Personal Finance Advice

Marriage is a union in more ways than one. You’re becoming a legally joined couple, sworn to stay together and weather the good times and the bad. Most couples also choose to combine their finances, but even those couples who do not combine finances will still find themselves affected by the way each of them handle their money.

Have a talk about money before tying the knot. While most people agree that the way a potential spouse handles money isn’t a deal breaker, you should at least know what you are getting yourself into before you become legally bound to this other person. Since the subject of money isn’t a very romantic topic, you may not have brought it up in any serious way yet with the person you’re about to pledge to spend the rest of your life with. Don’t wait much longer, though, because it is far better to know your spouse’s financial standing before the wedding instead of years down the road when financial troubles threaten the strength of your marriage.

Here are 5 questions you should ask your partner before the two of you head down the aisle:

How much money do you owe? You want to know about credit card debt, student loans, personal loans and any other form of debt. You need to know if the person you’re about to marry is overwhelmed with huge piles of debt even if you don’t plan on combining finances because the debt will undoubtedly affect your spouse’s outlook on life.

How is your credit? You don’t necessarily need to have a look at your partner’s credit report, but you should get a good idea of what credit score range he or she lands into. This will be very important if the two of you decide to someday apply for a loan together, such as for a car or for a house. 

How much money do you have in savings? If your partner does not have a dime in savings, you need to know this because you will be the one to get the two of you out of a financial emergency. Conversely, if your partner is swimming in substantial savings, this will also have a big influence on what the two of you can do with your combined finances.

Are you a spender or a saver? While not everyone genuinely realizes what they’re spending habits are, most people have an idea if they are the type of people to spend all their money or instead try to save as much as possible. The goal is not to change the way the other person spends money, but to know what to expect so you can both have realistic expectations. 

Do you expect us to combine our finances? If the two of you have not yet had a frank discussion about whether or not the two of you will combine finances, now is the time. You may be surprised to find that the two of you have very different views about what is going to happen with your finances once the wedding is over.

When you decide it’s time to get serious and pay off your debt, you may start eyeing the money that you have sitting in your savings account as a quick means by which to pay your debt down considerably or to pay it off altogether. While not everyone has this option since not everyone puts money away into a savings account, for the people who do have a substantial sum of money sitting in a bank account it may seem like an obvious and quick solution to pay off debt.

In some instances, this can be a good idea. If you have $4000 in credit card debt and $18,000 sitting in a savings account earmarked for an emergency fund then withdrawing enough money to pay off the debt entirely won’t cause you much financial difficulty. You will wind up saving money in the long run because of the monthly interest charges you will no longer have to pay for the credit card debt, and with no monthly credit card bills you can rebuild your emergency savings account up quite quickly.

Don’t make this a perpetual solution, though. You don’t want to get into a pattern where you pull money from savings to pay down all your unsecured debt only to turn around and charge the accounts right back up. Not only is it an ineffective way to manage your spending habits, but you will never get your savings account built up to respectable levels if you pull large chunks of money out every few months to pay off your unsecured debt.

Completely draining your savings account in order to pay your debt down or off is another story because this can be a tricky situation. On the one hand, you don’t want to pay high credit interest rates when you have the money available to pay the debt off, but on the other hand you don’t want to lose your ability to fend for yourself in a financial emergency because you drained your savings to pay off your debt. Think critically about your decision before you decide to make this move.

It makes sense mathematically to drain savings to pay off debt. After all, you’re probably earning a small amount in interest on your savings account but paying a much higher interest rate for your unsecured debt. The problem with only thinking about numbers with personal finance is that this thinking does not necessarily leave any room for unexpected problems. What if you drain your savings account to pay off your debt, close all your credit card accounts so you don’t run them back up, and then the next week you lose your job unexpectedly? It’s good that you don’t have any debt, but you don’t have any savings to fall back on either, nor do you have any open credit lines that you can utilize to meet expenses until you get another job.

If you decide to use your savings to pay off your debt, make sure of two things:

Stop using the accounts you pay off. You don’t want to drain your savings to pay off accounts and then turn around and max them out again.

Keep a cushion of savings. Don’t drain every dime of your savings. Keep some of your savings intact for an emergency, even if it is a week’s worth of expenses. 

Once your debt is paid off, aggressively work to build your savings back up. 

Everyone blunders with finances once in a while. Whether it’s spending too much money when you buy a car or loaning money to a friend who never pays it back, almost everyone has a story about how they spent too much or lost some money because of bad decisions. These things happen, and it can all be considered a valuable learning experience if you look at it the right way.

If nobody ever taught you about managing your personal finances, and if you have never had a positive role model when it comes to handling money, you may wonder if the way you spend your money is reasonable or not. You can’t always count on your friends and family to let you know if you are making financial mistakes because they may either not want to criticize you or instead they may be making the same money mistakes you are making and don’t even realize that the way they manage their money is wrong.

How do you know whether or not the financial decisions you make are okay, or if they are instead not okay at all? Here is a brief list of some situations you may have encountered.

You splurge on an impulse buy and feel guilty about it afterwards. That’s okay. Everyone makes impulse purchases once in a while. The fact that you feel bad about it after the fact shows that this isn’t a trend in your spending behavior. As long as these splurges don’t happen very often, and the splurge isn’t enough to throw you into financial turmoil, then this is okay.

You frequently buy things you don’t need using your credit card. That’s not okay. If your splurges are frequent and unnecessary, then they no longer fall into the category of “splurges.” Instead they become just bad money decisions. Stop buying things you don’t need, especially on impulse.

You’re embarrassed by a purchase you make. That’s okay. Everyone makes occasional bad decisions when making purchases. Maybe you bought a shirt that you later decide you won’t wear because it isn’t your style, or perhaps you bought a laptop computer and later discovered you could buy it much cheaper elsewhere. Either way, these things happen once in a while and as long as you learn a lesson from it then it’s not so bad.

You’re embarrassed by a purchase, so you hide it from your mate. That’s not okay. If you and your mate share finances, concealing spending is never a good idea because it’s not only your finances you’re messing with. Your mate can wind up in financial distress from your secret spending. Don’t forget that you’re also deceiving someone who trusts you.

You don’t have an emergency fund of 3-6 months worth of expenses. That’s okay. Although a fully funded emergency fund is the ideal, most people must slowly work toward this particular financial goal. As long as you are working toward a fully funded emergency fund, you shouldn’t panic if your savings account isn’t very impressive right now.

You don’t save at all. That’s not okay. You should always make the effort to save something, even if it is just a small deposit monthly into a savings account. Don’t think of savings as an optional financial goal; it’s something you should actively work towards, even if you don’t have a lot of money to spare.

Everyone makes mistakes when it comes to their money. The point is to not make the same mistakes over and over again.