcare and beneficiaries and consider a dependent care FSA.
Estate Planning: Create a will that includes guardianship provisions. You want to be sure you have your will, insurance, and power of attorney to account for the worst-case scenario (guardianship of the children).
Tax Status: Adjust withholdings for child tax credits so that you can get more in your paycheck.
Insurance: Calculate how much your family would need if you passed away. How much will your spouse and children need to continue in their current lifestyle? You want to fund that entirely through insurance.
One Parent Staying Home
If one parent plans to leave the workforce:
How do you choose? Look at a few factors, including who gets paid more, who has the higher potential for growth in their role, who has the better benefits plan (Options/RSUs, bonus potential, etc.), who has the most work location flexibility in their role, and who feels most comfortable leaving their career.
New Budget: Make sure you can cover expenses on a single income.
Spending Plan: Create a new spending plan, agree on your priorities, and execute the plan.
Benefits: Maximize the working spouse's benefits package.
Life Insurance: Both spouses need coverage, even the non-working one. If the working spouse dies, you want enough term life insurance to allow the non-working spouse and children to maintain their current lifestyle. If anything happens to the non-working spouse, the remaining spouse will still have income but a significant increase in childcare expenses.
Emergency Fund: Maintain the fund without dipping into it for regular payments. You must save more in your emergency fund with only one income. Consider 9-12 months of expenses.
Roles: Set clear expectations about household responsibilities.
Career Re-entry: Plan how and when the stay-at-home parent might return to work. How will that person stay abreast of current industry information and contacts? Plan to keep up with new technologies and people in the field.
Retirement Planning: Adjust your savings strategy accordingly.
Social Connections: Plan regular social interactions for the at-home parent and children.
Location: Consider relocating closer to support networks or areas with lower living costs.
Living costs and tax status: Review potential new tax benefits from the lower income.
College Years
Prepare for your children's higher education:
Start Early: Set expectations with your children about college funding.
Priorities: Remember that your retirement comes before their education, they can get student loans, but you cannot get retirement loans.
Decision Support: College, technical school, and apprenticeship are some of the most significant choices in your child's life. Most schools have not prepared them to make those financial decisions from an informed, objective position.
Retirement
Financial independence is not just a moment but a mindset. Once you achieve it, you can follow your path without worrying about income. I will post more details on preparing for retirement.
This post covers significant life milestones and their financial implications. Let me know if you want me to address other life events in future posts. Ultimately, you are the only one responsible for your financial decisions, take that responsibility seriously at all stages of your financial journey.