I don’t mean that we should disregard history – of course not. On the contrary, we need to use history to provide us with foresight into the potential outcomes of our choices. The experiences we’ve encountered (and our friends/families/acquaintances have experienced) can help us to predict the outcome of various choices and decisions that we make in the future.
Consider these factors:
- The divorce rate in the U.S. has been high for a very long time, causing a great deal of heartache and expense, not only for the couple but for family and friends as well. And one of the primary factors that causes a rift for young married couples is money problems.
- The average cost of a wedding nowadays (according to this article on The Knot) is $31,213. Of course, most weddings cost far less than that, but for many folks the cost of the wedding is a very significant figure nonetheless. Often, paying the cost of a wedding can cause a young couple to go into debt before the knot is even tied.
- The average college graduate in 2016 could expect to owe around $37,172 in student loans (per Student Loan Hero). If you assume that both members of the newly-married couple are college graduates, that amounts to nearly $75,000 in debt.
- A “starter home” used to mean a 1 to 2 bedroom, 1 bath home at a price something on the order of one times the take home pay of a young family. Nowadays, the “starter home” has morphed into a 3+ bedroom, 2+ bath home, and the price can be as much as 2.5x to 3x the income of the family. This occurred for two reasons: the size of the average home increased dramatically; and most importantly, the amount of money that could be borrowed (as a percentage of the value of the home) increased significantly over time. Payments on mortgage loan debt have increased to an average of more than 25% of pre-tax income for folks right out of college.
- Most people have a hard time talking openly about money. Money is one of those “taboo” subjects for most folks; conversations about money are uncomfortable. Because of this, most young couples don’t have serious discussions about finances until they start seeing problems.
Is it any wonder that divorce rates are high? A significant factor in divorces is financial issues, and the average young couple is starting out far in the hole – no wonder there are problems! Most of these young couples facing issues in their marriages can readily point out certain things that they wish they’d done differently in hindsight.
So the outcomes we see are a reaction to the factors. But what if we start using the experience of others to give foresight, to improve our own outcome? What if a young couple used the factors that can be working against the success of their marriage to try to avoid what seems inevitable?
Using Experience as Foresight for Marriage
Below are a few items to consider with your foresight:
Consider whether the wedding must be as expensive as originally planned, or as expensive as your friends’ wedding (or whatever is your gauge). Many, many long-lasting marriages were simple affairs that took place all in one church (reception in the basement). Of course you want to make the event memorable – but it doesn’t have to cost a fortune to make memories.
Make sure that you each understand one another’s debts – including what kinds of debt and how much. Have a plan for dealing with these payments, eliminating them over time. Also have a plan in place for how to keep these current if one of you is unemployed.
Instead of keeping the finances separated and only discussing money when it becomes a problem, talk about money up-front. Probably not on the first date, that might be a bit of a buzzkill, but definitely before marriage.
The accounts can remain separated after marriage if that’s a personal preference, but the couple should share the information with each other. Using this information, the couple can produce a household net worth statement. Don’t get hung up on the terminology, it’s just a report showing your assets (savings and things) minus your debts (loans and credit balances). You’ll need to do this when it comes time to get a mortgage; might as well get a head start on it.
It’s not a one-time thing, either. On a regular basis the couple should share in decision-making. Talk over things such as starting a new subscription or a membership to a fitness club, for example.
Often one member of the couple is responsible for paying the bills. This can be a mistake if the other member doesn’t have knowledge of the state of the month-to-month finances. It often makes sense to either do this together or split the responsibility (every other month, for example). At the very least, each spouse needs to know the household’s position – positive or negative cash flow. More income than expenses is positive, vice versa is negative.
The wedding example above is but one of many that illustrates the benefit of foresight. Review any major purchase, job change, retirement, or change in family similarly. Look at the potential pitfalls and use that information as foresight to guide your decisions.
I know many folks already use past experience as a guide – and kudos to those that do. But many more of us can use this change in perspective to improve our financial futures.