About two weeks ago, I did something incredibly stupid. Without even really thinking about it, I let my wife down. I made one of those careless, thoughtless little mistakes that when you realize what you’ve done, you might want to slap yourself in the head about it, but a mistake can’t be undone.

My first temptation was to buy her some sort of gift to “make up” for my mistake. I know what sorts of things she likes, so I browsed through some sites and found a couple of great items that I could give her that would patch things over.

But then I came to my senses.

Buying my wife something won’t make up for a mistake I made. In fact, buying her something right now would just send a message to her that I view her love and respect as something that can be bought.

The only way to deal with a poor decision or with a marital rough patch is through communication. If your partner is upset with you, especially if you really can’t understand why, don’t get mad. Listen. Talk through the problem. Ask questions. Figure out what you can do so that the mistake doesn’t happen again. Let your partner know that you truly do love him or her, and that you aren’t a perfect person, and that you made a mistake. Then, try to take all of that into your own heart and make improvements within yourself.

Buying a gift and not talking about the problem? That just paints the wrong kind of picture. It merely shows that you view your issues as something that can be wiped away with money. And they can’t.

Fortunately, I’m a lucky enough man to have a wife who is very forgiving of my inequities. In fact, if she’s reading this right now, I wouldn’t be surprised if she were scratching her head, trying to remember what exactly I’m talking about. At least, I sincerely hope that’s the case.

Marriage isn’t easy. No relationship is truly easy. There are always going to be times when you do something stupid and rash and make someone else upset by your poorly-considered actions. What makes a relationship work isn’t how you avoid such mistakes, it’s how you handle them.

Whenever you’re in a situation where you’ve made a mistake and you’re trying to patch things up, don’t spend your time buying flowers or making grandiose promises about great things to come. Instead, remember just four words:

You can’t buy love.

Then head home, sit down, and have a real conversation. Instead of trying to buy away the problem, try to solve it with real understanding, love, and compassion instead.

The Simple Dollar book reviews are back again! Each Friday for the foreseeable future, The Simple Dollar reviews a personal finance book.

After a long stretch of focusing in on Born to Buy, I’m looking forward to writing a whole lot of book reviews over the next several months. And I’ll start off with a book that both my wife and I enjoyed, Sharon Epperson’s The Big Payoff.

The Big Payoff is subtitled 8 Steps Couples Can Take to Make the Most of Their Money - And Live Richly Ever After - and that’s quite a good description of it. It’s pretty obviously intended to be in the same vein as David Bach’s Smart Couples Finish Rich, but rather than focusing on the relationship aspects of things (which Epperson really only devotes a chapter to), the book quickly moves on to nuts and bolts personal finance issues like how to invest your money and so forth.

Does this make for a worthwhile personal finance book? Let’s dig in and find out!

A Deeper Look at The Big Payoff

Introduction
Right off the bat, Sharon Epperson notes something that I’ve felt very strongly about personal finance - in fact, this idea was the reason I started The Simple Dollar:

Good financial planning isn’t just about numbers on a computer screen. Good financial planning helps you get control of your money matters so you can stop fretting about cash and start focusing on your life.

Personal fiance is about more than figuring out which option will pay out the most pennies. It’s about relationships. It’s about psychology. It’s about being able to wade successfully through the challenges that modern life presents to us in countless forms. For some people, it’s easy - for others, it’s a real challenge. For some, cranking numbers is an obsession - for others, it’s a quick route to falling asleep.

The goal of any good financial plan should be that everyone involved with it understands it completely and is committed to it. For some people, that might mean a spreadsheet full of numbers. But for others, it might just mean imagining a real world goal and knowing the steps it takes to get there. In either case, the part that really matters is the goal and the commitment to get there, because without that central commitment, those pages of spreadsheet data don’t really matter one little bit.

1 - Energizer Bunny Money
After that introduction, the book quickly turns to the nuts and bolts of personal finance, starting off with a detailed discussion on how to build your first budget, construct a debt repayment plan, get your credit report, and practice basic frugality. In other words, the real basic stuff that people need to do to get themselves heading in the right financial direction. For most people, if they simply read this chapter alone and acted on it, they’d find themselves in significantly better financial shape.

2 - Prescription for Financial 911
Epperson devotes the second chapter to emergency funds, arguing that everyone needs to have a significant emergency fund in order to handle the “just in case” situations in life. She encourages readers to stash the cash in something fairly liquid and not very risky but offer at least some return - online savings account or CDs work quite well for this.

