New babies, your first house, once-in-a-lifetime vacations... they're all so exciting! But have you and your partner adequately prepared for what life has in store?
Almost 26 years ago, I married the man of my dreams. We were two smart cookies, headed down a yellow brick road of happiness. But we rarely discussed money and financial planning, so we learned to save for the big stuff by trial and trial and error. Along the way, we learned what questions we should have asked for financial bliss. No matter where you are on your path, take a look at these considerations — are you prepared for life's "big stuff"?
How do we plan to buy our first house?
This is the first big lesson we learned. We needed to curb our spending to save for the 20 percent down payment. We also needed to budget for the future mortgage payment, homeowners insurance, and real estate taxes — because all three were bundled into one monthly payment. And to make it all happen smoothly at an attractive interest rate, we needed good credit scores — something we luckily had because we had paid our bills on time. Until that time, I didn't fully realize the importance of paying credit cards and student loans on time.
How do we handle credit card debt and student loans?
Before our wedding, my husband and I agreed to pool our money into one joint account and pay down my low limit credit card and his student loan. But neither of us disclosed the amount of debt we brought into the marriage until our honeymoon when we needed a rental car. My credit card was declined because of insufficient available credit. While I turned red, my husband convinced the clerk to accept a cash deposit. This is when we learned the importance of talking about credit balances and their potential impact on financial decisions, both big and small.
How do we plan to pay for family vacations?
Even though we spend our vacations in a family home, we've learned the importance of budgeting for two weeks of food, fuel, and activities, as well as for pet care back home. We've learned to start a savings fund for vacation long before we head out. Otherwise vacation would just increase our credit card debt and cost even more if we couldn't pay it off. So if we want to visit friends in Italy, it means we'll save the money before we book the flights. This approach works for us, but I think the real point is to discuss and plan how you will pay for family vacations well before you take them. If you don't, big bills will make returning to the hum-drum of day-to-day life seem even bleaker.
How much will we shell out for our baby in the first year?
Okay, some of the projected $2,058 of one-time costs will be offset by amazing shower gifts. But what about the $8,340 of ongoing costs of childcare, food, diapers and wipes, clothing, medicine/first aid, toys/books/media, toiletries, and savings for college? That’s $10,000 more than you're currently spending, no matter where you are in terms of your finances (Now I understand where all our money went 20 years ago)! Don't be oblivious to those first year expenses. Look them in the eye and develop a plan to budget for them. And start that college fund in year one — you'll thank yourself in 18 years, and so will your child.
What's our plan for childcare?
I knew I wanted to return to work after my maternity leave ended, and my husband was unable to take leave from his job. The solution? Our son went to in-home daycare in our neighborhood. It made sense for us because the cost of the daycare was reasonable and my take home pay was high enough that even with the cost of childcare, my working actually added to the family coffers. But sometimes, working outside of the home does not make financial sense. Sometimes the cost of working (daycare, commuting, clothing/dry cleaning, dining out, and miscellaneous business expenses) exceeds a parent's after-tax income. In that case, working costs more than staying home. Deciding to be a working parent or a stay-home parent is a decision that ideally stems from the values you hold as parents. Just make sure you plan for the costs — overt and hidden — of what you decide.
What happens if you or I go back to school?
In middle age I returned to graduate school to get a master's degree and opted to apply for student loans. Since we function as a team, my husband and I made a mutual decision to commit to this course. We both agreed that family funds would cover the loans. I've worked with couples where one partner has agreed to pay the student loans of the other, or one partner has agreed to pay just his/her own student loans. Whatever desire you or your partner have to return to school, approach the decision together, because you both will live with the consequences. If one of you sinks financially, you will both feel the pain.
What happens when our children get married?
Many of us have planned for our children's college education, but have we really planned for our part in their wedding? If we give our children open-ended expense accounts, we may have to make some serious sacrifices. According to CNN Money, the average cost of a wedding was $28,400 in 2012. I know of people who have gone into huge debt to give their children dream weddings. Just remember that your contribution is your choice. And if you don't plan for it, you may be unprepared for the financial reality that awaits after the fairytale celebration ends.
You and your partner are a team. And ready or not, life's most important events are coming. Why not meet them with a plan reflecting your personal values and available resources?
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