Marriage or the start of a committed relationship symbolizes a new start and it's natural to want to shed any debt or unhealthy spending habits before the new phase begins. But disclosing your financial history to your partner is another form of intimacy and not every couple knows where to start. That's where the professionals come in.
In its new Ask the Expert series, Cashay reporters connect with experts on vexing personal finance topics surrounding all of life’s milestones: Education, marriage, parenthood, divorce, and even death.
Stephanie Asymkos talked with Jake Northrup, a chartered financial analyst, certified financial planner, and founder of Experience Your Wealth LLC. He's a Rhode Island-based advisor who specializes in helping young individuals and families plan for financial freedom. Here’s his advice on marrying your finances to someone else's.
[Interview has been edited for clarity and length.]
Q: Drop your best pearl of financial wisdom for new couples.
A: Make talking about money and talking about your life goals the No. 1 thing. If you don’t, it’s going to make things like budgeting, saving, and talking about money very challenging because you don't know what you're budgeting, saving, and investing for, right?
It's about being accepting, sharing goals, and making sure you're on the same financial team. The team doesn't always mean 50-50, right? I think this is a very important thing when talking to couples. If there are differences in income or differences in debt or assets, it's okay not to contribute 50-50, but it does mean that you both need to be bought into a common vision.
Having that vision makes it so you're on the same page and you're able to look at money as an opportunity as opposed to something that's stressful. Money is a tool that if navigated properly can help you and your partner live your ideal life. That's the importance of setting that type of communication, setting that vision, so that everything after that, the debt, income, and investments can follow in the right way.
Q: What should be the first financial priority for newly committed couples or newlyweds?
A: It's really important for people in a relationship to understand their history with money. Money is emotional. It's one of the few things that represent our hard work, our values, our goals, and when you start thinking about sharing it with someone, that's a little scary.
What's money been like for them up to a certain point? One person might think of money as an opportunity, the other person might think that it's associated with anxiety, right? In order to really start talking about merging, it's important for each person to understand where they're coming from in the first place. And that's why I think working with a financial planner or someone to help facilitate that conversation can be really helpful, because money is the No. 1 cause of divorce, and oftentimes it's because we don't know how to talk about it.
Before you start thinking about shared bank accounts, learn your histories and then you can talk about the future. Then you can feel like you have a shared vision. And then you have the conversation around how do you actually start merging finances. It's really the communication aspect and learning about the history, I can't stress how important that is.
Q: Starting a new phase of life with debt can feel like an anchor weighing you down. How should a young couple tackle their debts?
A: When you're talking about the debt you're bringing to the table with your significant other, it’s just understanding the stories that are behind that. I imagine someone who has a lot of credit card debt and they're starting to merge finances with someone who doesn't have credit card debt, there's a lot of feelings associated with that. So there might be stories you want to talk about, so talking about the type of debt first [and] the stories that go with it.
When it comes to prioritizing the debt, there's good debt and there's bad debt. Good would be mortgage and student loans given how flexible they are and the different provisions you can have from it. Bad debt would be credit card debt where interest rates could be 17%, 18%, or 19%.
Interest is a key decision of deciding what to tackle first. You might have an auto loan from a car that was outside of your budget range and that's a crippling payment, I view that as bad debt. It’s having a conversation and understanding the type of debt, and the interest rates associated with them, and how those factor into your financial path as well.
Q: A good credit score unlocks a healthy financial future. What are some ways for a couple to mend their credit scores?
A: It's definitely a conversation. If one person has a better credit score than the other, it's again going back to what money has been like for you up to this point and understanding why. It’s not shaming or blaming them for it, but talking it through and what was learned.
For example, you could have a joint credit card, where the person who has the better credit score will likely qualify for it and you can add a second user. But if you do that, understand what this means for you, too. If you don't have the conversation about the debt and why your spouse might have the lower credit score, you're sort of stepping into the danger zone without really understanding what could happen.
It does make sense to help to improve the credit score by having a joint mortgage or having a joint credit card, as long as you fully had the conversation about money up to this point and you're on the same page or comfortable with some of the risks. You don't want it to feel like one spouse is the only one who can borrow and make financial decisions — that's just not a healthy relationship.
Q: If a couple wants to start building credit card loyalty points, what’s the best strategy?
A: Credit cards are great if used properly and obviously dangerous because of all the sign-up bonuses and 0% interest rate periods. As long as you're being responsible with using them, you can use them to your advantage.
There are really intentional things that you can be doing when selecting a credit card and aligning some of the rewards with the values, because there is a different mentality when you spend something with points. It's easier to splurge when you don't feel like it's coming out of your wallet, which is why points are valuable. At the same time, you want to be responsible so you're using a credit card in a strategic way to get more money back from these credit card companies, but it shouldn't come at the expense of spending more than you should because you have that ability to do it.
If you're in the same household, you can take advantage of multiple sign-up bonuses within one specific company. For example, you can have one person sign up for a Chase Sapphire Preferred card, [and] get the sign-up bonus. And then the other person can sign up for a Chase Sapphire Reserve card, get the sign-up bonus, and then you're able to transfer the points from the Preferred over to the Reserve to maximize the points and maximize the game. But again you want to be responsible.
Read more information and tips in our Planning section