M is for Marriage and Money Matters
From A-Z of Personal Finance by Nimi Akinkugbe
As two individuals merge all their worldly goods, there are many things to consider. After the excitement of the wedding ceremonies, it is time to face your financial future together. Have you effected your name change on your documents? Will you have joint or separate accounts? How will you manage your investments? Have you updated your insurance policies to reflect your new beneficiary?
27 year-old Kemi is a lawyer. She works in a Lagos-based law firm. She recently met 32-year old Emeka who recently returned to Nigeria after having worked in the United States for 4 years. He is into "oil and gas”. They had a whirlwind engagement and a lavish wedding. Nothing was left to chance in the wedding preparations; the wedding planner considered even the minutest detail. However, there was one crucial piece of planning that they completely overlooked; that was planning for their financial future together.
Emeka had booked a wonderful honeymoon to a five-star resort in Dubai. The first sign of trouble was when his card was declined in a bookstore at the airport; for the rest of the holiday, Kemi had to pay for everything with her card. Sadly, Emeka hadn’t disclosed that he owed $35,000 on his credit card, had not paid rent which was due on his Lagos apartment and had just been given a quit notice by his landlord, car payments on his jeep had lapsed for three months so he faced repossession, and his company had a non-performing loan with a local bank. The honeymoon was over.
What is your attitude to money?
Studies reveal that financial problems are the single biggest cause of contention in marriage. Talking about money can be a little awkward in the early stages of a relationship but it is important to discuss finances and try to resolve conflicting attitudes towards money; shying away from the issue will only lead to misunderstandings later on.
Most couples have different attitudes to money that are shaped by our earliest experiences, and formed long before we meet our partners. Such experiences can influence your spending, saving and investing habits, need for security, ability to bear risk, attitudes towards debt and so on. Naturally, attitudes will change throughout the various stages of life and with the numerous opportunities or setbacks that life tends to throw one's way.
Discuss what you consider to be an acceptable level of financial risk. One of you may be prepared to bet everything, including your home for the prospect of supernormal profit whilst the other might not be able to sleep at night when the market is plummeting.
Create a budget
Determining where you stand at the start of your life together is a good way to begin the process of building a viable financial future together. Create a comprehensive list of your financial assets and liabilities and keep good records of all your investments and debts. Both parties should have copies of the documentation in case of an emergency.
Deal with debt
Be honest and open about both the positive and negative aspects of your financial history. How much debt do you have individually? Many people don't discover the extent of their spouse's financial obligations until they are married. Debt brought into marriage can be a major source of strife if not well handled. Full disclosure is important so that you can plan together and there are no surprises down the road.
Remember, that once you are married, your debt is considered together; whilst you may not be legally responsible for any credit taken out in your spouse's name, it could affect your credit and therefore your eligibility for loans such as a car loan or a mortgage. Even if the debt may have been incurred before the marriage or afterwards, try to deal with the debt together and seek to bring it under control.
Set goals together
A well thought out plan is a key ingredient for a successful financial future. Don’t assume that your fiancé(e) knows what you envision for the future. Ideally, after you have discussed where you each are financially and before you walk down the aisle, discuss your expectations, share your ambitions and set SMART short and long-term goals. They should be Specific, Measurable, Achievable, Realistic, and Time bound.
Where do you see yourselves in 10, 20, 30 years? Will you both work, or will one of you focus less on career and more on family? Is buying a house an immediate priority? When would you like to retire? You don't have to agree on all your goals, but at least you can acknowledge and appreciate your partner’s aspirations and dreams. Where there are differences, try to find some common ground and come up with a workable compromise that you both can live with. Remember that your individual goals are just as important as your joint ones.
Who pays for what?
Dele and Tope Thomas have been married for 11 years. Tope has a passion for designer labels and has always spent all that she earns whilst Dele is a conscientious saver who craves the security of a financial cushion; this caused much strain in the early years of their marriage. They recently established a family budget, which has helped them to set clear spending guidelines. They prefer to maintain a degree of financial independence so each have separate accounts for their incomes and a joint account for household expenses to which they both contribute in proportion to their incomes.
In the new arrangement, Dele pays the mortgage and school fees whilst Tope takes care of utility bills, staff salaries and food. Significant spending decisions are made jointly; they have agreed on a set limit for when an expense is too big to be considered by just one party. In addition, each has agreed to save a certain amount each month, in a balanced fund which increases as their salaries increase. Beyond this, each of them can do whatever they want with the remainder of their money and do not have to account for it.
Dele and Tope revisit their financial goals quarterly; this helps them to stay abreast of things both individually as well as in the context of their joint finances. Because they have broadly stuck to these terms, they have fewer arguments about money.
If your spouse doesn’t share your financial philosophy, don’t give up hope. Of course it’s that much easier when you have similar outlooks on financial matters, or at the very least are able to find some middle ground. Specific arrangements will vary, as what is right for one couple may not be right for another. The key is to determine the best approach for you. Dealt with properly, however, considering money matters together provides a great opportunity not only for strengthening a relationship but also for fulfilling mutual goals with a sense of direction and purpose.
Remember, that there is no one size fits all when it comes to finances in relationships but with careful planning and clear communication, you can avoid many frustrating conversations. Even the best system is not always appropriate so be prepared to modify your system as your relationship and financial situation evolves; if one option doesn’t work, try another.
HAPPY VALENTINES DAY
Nimi Akinkugbe has extensive experience in private wealth management. Through her platforms, she seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance.
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