She recommends that everyone have three months’ worth of living expenses in the ol’ emergency fund and encourages calculating up your real living expenses so you know what they are. Personally, I believe in even more - I think two months’ worth of living expenses for each dependent you have is the right amount. So, for our family’s emergency fund, we have eight months’ worth of living expenses. Regardless of this quibble, Epperson’s right on the money - an emergency fund is a great thing for everyone to have.

3 - On Golden Pond
Here the focus is on retirement and, again, Epperson offers solid basic advice - start saving young, max out a Roth IRA if you can, and contribute up to at least the matching amount in your employer’s 401(k). What I found most refreshing, however, was the very offhand mention that Epperson and her husband have a couple percent of their retirement savings tied up in an insurance policy that has a cash value to it, though she doesn’t seem to recommend this anywhere in the text.

That little tidbit reveals a big truth about personal finance writing and makes me like this book even more. The reality of each person’s life is different and no plan is perfect for more than one person. Sure, in the average situation, it’s best to sock your money right into that Roth IRA or that 401(k), but if your parents started you a whole life insurance plan when you were a newborn, it might make more sense to keep funding that versus putting money in the Roth IRA. Decisions like that are the ones that a good financial advisor can help you with. If you’re not sure, ask a professional, one who recognizes that all financial situations are a little bit different and one who is not trying to sell you a product (yes, that means hire one that you pay a one-time fee to rather than one who gets a commission).

4 - Feathering Your Nest
What about buying a house? From the perspective of a first-time homebuyer, this chapter is loaded down with good information - it covers basically everything I yearned to know about the home buying process when we were going through it for the first time. I also thought the input on the rent versus buy debate was particularly levelheaded - neither answer is the absolute best one for every situation.

One key piece of advice: shop around for your mortgage and don’t forget your local credit union. We wound up getting our mortgage through a credit union because their rates were stellar, it was easy to stop by and ask questions because they were local, and the person handling the mortgage did manual underwriting, which is generally more forgiving than the automated processes that big banks use.

5 - College Savings
This chapter is mostly filled with planning for your child’s college education, one of the standard things that many parents with children worry about. I’m lucky - living in Iowa not only means that the stellar Iowa 529 (managed by Vanguard) is available to me, but it also means that any contributions I make to that 529 is deductible in terms of state taxes, saving us $90 on our tax bill for every $1,000 invested for our kids. Those features add up to a no brainer.

In other areas, though, there are a lot of options to consider, and Epperson walks through all of them. The key thing to remember about college funding, though, is that it’s more important to start early than anything else - even if you don’t make the best investment choices immediately, you’re better off having started on your savings now rather than later.

6 - Healthy, Wealthy, and Wise
Here, Epperson tackles health insurance and spends most of the chapter walking through the nuances of it. Health insurance is frankly an unclear and boring mess for most people, but it’s something that pays off if you figure out the best solution each time you go through a significant life change. For example, my wife and I originally found it cheaper to have separate health insurance plans. When our first child was born, we again recalculated and we again found it was better to keep us separate and just add our son to her insurance. When our second child was born, we recalculated a third time and found that our best option now was a family plan.

However, the real decision to be looked at is disability and long-term care insurance. As Epperson puts it on page 144: “You probably think your biggest asset is your house or your 401(k), but it is really your ability to earn money.” In other words, if you have house insurance but don’t have long term care or disability insurance, you’re not insuring your most valuable asset. This is one portion of the book I really read and thought about - I need to look into these kinds of insurance simply to protect my family.

7 - Get a Life (Jacket)
The following chapter is also about insurance, but this time the focus is on life insurance and property insurance. For me, life insurance is pretty simple - if you don’t already have a whole life policy that someone set up for you as a child, your best option is term life insurance, and this is a stance that Epperson largely agrees with. How much? She suggests 6 to 10 times your annual salary, but I think it varies a lot depending on your situation. If you’re single, you certainly don’t need that much, if any at all. If you’re married with young children, it should be huge - you don’t want their options while growing up to flounder.

8 - Good Will Hunting
The Big Payoff closes with some discussion on estate planning. Basically, if you’ve got a net worth of less than $2 million, Epperson advises drafting a will, a revocable power of attorney, and a living will; if you’re worth more than $2 million, add a living trust to the mix.

