Money has been found to be a leading cause of relationship stress, according to a SunTrust Bank Study. Money is said to cause more relationship problems than even annoying habits, with 35% of survey respondents citing financial issues as the primary reason for friction with their spouses. Other studies have also shown that financial arguments early in a relationship can be a key predictor of divorce.
Being in debt and having too little money to meet financial expenses — like covering rent or coping with an emergency — are key reasons for couples to fight about money and for individuals to worry about their own financial situation. Unfortunately, many couples make decisions early on in their relationship that set them on the path to perpetual money woes.
You can avoid these mistakes if you’re smart about your cash and know how couples get into financial trouble. Here are five key money mistakes made by many betrothed couples that you should avoid.
1. Paying too much for an engagement ring
Diamonds are said to be a girls’ best friend, but they’re a marriage’s worst enemy. A study of more than 3,000 married persons throughout the United States found that the more couples spend on their engagement ring and ceremony, the shorter their marriage is likely to be.
Paying too much for a ring has been found to increase concerns about spending, especially as the average price paid for an engagement ring topped $ 6,000 in 2016, according to The Knot. Engagement rings can seem frivolous, given how many couples face high student loan debts, and some brides may even come to resent the lost opportunity that the cash spent on their ring represents.
While both spouses should make sure they’re on the same page about this sensitive issue, finding a ring that’s inexpensive and meaningful may get your marriage off to a better start than straining your finances, or going into debt, for a shiny rock.
2. Paying too much for a wedding
The average wedding cost in 2016 was $ 35,329, according to a study conducted by The Knot. No, that is not a typo. Couples are spending almost enough to pay off the average person’s student loan debt on a big party.
It should come as no surprise that spending the equivalent of a house down payment on a wedding doesn’t bode well for your marriage. In fact, couples who have weddings with a price tag of $ 20,000 or more are 3.5 times more likely to divorce than couples who spend $ 5,000 to $ 10,000.
You can still have a great wedding for way, way less than $ 35,329. Consider getting married on a Friday or Sunday, or even during the week, rent your dress, and pick a location with natural beauty so you don’t have to spend a fortune on decorations.
Most importantly, remember that your wedding should be about starting your life together, not about having a Pinterest-perfect party that impresses your friends but leaves your marriage on shakier ground.
3. Not talking about finances before you get married
Studies show spenders and savers tend to marry each other because each is unhappy about their own relationship with money and tends to be attracted to someone with the opposite attitude. Unfortunately, opposing views toward spending were found to cause more conflicts over time and were associated with diminished marital-well being. The greater the difference between the spending and saving habits of spouses, the more likely it was that money arguments would arise and the lower rates of marital satisfaction couples reported.
This doesn’t mean you need to walk away from a relationship with someone you love because you prefer to put money in the bank and your partner enjoys spending every last dime. But, you do need to talk about money before marriage, understand your partner’s philosophy, and make a plan to deal with differences.
You may decide keeping some of your money separate is the answer or you may agree to consult each other about purchases over a certain dollar amount — but the important thing is that you make some type of arrangements that you’re both on board with. If you cannot talk openly about money now before you get married, things are only going to get harder as your financial obligations increase with the house, kids, and thousands of financial decisions you make as you build your lives together.
4. Failing to understand how your marriage can affect student loans
The average graduate in the class of 2016 left college with $ 37,172 in student loan debt, and the student loan delinquency rate now tops 11%. Student loans are a huge financial obligation, and you cannot get rid of them during bankruptcy. Before you get married, you need to know if your partner has student loans, and you need to understand how those loans will affect your other financial obligations.
A high student loan balance could make it more difficult for you to buy a house together, and it could mean your partner has limited extra funds to contribute toward important financial goals like retirement. And if your partner cannot pay their student loans, this could mean financial disaster for you as a couple. Your tax returns could be taken, debt collectors could end up hounding you, and your partner’s ruined credit could make every major joint purchase either impossible or very expensive.
Not only do you need to know whether your partner has student loans, but you also need to be aware that marriage could affect income-contingent loan repayment. If you file your taxes as married filing jointly and your household income goes up, then your income-contingent student loan payment could rise dramatically, or you might become financially disqualified from being able to make income-contingent payments.
If a lower-earning spouse can no longer make a payment equal to a reasonable percentage of their salary, you’ll need to decide how you’ll handle this as a couple. Is the higher-earner OK with kicking in, or should you file as married filing separately and potentially lose the tax breaks that marriage could bring? Find out exactly how combining your incomes could affect loan repayment and come up with a plan you’re both comfortable with.
5. Failing to understand how marriage can impact your taxes
When you get married, you’re considered a couple in the eyes of the law. While you can file your taxes as married filing separately if you don’t want to submit a joint tax return, certain benefits will still be affected by your marriage. For example, you could lose your Earned Income Tax Credit, among other valuable credits, if you submit a return as married filing separately. Your marriage could also push you into a higher tax bracket, meaning you and your spouse both pay more in taxes. And if your combined incomes are too high, you could lose the ability to contribute to tax-advantaged individual retirement accounts, and you could face other limits on deductions for high earners.
There are a huge number of changes your marriage could bring to your tax returns, and some of these changes can cost you big money. If you’re going to end up owing a lot more because you’ve tied the knot, it’s important to plan for that. Otherwise, you could get hit with a big surprise tax bill at the end of the year if you’re employer wasn’t withholding enough from your paychecks to cover what you owe. Unless you think large IRS fines and penalties are a good way to start your marriage off right, talk to an accountant to make a plan for your taxes — ideally, before you walk down the aisle so you’ll be ready to face your financial future together.