When it comes to getting married and sharing your life with someone, it’s often the more mundane matters which can sometimes be overlooked says Grant Buchanan, Financial Planning Partner at Scrutton Bland.
I’m not talking about what flowers to have at the wedding (although I readily accept this may not be mundane to some!) but more serious matters such as money. Once the honeymoon is over and day-to-day life resumes, the realities of living together and sharing your finances can quickly become problematic if the parameters are not clear from the start. It’s therefore a very good idea, before you get married, to take the time to have ‘the money conversation’.
There are some definite financial advantages to getting married and bringing your financial assets together. Joint incomes can put you in a stronger position and can allow you to buy a bigger house and have more flexibility over sharing your bills and regular expenses. When it comes to saving and investing there also is more flexibility, with two sets of tax allowances to play with, which can in some cases be shared between spouses.
However, money means different things to people, and it can be a very personal relationship. Some people are very careful with their money and others spend it like there’s no tomorrow. It is important to share your views with your partner to avoid arguments and potential problems down the line. It doesn’t have to be a problem if you have completely different attitudes to money. It can be an advantage to have different views and this may lead to a better balance for your finances if you compliment each other. However, in order to be able to work together you have to understand each other’s attitude to money.
Being honest about your debts is an important starting point. Around one in five people don’t tell their partner the full extent of their debts, according to one survey by the Debt Advisory Service, with women twice as likely to hide their debts as men. Worse still, 7% of those surveyed said they thought it was better not to share the revelation about their true debts until after the honeymoon. I wonder if Harry is in for a shock! If you become a joint holder on an account you may find your credit score will be adversely affected. More importantly, if you’re added to your spouse’s account on which they have debts, you’ll become jointly liable for paying off those debts, and if defaulted you may be liable for the entire debt, even for the amount your spouse was
carrying before you were on the account.
Earnings are another key area of discussion. Being secretive or hiding your income does not bode well for your future together. Pretend you earn more than you do and sooner or later the shortfall will become a problem. Equally, lying about what you really earn shows a lack of trust. If you get these areas right from the outset it makes it much easier to work together and talk about your future hopes and dreams.
In choosing to share your life with someone you will no doubt have hopes and dreams for the future. These may be starting a family, travelling the world or getting the house you always wanted. However, if you don’t create a financial plan and put in place a realistic strategy to achieve these goals, your dreams may never become a reality. At Scrutton Bland we use software which helps us to demonstrate to our clients what they need to do to achieve their goals. Looking at lifetime cash flow modelling is a very powerful tool and is a very clear and simple way to help people plan. Knowing how much you need to save to get the house deposit, the Porsche or early retirement is a great incentive. As ever, the key is to understand where you are now and where you want to get to. The financial plan we create for you will set out the course of action you need to follow. Of course, we will need to review this plan with you to make sure it remains on track as your life and plans change, and this is where a long term relationship with a trusted adviser is so important.