For most people, these documents are simple - think about where you want your things to go, have it prepared, sign off on it, and rest in peace. The biggest trick is actually doing it - it requires thinking about matters most of us don’t want to think about it. Just set aside the time to get it done, right now - you’ll be glad you did it.

Should You Read It?

The Big Payoff is basically Personal Finance 101 for couples who have just woken up to the fact that they need to get their finances in order. It summarizes the key facts and has sensible stances on what exactly a couple should be doing with their money, and Epperson explains them in a personable fashion, often using herself and her husband as examples.

I actually found this to be a good complement to Smart Couples Finish Rich. Smart Couples focuses more on issues of actually talking about money, making sure you’re on the same page with decisions, and focusing on reducing spending. The Big Payoff is more of a couple-oriented education on how things work - what can you do with your money and how can you protect it? Different focuses, but they complement each other well.

If you’re in a couple and you’re just beginning to realize that you need to focus on your finances, this is a good book to read alongside David Bach’s Smart Couples Finish Rich. Snag them both from the library or from PaperBackSwap.

Prior to our financial meltdown, my wife and I simply never sat down and talked about our finances. Right after our meltdown, we talked about things almost every day, but through our recovery, our discussions have slowly reduced themselves to the point where we’re effectively already having monthly family financial meetings.

And these meetings have become a big part of the financial glue of our marriage.

These conversations keep us on the same financial page and ensure that we both are open and clear about our goals, our dreams, our mistakes, our challenges, and our shared path in life. They let us constantly be a check against one another, making sure we both stick to our better behaviors and use each other as an inspiration for making good choices. If you’re in a long-term relationship with someone, I can’t possibly recommend a monthly financial meeting more highly.

What Our Meetings Look Like

Our meetings are really pretty simple. We go through any credit card statements and bill statements that we have, talk about any changes we should make, plan for anything that’s coming up, and set some goals for the next month, mostly along the lines of limiting unnecessary spending and deciding where our budget leftovers will go for the next month.

For the most part, we don’t need any sort of specific agenda or meeting time - we just do it every once in a while on roughly a monthly schedule. Some keys:

Everything is an open book. There should be absolutely no secrets in such a meeting. If your spouse wants to know about a specific spending choice, be completely open about it, not defensive. If you’re getting defensive, that means you have something to hide - and that means there’s a problem that needs to be addressed together.

Make goals a big part of the meeting. Not only big, long-term goals, but the shorter goals over the next month that will help you get there. Set goals together, even if the goals are very individual in nature. Then, throughout the month, offer each other encouragement. It’s hard to break a bad spending habit or to make new financial choices - use the motivation of goals and the constant encouragement of a loving partner to make the changes easier.

This is a great time to work on a simple budget together. Sit down and talk in detail about your spending plan for the coming month - and also where your challenges and successes were over the last month. This discussion can provide a lot of insight into where you’re going - and where you’ve been - and that information together can help you to make better financial choices.

Love and respect each other, even if you have differences of opinion. Money brings about strong feelings - don’t let these strong feelings overshadow the more important things in life. One good way to do this is to hold your partner’s hand during the meeting.

Involving the Kids

I am a big advocate of involving children in these meetings as early as possible, by age seven at the latest. Allow them to bring their own financial picture to the table - pay them an allowance, have them budget the money, and have them talk about their own successes. Here are some thoughts on how to incorporate kids into this picture.

Keep the open book philosophy. Everything should still be wide open so that your kids can see the financial reality of being adults. They need to know how much you’re spending each month to keep the roof over their head and the food on the table - as well as giving an idea of all of the little expenses that eat away at the big pile of money.

What about privacy? Many parents like to hide behind a veil of privacy, saying that it’s none of their children’s business how they spend their money. My argument against that is twofold: first, it makes a great educational opportunity for your kids impossible and second, it says that there’s something in your spending that you’re ashamed of. If there’s shame, that means that there’s something you personally need to improve in your life.

Naturally, I see no problem eliminating a few items with black highlighter in order to hide an upcoming gift or something, but if you’re sealing away most of your spending from your children, they’re missing out on a big learning opportunity.

Let them offer input towards goals - and have them set their own. When you’re making large financial choices, let them have a voice in the decision, but don’t let them run the show, either. Where you should allow them a lot of control is in setting their own goals, both over the long term and over the next month. Help them identify good things to save for and encourage them to work towards those goals. This goes hand in hand with the idea of splitting an allowance into pieces for spending now, sharing with others, and saving for later - in effect, budgeting for kids.

