Personal Finance: How To Know If You And Your Future Spouse Are Financially Compatible

Personal Finance: How To Know If You And Your Future Spouse Are Financially Compatible

Money is one of the big reasons leading to divorce. If you and your future spouse are incompatible in this area, problems are lurking in your future as husband and wife. No matter how much you try to cut down expenses it might still persist and threaten the peace of your marriage. While there are no foolproof ways to establish financial compatibility, you can do some work that will help reveal some of the more common areas of dispute.

Compare savings plans.

Some people are misers. Others are free spenders. These two extremes rarely find true financial compatibility. If your partner makes a small salary and has a large bank account, you might suspect he or she leans toward the miserly side. If the opposite is true, hold onto your wallet because it may soon be emptied by your mate. Without agreeing on family spending habits in advance, differences in this area can be difficult to reconcile.

Prioritize spending.

Not everyone believes that food and shelter are more important than fun and games. Working with your future spouse to determine the spending priorities in your relationship will help keep the main things in focus later on. Take your time with this and make it as complete as possible. Do not worry about funding at this point. Just work out what is more important and what is less important to you as a couple.

Discuss plans for future family income.

Everything starts with income when it comes to finances. Without income, there are no finances to discuss. Will you be a one or two wage earner family? Will both be full time or will one of you work part-time and have other family responsibilities like childcare to offset the difference in income contributions? Look at income potential for both partners so that you can formulate a reasonable model of your future family income.

Create a household budget together.

Armed with your potential household income, it is time to take on a family budget. This requires you to list all money that is used for living and other expenses in a given month. Make sure that when you subtract this from your income that a positive number results.

Adjust the budget until the family can be in the black.

This will require some negotiating between you and your partner. Agree that after you each take some personal spending money, the remainder will be used for savings, debt retirement, and investments. List these amounts to bring your final total to zero at the bottom of your budget. This means that you have allocated all of your income to be used are things that you can agree upon.

Evaluate each partner’s outstanding debt.

Look for two things when you examine outstanding debt. How big is any unsecured debt in relation to income? High credit card balances can indicate reckless spending or a lack of reliable income.

The second part is to discover why any debt has been made.

Some debts are understandable. A reasonable house or car payment may be acceptable. Large debt from entertaining, eating out, personal shopping, and other consumable items are a problem. Agree on what is worth purchasing on credit and what is better to save up and pay cash to get.

Establish budgets to use as a couple for three months.

Establish a personal budget for each of you. Use it for three months to see if both of you are able to live within your means. Correct any revealed problems in spending habits or in the budgets and try it again. If you cannot get this to work, you probably are going to have many money disputes if you get married.

Discuss each partner’s willingness to accept investment risk.

Financial security is ultimately built on measured risk. Any future investing that you do as a couple will test your resolve to stay the course when investments may not perform as desired. Gamblers and savers rarely fit together. Arrive at a reasonable level of acceptable risk that both partners can live with.

Set up a retirement plan.

This is a big test. Look far down your road together as a couple and build a financial future that sets up the retirement that you both hope to achieve. You do not have to determine where or how you will retire. You do need to decide how much money you want to have when the time comes. This will mean some researching of investment vehicles and earnings horizons. You may need to work on this for a couple of months to get it right.

Watch for hidden income, debt, and expenses.

Finally, pay attention through these processes for any clues that might reveal possible hidden income, debt, or expenses. Honesty is imperative at this stage of the relationship if there is any possibility of financial compatibility going forward. A future spouse that is willing to hide his or her current financial dealings from you now will most certainly do it after you are married.