5 Ways to Start Off On the Right Financial Foot These tips can be applied by anyone in any financial situation, especially if you're just now joining your finances. BY AL JACOBS
Managing money with someone else is one of the most difficult tasks couples encounter.
It’s been many years since my bride and I first set up house. As I recall, neither of us thought much about the economic partnership we entered. What we learned came mostly through trial and error. We lucked out; things worked pretty well. Having seen it all, I'd like to offer my hindsight on what makes for a successful financial life together. Here are five suggestions that will do you well.
1. Take stock of your starting point. The assets and liabilities each of you brings into marriage must be recognized and considered from the onset. Obligations such as vehicle financing, student loans and credit card balances must be factored in from day one. It’s important you both be aware of all likely sources of cash in and out. After the data is collected, with probable income and expenses realistically considered—and I mean realistically, not the way the state budget of California is finagled—you can adjust your living habits to make sure more comes in than goes out. It’s at this point personal characteristics and past spending habits take on added significance. I’ll share with you the opinion of a man I know and respect who contends that no one should ever consider marrying before obtaining a satisfactory credit report on the intended. I admit, this does not qualify as a romantic way to kick things off, but there’s an element of soundness in this advice.
2. Managing the family finances. Just as an army cannot function with two commanding generals, running a family financial program is a one-man (or one-woman) operation. There are natural lapses, duplications and oversights when two persons share responsibilities for a single administrative task. It’s better that one of the two takes charge. As to which it shall be, individual temperament will dictate the choice. The job belongs to whoever is the more systematic, as the task of handling the family finances is simply a repetitive process requiring accuracy and consistency.
3. Financial independence. Although marriage is a partnership, in which most financial decisions deserve to be joint undertakings, there is one aspect of personal independence which must be preserved. It’s the ability for each of you to possess and use a certain amount of money exactly as you choose, free of scrutiny by your spouse. Even if only one of you actually works at an occupation, which brings in all the family income, the nonworking spouse is entitled to receive an agreed upon contribution, perhaps monthly. A workable plan is to establish individual checking accounts from which you each may spend freely, this in addition to the joint checking account to handle the family transactions. In this way, there’s little chance for resentment or animosity to develop.
4. When there’s a will, there’s a way. Nothing serves as an object lesson better than a bad example. A few years ago, at age forty-two, a close associate with assets in eight figures died in a plane crash. He left behind an ex-wife, two pre-teenage children, a perishable business, twenty-five employees and real estate scattered over eight counties in two states. What he did not leave behind was a valid last will and testament. Today, his estate remains mired in the clutches of the probate court with its court-appointed administrator forced to go through procedural hoops with every business decision. The cost in time and money cannot be calculated. My message, which I hope comes through loud and clear, is basic: As soon as you’ve tied the knot, make arrangements to execute your wills. It doesn’t matter if your assets are meager, or even nonexistent. Quite often, newlyweds require little more than a simple declaration of final disposition of assets. Most attorneys can prepare this document quickly and inexpensively. You may also locate the required forms on the internet, with samples and instructions on how to fill them out. What counts is that your wishes are on record and enforceable in the state in which you reside.
5. Reign in the credit card issuers. I’ve saved this item for last so you may better reflect back on this subject when you review what I’ve presented here. It’s my firm belief the overabundance of credit in this nation is a most intimidating influence on our citizens. If you acknowledge nothing else, recognize institutional lending to be predatory by design. Understand also the single most pernicious temptation in America is the credit card. Its misuse is responsible for more financial distress—leading to marital break-up—than any other cause. I’ll concede when properly used, a credit card can be a helpful device. Unfortunately, far too many persons do not treat it with the caution it deserves. Most credit card issuers impose severe penalties on users under every conceivable circumstance. They collect fees, often retroactively, on a variety of pretexts. They also encourage minimal payments, thereafter imposing usurious interest rates on balances not paid off in full each month, with annual rates as high as 31.99% not uncommon. Let me put it to you bluntly: I believe a credit card serves a single purpose?a convenience when neither check nor cash is handy. Most importantly, when the monthly statement arrives, pay the full cash balance before the date interest is charged. Follow this rule and the interest rate means nothing. If for any reason you, as a new couple, cannot regulate your credit card use in this manner, destroy your cards, swear off cold turkey and fashion your lives accordingly.