Make some of the economic choices you have available to them. This is a concept heavily advocated by David Owen’s excellent book The First National Bank of Dad. In it, Owen advocates that you should create a “virtual” bank for your kids with a very high interest rate - say, 5% a month - to teach them the value of saving very early. In other words, let’s say they have $20. They have the choice of putting that $20 in the “First National Bank of Dad” where it will earn $1 in interest every month, or they can spend it immediately. All they have to do to earn that $1 each month is simply not spend it. It’s a real choice for a young child and it introduces them to the dilemma of saving versus spending - and offers plenty of encouragement to make the “good” choice.

In The End…
At its core, the idea of a monthly money meeting is really all about communication. The more we talk about money with our family and the more we encourage each other to make good choices, the more likely we are to make good choices over the long haul. Even better, it’s a splendid opportunity to use ourselves as examples for our children, teaching them how to be financially responsible adults.

One thing that I feel I did very right earlier in my life was building a strong, communication-based relationship with my wife in the years before our marriage. We talked about everything, building up to a point where no topic was off limits between us and we could expect a truly honest answer from each other, and from that communication came a strong foundation of love and trust. It was perhaps the best thing either one of us have ever done, because it became the foundation of an incredibly strong marriage.

One of the most difficult topics to discuss was money issues, largely because of the taboo nature of it. In fact, it took us years to break down that final wall, even though we had found a very strong and deep comfort level when it came to other topics, and we both found that when we finally started communicating about money, it was incredibly valuable.

What did I learn from this experience? Without a doubt, it is far better to talk about money sooner rather than later when your relationship gets deeply serious. Here are some guidelines - and some specific topics to discuss - for when the time comes to talk about such things. You’ll be glad you did.

Before You Get Started…

First of all, realize that total honesty is the only answer here if you expect to have a long, lasting, and loving relationship. Once you finally get up the courage to address these issues, don’t hold anything back. If you find yourself biting your lip or tucking away a little piece of information or two, you’re creating a relationship of mistrust. I’m not talking about things like not telling your partner about their Christmas gift, either - it’s rather obvious where the line is in this case.

Expect some disagreement as well. You’re likely going to have very different feelings on how money should be handled in your relationship. If you find yourself being truly honest and meshing well, consider yourself lucky. Very lucky.

Don’t expect to answer these questions immediately, either. Often, fundamental financial decisions aren’t made in an afternoon. If something seems like it’s building to a serious disagreement and you’re not making any progress, let a few weeks pass before talking about it again. During that time, try hard to see the situation through your partner’s eyes and understand why they want things to be that way.

For some couples, these topics might be very easy and you might find that you’re both in very strong agreement. For others, each question might be grounds for conflict. Likely, you’ll find yourself somewhere in the middle, and that’s perfectly normal and healthy.

Twelve Things To Talk About

Where do you see us being in five years? Ten years? Twenty five years? Try to flesh out as much as you can here, but realize that the future isn’t set in stone. The reason for discussing this is so that you have some idea what the dreams and the goals look like for each other.

What does our complete financial state look like? Lay everything out. Every debt. Every drop of income. Everything. Don’t hide that $4,000 credit card statement, as you’re just building a foundation on top of a lie.

Should we share our money or maintain separate accounts? Who should be the primary caretaker of the accounts? Many people will argue that any married couple should combine all accounts - my wife and I did not come to that conclusion. Talk it out and figure out what’s right for you.

When do we intend to make major shared purchases, like a house? How much do we intend to spend on such a purchase (roughly)? This is one area where people often just assume that their partner sees things the same way that they do. It’s not true. My wife and I, for example, had very different views on when a house purchase was appropriate, and my wife was ready to buy three years before I was even willing to consider it.

Are children a possibility? Although this is a very deep emotional decision, it’s also a financial one as well. Make sure you’re on the same page when it comes to children, because while having a child is a deeply fulfilling endeavor, it’s also a very expensive one, often more expensive than people without children even realize. It also means some significant lifestyle changes, too.

Are we both committed to our career path? Sometimes, the support of a spouse provides a strong situation for one member of a marriage to make a career leap they would not have otherwise considered. This is a great discussion point.

