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Making your financial relationship work

In just about any long-term relationship, finances will come into play - but more so if you’re about to get married. Before you tie the knot or soon after, it pays to have a heart-to-heart with your partner about finances. After all, it’s very likely that you will have spent a substantial sum together already...

The best things in life

According to the wedding advice and ideas website www.weddingsday.co.uk, the average wedding cost in the UK falls anywhere between a huge £15,000 and a staggering £25,000, with the cumulative average figure settling around the £18,500 mark.

By far, the most expensive item is the wedding reception (venue, food and drinks), costing around £4,000, or 21.5% of the average budget, with the honeymoon coming a close second at £3,400 or 18.5% of the average budget. Once all the different costs are factored in, such as the dresses, reception, flowers, rings, cars, photographer and honeymoon, wedding expenses soon mount up and it might be tempting to think about taking out a loan.

But starting married life in debt can place a strain on your marriage and the pockets of those involved right from the beginning. With careful planning, you can still have your perfect day without the designer price tag and burden of a loan.

Shop around for bargains in advance, and nearer the day make use of talented friends who can lend you a hand with things like flowers or place settings. Emailing your invitations out cuts down on printing costs and stamps. It’s also worth looking online for ideas, as websites such as www.cheap-weddingsuccess. co.uk are full of free tips and links from brides who have successfully trod the line between value and style.

Financial talking points

share the current state of your finances. Whatever your financial situation, it’s always better to be open and honest at the beginning than to be unpleasantly surprised in a moment of stress or crisis later on. It is very important to be candid and nonjudgmental with each other.

Concealing certain items from your partner now could result in serious problems later – let alone creating potential conflict. Make sure your plan for going forward is one to which you are both committed. Here are some basics to go over:

• What’s important to each of you when it comes to finances?
• What assets do each of you hold - bank or building society accounts, investments, trust funds, property etc.
• Which assets will you combine and which will you keep separate?
• Will you use a joint bank account?
• And joint credit cards?
• How will you deal with differences in income now and in the future? Who will be responsible for paying the household bills?

Setting boundaries

“What’s mine is yours, and what’s yours is mine” is a little old-fashioned these days, but there is still some worth in thinking that way now you are no longer in unquestionable ownership of your own resources. While nobody wants to make a detailed list of every single thing they buy, it is a good idea to set an “approval” limit of a certain amount that shouldn’t be spent by just one partner without prior discussion. That way, there will be no conflict when you come home with an expensive purchase, or, even worse, when the bill comes.

Making a budget

amount of money each month, and excluding holidays and one-off items, most people spend the same amount of money each month as well. If you fit that description, putting together a monthly cash flow budget should be simplicity itself.

When preparing your budget, you need to estimate your incomings and outgoings on a monthly basis. You then subtract your projected outgoings from your projected incomings. Start by sitting down together and listing the following regular incomings and outgoings:

• Income – wages and any other money coming in regularly.
• Debts – student loans, wedding loan, bank loans, car loans, credit card balances, etc.
• Expenses – rent/mortgage, utility bills, council tax, water, insurances, etc.
• Consumables – food, petrol or transport costs, clothing etc.

will be able to show where your money is coming from and where it is all going, but often it is not until we actually list our incomings and outgoings on paper that we can plan and cut back if necessary. If you calculate that you’re working at a deficit, you have three options.

You can cut some monthly expenses, find another source of income, or continue living temporarily knowing that your monthly outflows will (temporarily) exceed your inflows.

Planning for the future

In your discussion of finances, you should also consider potential future costs. Do you plan to buy a house? Have children? Travel around the world? Move from one town to another? All of these things require significant financial resources so be sure to discuss them thoroughly.

Planning for security

Compared to planning your wedding, honeymoon, and future life together, buying insurance may not seem very romantic but, in reality, coverage that protects you and your spouse against life’s unforeseen risks is an important part of planning your life together.

Most newlyweds aren’t in a financially secure enough position to be without disability insurance and life insurance. Even if you have some coverage through an employer sponsored plan, you might still want to consider purchasing additional cover on your own. The advantages of purchasing insurance while you’re young and healthy gives you the opportunity to “lock in” favourable rates.

Income Protection

Income protection plans are designed to replace the income you would lose if you became ill or were injured and therefore unable to work for long periods of time. As state benefits currently only offer up to £89.50 a week for those qualifying, it can be argued that most people in their working years should have at least a minimum amount of long-term disability insurance.

Critical Illness Insurance

This kind of cover pays out a cash lump sum on diagnosis of a specified serious illness during the policy term, such as a variety of types of cancer, stroke or heart attack. Critical Illness cover and Income Protection complement each other and I would be pleased to offer you some advice as to which would benefit your individual situation the most.

Life Insurance

You might think you do not need life insurance right now, but when you add up the cost of your debts, such as your mortgage, car loans, student loans, credit cards, and other personal loans, all of a sudden it could well be that a larger amount of money is needed to pay them off than was maybe anticipated.

For most newlyweds, term insurance is the best way to get adequate coverage at an affordable cost, and we can help you choose the right type of protection to fit in with your individual needs and lifestyle. And now that you’re married, don’t forget to review who is the named beneficiary on all of your existing life insurance policies - including any cover that might be included in pension plans. With finances, as with many things in life, an ounce of prevention is worth a pound of cure.

If you and your partner approach your finances in a direct, matter-of-fact way early in the marriage, and take sound, professional advice to plan for the future, you’ll provide a solid foundation for your relationship, and for your finances, as time goes on.

This article was taken from Seneca Reid's Spring 2010 newsletter.

Seneca Reid is a trade name of Andrew Charles Reid Smith who is an appointed representative of Openwork Limited which is authorised and regulated by the Financial Services Authority.

The information on this website is for the use of residents of the United Kingdom only. No representations are made as to whether the information is applicable or available in any other country which may have access to it.

Openwork Limited offers insurance and investment advice on products from a limited number of product providers and advice on mortgages representative of the whole market.