The big step: Creating a financial plan before marriage

By BankRate

Whether you’re in the middle of planning your wedding, newly engaged or just beginning to discuss marriage with your partner, it’s never too soon to be on the same page about your finances. Marital discord is often attributed to disagreements about money, whether it’s a partner’s spending habits, accumulated debt, or financial philosophies. It’s important to discuss financial goals with your partner to help prevent conflict throughout the marriage.

According to a Suntrust survey, only 51 percent of Americans actually discussed how they would handle finances before getting married. In fact, nearly 60 percent of couples reported they didn’t disclose their own salaries before marriage, and only 36 percent revealed their debt.

When you begin considering getting married or before you walk down the aisle, set aside intentional time with your future spouse to create a financial plan to position your wedded union for success.

Be open and honest about personal debtIn your vows, promising a lifelong devotion to each other, such as for richer or poorer, means all of you – even debts like credit card bills or hefty student loans. It’s important to be sure your partner knows all about your finances and financial values before the big day.

Because most romantic partnerships are built on trust, it’s important to be open and honest with your future wife or husband about your personal finances, including any debts you may have.

Consolidate your debts
Most likely, you both have some consumer debt from credit cards, medical bills, or student loans; debt consolidation can help you get your finances in order. Sit down together and make a list of all your personal debts, then decide if you should consolidate your debts individually or jointly with a personal loan. This process involves combining several debts into one, which can help you reduce your monthly payments and pay less in interest, ultimately helping you pay off your debts faster.

Personal loans are ideal for persons who have moderate debt and good credit scores who want to simplify or accelerate repaying their debts. If you or your partner qualify for a personal loan with manageable rates and have an active plan to control your spending and reduce your debt, you can quickly knock out high-interest debt by consolidating your debt with a personal loan.

Borrowed from a bank, credit union, or online lender, a personal loan is borrowed money that doesn’t require collateral and can be repaid in fixed monthly payments. Personal loan rates are largely determined by your credit score, though your annual reported income and the amount you want to borrow are other factors that determine the final loan amount.
Between gathering documents, checking credit scores, and signing paperwork, consolidating your debts can be a lengthy process. As you and your spouse make preparations, be sure to get an accurate report of yours and your partner’s credit scores and evaluate your debt to income ratio.

Evaluate your credit standing
If one of you have a low credit score (300 to 629), take steps to build the credit; don’t consolidate debts into a joint account, as it can lower the higher credit score.
One way to build credit is with a credit-builder loan, which is a forced savings program that reports your timely payments to credit bureaus. Other ways to increase your credit score include reducing and managing debt, receiving credit for paying rent on time, and research payment options and protections for repaying student loans.

Calculate your debt to income ratio
Calculating your debt to income ratio as a couple is key to making a financial plan moving forward. It is calculated by dividing your monthly debt payments by your monthly gross income. Lenders use this percentage to decide how well you manage your monthly debts and if you are able to afford a loan repayment.

This ratio is often used by lenders when applying for a mortgage, car loan, or home equity loan, so it’s important to keep it below 36 percent. For example, if your total annual income for you and your spouse is $55,000 and you have $22,000 in credit card and student loan debt, a lender may deny your application.

Choosing between joint or separate accounts

You might be sharing a closet and the television remote now, but you don’t necessarily have to share a bank account. Together, you and your partner should decide if you want to combine your finances or keep them separate.

Should you and your partner decide you want to pay bills from a joint account but have individual spending and savings accounts, you’ll want to be sure to move the money to the joint account as soon as your direct deposit hits so you aren’t scrambling at the end of the month when the electricity bill is due and the joint checking account is low.

To reduce monthly recurring expenses and eliminate overlapping bills, like gym memberships and cell phone bills, consider selecting a family plan that provides savings when more than one person is on the account or contract.

If you and your partner do decide to combine your finances, be sure to sit down with a trusted financial advisor who can help you and your partner determine which assets to hold jointly or separately.

To prenup, or not to prenup
Considering a prenup can be a tricky conversation to have with a spouse. But a prenup, or prenuptial agreement, is a legal document that sets expectations for the division of assets should a couple divorce – and it can be very beneficial for some couples. For persons with substantial premarital assets, an expected inheritance or family wealth, or massive debt, a prenup can protect an individual from financial ruin in the event of permanent separation. To be valid, each partner will need to have their own attorney to draft a prenup.

Though the agreement has been historically rare, millennials are increasingly drawing up these contracts to protect their wealth. Now that couples are getting married later (according to a United States census, women were getting married at age 27 in 2010 compared to age 21 in 1950), individuals are accumulating more assets and debt than ever before.
A prenup can include protection against a spouse’s debt, protections for family property and estate planning, and detailed spousal responsibilities. A prenup cannot include custody arrangements, waivers of rights to alimony, or deeply personal (rather than financial) information. Prenups can be created based on how long a couple has been married and can be nullified if the original document states the prenup will expire after a certain amount of years have passed.

Financing the big day

Discussing how you and your partner will pay for the wedding is another conversation and expense to consider ahead of time. It may be tempting to splurge on floral bouquets or to treat your guests to an open bar with signature drinks, but wedding costs can add up faster than you can say “I do.” The average cost of a wedding in the United States in 2018 was $33,931, according to a survey on TheKnot.com. The table below highlights the average costs of a few major wedding expenses:

Average wedding costs

Average costVenue$15,439
Reception band$4,247
Reception DJ$1,292
Flowers and decor$2,411
Wedding/event planner$2,002
Photographer$2,769
Videographer$2,021
Wedding dress$1,631
Groom’s attire$283
Ceremony site$2,382
Rehearsal dinner$1,297

Many couples who don’t have enough savings allocated for wedding expenses opt for a personal loan to cover the cost of tying the knot. The key to sticking to your original budget – whether big or small – is saving every penny you can and setting priorities. Some couples delay their wedding by having a longer engagement period, which gives them more time to stash away cash for the big day.

Non-traditional options to save money

If you and your spouse would rather spend your earnings and savings on a honeymoon to the Maldives or a down payment on a new home, there are several ways to cut wedding costs.
Sending electronic invitations instead of paper invitations, using in-season blooms, and selecting a store-bought cake are some of the ways you and your partner can create savings. You can also implement non-traditional approaches, like having your wedding on a Thursday afternoon or hosting it in a brewery or beach house, to keep costs low.

Happily ever after
Now that you and your partner have made big decisions about consolidating debt, combining finances, creating a prenup agreement, and allocating dollars to wedding expenses, you may get the impression that your financial preparation is complete. But the wedded bliss – and joint financial decisions – is just getting started.

Together, you’ll want to decide how to conquer large or unexpected expenses and choose what to save for, such as a home, car, or the next vacation. To ensure you and your partner are financially protected, create a family budget and consider setting up an emergency savings account and a plan for unforeseen expenses like unemployment, natural disasters, or medical bills.
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With a financial plan in place, your money habit and philosophies and the melodic tune of the wedding bells can chime in perfect harmony.