Are we both saving for retirement? When’s the retirement target? This was one financial issue that my wife and I talked about quite a bit before we were married, especially since we both were already putting away a substantial amount into 401(k)/403(b)s. Just make sure that you’re both aware of what the other is doing and that you realize that without putting money away for that inevitable day, you likely will never retire.

Do we want an urban, suburban, or rural life? You might think the answer is self-evident, but it’s often not. Take Kathy’s story from a while back - she and her spouse at first thought urban living was self-evident, but after getting married, they began to talk about things and realized that perhaps it wasn’t the obvious answer that they thought it was and then began plotting a move to a much more rural setting. If they had talked things out first, they might have moved rural right off the bat, saving themselves substantial time, money, and happiness.

What’s our financial risk tolerance? Can we tolerate short term losses to aim for long term gains? For some, losing some money in the short run is completely fine if it means some years of 20% returns down the road. For others, watching the balance of their investments drop like a rock over years is just too painful. Figure out where you’re both at on this, so that if you make investments from your shared money, you don’t wind up with your money in something far too risky for the other person’s tastes - which can result in a very bitter conflict.

What’s the balance between work and leisure? Some couples might consist of two people that are very career-oriented. Other couples might consist of people who could care less about a career, or perhaps some mix of the two. The only problem comes about when one person’s expectations completely miss the behavior of the partner.

Is a prenupital agreement appropriate? Is one of you bringing far more into the marriage than the other, or expecting to earn far more than the other during the marriage? You may want to discuss a prenupital agreement, but there needs to be an air of honesty here - if you feel one is useful, don’t hold back in saying so.

Are there any known burdens that will likely crop up in the future? For example, does one of you have an ailing parent that may need special care? What about dependent pre-existing children? Do one of you have a major illness that may start showing symptoms? While these are not usually make or break issues, they often provide the basis for some deeply insightful conversations.

Two Books Worth Reading

I strongly encourage any couple that is considering spending their lives together to take the time and each read Your Money or Your Life (the book club of YMOYL might be very useful) and Smart Couples Finish Rich, but do it together. I recommend that each of you read a chapter, then discuss it together.

One technique my wife and I found useful was reading a chapter of such a book aloud on long car trips, with the passenger reading and then both partners discussing the topics. We would just stop and start talking whenever an important point came up, and we wound up discovering a lot about each other.

No matter what you do, though, don’t put off these conversations. They can be the key to establishing a strong foundation for your relationship and building a much stronger understanding of each other. In fact, if you’ve never opened such a door with your partner, today is the best day to do it, because tomorrow it’s very easy to find a reason to put this off.

I received a really interesting story from a reader named John. He has his financial head in the right place, but some other pieces of his overall life puzzle aren’t quite in alignment. Take it away, John:

I am 29 years old and I have just recently started to jump into real estate investing part time in my hometown. I currently work a regular full time job that pays $43K a year. Just last month I sold my first “project house” and used the profits to be completely debt free (other than my $110K mortgage, 5yr fixed @ 5.9%). I also now have $40K left over sitting in a high interest savings account (5.05%). My plan was to hold onto this 40K and use it to further my real estate investing career. I would use it for downpayments, renovations etc. Without this money, I really do not have any other way of purchasing my second “project house”.

I have been living with my girlfriend for over 2 years now and I am 90% of the way to having the money saved to buy her an engagement ring (should be there by Nov). She just finished school and is coming out holding a little over 20K (interest of ~6% on both) of school debt. Her current full time job is paying her only ~$30K a year.

My question is this:
Should I use 20K of the 40K that I have saved to pay off these student debts?

Pros:
* 20K will take her quite some time to pay down when she is only bringing in $1500 a month and it will be pretty hard on her.
* She (we) will save quite a bit in interest costs by paying this off completely.

Cons:
* This move would limit my RE investing options, as I would only have about 20K to work with.
* I am worried that she won’t learn the value of being debt free as she hasn’t experienced what it is really like to be frugal.

John’s in a situation where there are a lot of questions about his immediate future that he needs to answer. Let’s move through some of these questions one at a time and see how they affect John’s best move.

First, is she going to accept his marriage proposal? This is a very important question because it may likely lead straight into wedding expenses and other such costs associated with this, meaning that he probably would want to have the cash for the wedding liquid rather than tied up in real estate.

Next, would he still want to pay off her loans if she didn’t accept the proposal? Some people might automatically believe the answer here is “no,” but it depends on who John is as a person and also the type of relationship he has with this woman. If the debt repayment is contingent upon the proposal or upon the marriage, then he should wait to pay it off - if it is not, he should pay the debt off immediately.

Also, how valuable is this real estate investing career? For time and money invested, how much did John actually make on the first house? I would figure up an hourly rate including all time invested and all costs and see how it did. If it’s minimum wage or less, the real estate career should be viewed as a hobby and put somewhat on the back burner compared to eliminating debt and paying for the wedding.

I’m also not sure about the comment about “hasn’t experienced what it is really like to be frugal.” I think that’s an issue you need to talk about within the relationship, as there is no advice that can really be given to address that aspect that isn’t pushy or assumes quite a bit about the relationship. Just sit down and talk about frugality and spending - make sure you both understand that the best way to go over the long term is to always spend less than you earn and the bigger the gap, the better.

My perspective is this: if you are sure that you are going to be married in a year or two and you’re not in the middle of a real estate boom, your best bet is to pay off her debt immediately, then pay for the wedding without incurring more debt. If either of those assumptions are in question, then the situation requires a lot more detailed thought.

Of course, with a situation as complex as this, I’m sure my readers will have some additional ideas.

I adore my wife - she’s a wonderful woman and a wonderful mother. We go together like two peas in a pod on most things, except for money (and cats, but that’s entirely off topic). We’re both frugal, but she’s never been into any sort of financial planning at all, and this has led to many, many strange and sometimes uncomfortable discussions, and because we didn’t sit down and hash out basic financial things before we got married, there have been a stream of uncomfortable financial issues that have cropped up during our marriage that led to nothing but confusion and disappointment because we weren’t on the same page to begin with.

If you’re about to get married, I would strongly encourage you to take a few hours and discuss these ten questions with your spouse-to-be, just so you know what’s going on.

How much money do we have? What’s in all of your accounts? Hint: if you’re hiding things here, then it doesn’t speak well for the level of trust that will be in your marriage.

How much debt do we have? This needs to be completely honest, with all cards on the table, or else you’re just begging for a big fight after you get married. You will be much, much better off if you both reveal your complete, true financial state, because if you do not, you’re hiding a major skeleton in the closet that will someday jump out and really, really disrupt the tranquility of your life.

How much income can we expect? What do you both make in a year? Will that grow in the future? How steady is your employment? Will there be enough money to pay for the standard of living that we’re envisioning together, or will we have to make an adjustment?

What are our known and required expenses? You’ll find yourself saving money on most of these things when you get married, but you need to touch base on all expenses. Perhaps one of you has alimony payments, or else has several maintenance prescriptions that need to be kept up. These financial requirements are important and need to be specified right off the bat so that both parties know what’s required and you don’t have an argument about them later on.

How much do we frivolously spend each month? If you’ve been burning through money to put on the impression of being wealthy to impress him or her, you need to come clean about this now. If you’re a shoe addict, or have a thing for your DVD collection, be honest about the cash you’re burning on these pet projects, but also be realistic about how much you’re going to cut down (if at all) when you get married. If this will cause problems, it’s best to talk them out before the marriage than after.

Should we use an allowance system for frivolous spending? You need to specify how you’re each going to be realistic and fair about frivolous spending. It’s not healthy for any marriage for one person to spend like crazy while the other one doesn’t have a dime, and it’s also not healthy for both people to spend a certain amount, but one person “spends” more with the help of a credit card.

Will we combine our money? For most couples (but far from all couples), combining your money is the best choice. Many argue that not doing so indicates a lack of trust between the two sides, but there may be reasons for keeping them separate. Talk about this in detail and plan for the best move for you.

If combined, who will be the primary money wrangler? In most marriages, one member handles most of the financial decisions. Be clear on who that is going to be so that you aren’t caught in situations where you’re both making moves and the right hand doesn’t know what the left hand is doing. Who’s going to make sure the bills get paid and also keep track of the money that needs to be in each account?

How will we combine our physical assets? Figure out what items you’re going to keep after marriage and figure out a fair way to get rid of the excess so no one is upset with anything. I recently heard about a wedding where both people had houses before marriage, but in the month before the wedding, one of them sold their house and went on an $15,000 shopping spree. From what I hear, the “honeymoon” period was quite short in that one.

When we marry, what will happen to our estate? Obviously, in the event of one of you passing, all assets should go to the other, but what if you’re married and you both pass on? If you’re about to marry someone that just assumes that everything will go to her niece, then you may want to clarify things before you even jump in.

Trust is the key to any marriage, and money can be one of the hardest parts to build trust on. Take the time to do it right.

A reader wrote in recently asking whether or not wedding bells should be in his future. What do you think?

My fiance and I are considering marriage. However, it seems like financially, marriage is a mistake. We both work full time and it seems like a greater proportion of our incomes would now go into a higher bracket. Are there any tax benefits to being married that might offset this?

If your salaries are very similar, then yes, you will pay more income tax as a married couple than as singles. If your salaries are far apart, however, there is a tax benefit for getting married and the wider the gap, the better.

However, marriage comes with many other financial benefits. If one of you has excellent health care coverage and the other has mediocre coverage, you can likely both be able to have the higher quality coverage for little cost to you. Insurance rates, particularly for auto insurance, are lower for married couples (significantly lower in our case). Plus, if one of you meets an early end, the benefits of being married are tremendous: the longer-living spouse gets Social Security survivor benefits, automatic inheritance rights (if you’re not married and one of you dies, you’ll lose a lot of money dealing with probate), and you don’t owe any estate tax, either.

My wife and I were making very similar salaries when we got married, but after combining our auto insurance and indicating we were married as well as combining our health insurance, we ended up saving money over the course of a year even with slightly higher income tax.

Also, when we go to buy a house, should we put both our names on the mortgage application? How are you and your wife handling this?

If one of you has terrible credit and the other has really good credit, then just one of you can apply for the mortgage, but lenders will only lend you an amount that could be repaid with annual payments equal to 28% of the combined salaries of the people on the mortgage. So, if you’re both making the same salary, having only one of your names on the mortgage means you can only borrow half as much as you otherwise could borrow. My wife and I both have very good credit ratings, so we both put our names down, enabling us to borrow pretty much any amount we wanted.

The only time I can think of when marriage isn’t financially beneficial is when you think there’s a good chance that divorce may follow it.

My wife and I have a monthly financial review meeting where we sit down with all of our bills, credit card statements, and so forth. We go through everything together, item by item, and try to figure out where we can trim our spending. Most of the time, we’re in pretty clear agreement on things, but once in a while we disagree on the necessity of an item. What this entire discussion comes down to is a clear definition of our wants and our needs.

What are wants and needs? In a nutshell, needs are the things that you absolutely have to pay in order to live and avoid bankruptcy: housing payments, taxes, groceries, commuting costs, and so on. Wants are the things that you spend money on that you don’t explicitly need, like dining out or music.

As a rule of thumb, my wife and I allow each other a certain amount of wants in a given month, because life isn’t fun if you can’t have anything that you want. My wants are usually books, food, and occasionally music; hers are much more varied. By capping our wants at a reasonable level each month (and also with the peer review process on such spending), we often find ourselves saving quite a bit of money each month.

The tricky part is determining whether some of your spending is a have or a want. For example, let’s say we have beef burgundy for supper and in order to make it, we have to buy a new bottle of cooking wine (we generally buy pretty cheap wines for cooking wines, like “two buck Chuck”). It’s not explicitly a need, as you can prepare food at home without it, but it also really stretches the definition of want as well, as things like cooking wine enable us to prepare delicious meals at home that encourage us to eat at home instead of getting takeout or eating out, so in the long run buying a bottle of cooking wine is a money saver for us.

Here’s the process we go through to determine if something is a need or a want:

First, we list all of our spending that isn’t strictly essential in a month. Things that are essential are housing bills, most gas costs, staple foods, medical bills, insurance, and so on. These are things that we have to pay no matter what.

After we’ve made that list, we list everything that’s clearly a want. Entertainment and hobby expenses, dining out, and so on go under this category and immediately go on the want list.

This leaves us usually with a handful of things that we talk about - things like the cooking wine and so on. This process is more organic, but it usually comes down to the following question: would we have spent more money than this had we not purchased the item? With a bottle of inexpensive cooking wine, the answer is usually “yes,” because we likely would have eaten out more often without tools like that in the kitchen, thus costing us more in the long run. We use a similar philosophy to mark things such as CFLs as needs.

After this process, reviewing the list of wants helps us keep our eye on the financial ball each month. We usually strive to keep ourselves within our self-imposed allowance - and thankfully, we’re both usually way under the limit.