Life is full of sticky issues and none stickier than the issue of if, when, and how to combine finances with a romantic partner.

In the early days of a relationship, when everything is shiny and new, it might seem like the most logical thing in the world to combine finances with the girl or guy of your dreams. But keep in mind that the odds of the relationship panning out may not be in your favor. Divorce statistics are always hotly debated, but the CDC puts the marriage rate at 6.8 per 1,000 of total population, with the divorce rate at 3.4, based on 2009 data. You don’t have to be Zsa Zsa Gabor to realize that these are not terrific odds.

Considerations

There are many factors to weigh when deciding to combine finances, including the incomes, assets, debts, credit ratings, obligations, ages and general reliability of both parties. For example, an older couple with two stable incomes and established credit histories might benefit less from combining finances than a younger couple with one stay-at-home spouse. Likewise, couples with one spouse whose income varies greatly from month to month (such as real estate agents, freelancers, or contractors) might find that putting everything in one pot helps smooth out the financial peaks and valleys.

The decision to combine finances should never be taken lightly because the effects of such an arrangement can have long-lasting repercussions. Credit card bills racked up by a profligate spender can harpoon the financial health of a more prudent partner, sometimes long after the relationship has evaporated.

Life Stages

Recently, young friends of mine who both have stable jobs decided to purchase a house together. They were not married or engaged, and so my gut gave a little lurch when I heard the news. I was worried that if something derailed their relationship, they would be encumbered with a property they could not afford individually and the legal entanglement of a shared mortgage. Fast-forward a few months and they are now engaged and moving forward with their life plans. Was it hasty of them to commit to a house purchase before the relationship was on terra firma? Or was this simply a case of outmoded thinking on my part? Several older, non-married friends of mine share mortgages and I don’t bat an eyelash. So perhaps it was only the relative youth of this couple that caused my twinge of fear.

Another couple of my acquaintance married later in life when both had established careers and substantial assets. They worked out a pre-nuptial agreement and decided to opt for the yours-mine-and-ours financial model for expenses. Both retain their existing accounts but contribute on a monthly basis to a shared account used for joint expenses such as utilities, food bills, housing costs, vacations and the like. This arrangement is practical for many households with dual incomes. The contributions to the joint account don’t have to match dollar for dollar; each couple can arrive at a ratio that is workable depending on income and other obligations such as child support. In theory, the amount not contributed to the joint account would be used for each partner’s retirement fund, short-term savings and spending money.

Taking the Plunge

The process of combining finances can be a vexing issue and a very personal one. The most important factors are trust and openness. A frank discussion about financial goals and practices, accountability, and responsibility will help you determine the right time and manner to combine finances. If both partners share the same goals and outlook and are responsible enough to adhere to the program, then combining finances can be completely painless. If there are stark differences of opinion or bad habits to be overcome, a staged approach might be more prudent. For example, start small with a joint account that covers only the items that are truly shared such as housing, food, property taxes and insurance, and utilities. Over time, other assets can be combined once a pattern of compliance and trust is established.

For me, the process of combining finances happened organically over several years. In the beginning, I retained by own accounts and transferred chunks of money to my husband’s brokerage account periodically for our investment portfolio. I continued to max out my SEP-IRA annually. After our children were born and we moved to Costa Rica (where it was not legal for me to work due to our residency status), we simply combined all of our assets into one pot without fanfare. Luckily, my husband is a tight-wad and we share similar long-term financial goals, so I did so without hesitation.

When preparing to combine finances, start with a realistic look at your income and expenditures using an online budgeting tool like Kiplinger’s worksheet or a budget-planning app like Mint. This will help you discover areas where your actual expenditures are outpacing your projected expenditures and let you trim accordingly. Crunching the numbers will give you and your partner cold, hard facts to work with rather than vague suspicions like “he spends too much on eating out” or “she spends too much on shoes.” When you are armed with data, combining finances will be less a leap of faith and more an orderly process designed to help you achieve your financial goals as a team.

Combining finances with a loved one is an issue with no “right” answer, so if you have any insights gained from personal experience, please share them here.

We had “The Talk”

This July 2nd my wife and I happily celebrated our 7th wedding anniversary. In our seven years together as a married couple we have experienced loss (mother, aunts, grandparents, friend), gain (our two children, nieces, and nephews) and believe it or not, financial prosperity.

This last one may not seem like a big deal on the surface, but I believe our mindset about money is what has allowed us to survive the good, the bad, and the ugly during our years of marital bliss.

We had a “plan”

It is funny when you look back on the past and think about the decisions a couple makes together. In this case, we had a 5-year plan of when we were going to have children, which got interrupted with the arrival of our son one year later.

We also immediately combined finances, which eventually forced us to communicate better about our finances. I believe it was after the third overdraft fee that we started to discuss who was spending what, how, and why.

At this time, I would like to add that I would be considered the larger spender than my wife, but that is not to say she hasn’t had her moments. Over time it has definitely been me.

In spite of the stress of a beginning marriage we have always been open with each other. However, there remained an underlying financial pressure that was created by yours truly. In a time that seemed like the good times would never end, we were no different than the rest of the country:

• We had a nice little home, taken out with a 0% down loan.
• We had 2 cars and one had an amazing $545.00 per month car payment over 60 months.
• I had a student loan payment of $750.00 per month over 30 years at a rate of 8.25% (No problem here, I just sunk it into our home with a Home Equity Line of Credit.)
• We also had a few thousand dollars on some credit cards, but who’s counting?

While my wife is a teacher, and I am a chiropractor in Seattle, we felt that this was a normal and acceptable way to live. Everyone’s doing it right? Wrong. At least the smart ones aren’t.

Shortly after we had our son, I was reading a Harper’s Index where they broke down the potential of the housing bubble and mortgage crisis. This was in early 2006, and we took action by 2007. We took action selling our home at the peak of the market, selling our expensive car, and had a small sum in the bank for the first time ever. My student loans were also a thing of the past.

We felt on top of the world for about 1 day, as the outside pressures to own a home overwhelmed my better judgement. So we purchased a bigger home in an even nicer area. Looking back, you could even say it was the “peak” of the market. Ugh.

How I learned to love the financial collapse

A few months later, we were in our new home. All of the financial gains we had made were now gone, plus we added to the frustration our now extremely large mortgage payment.

You never truly understand the power of “interest” until you put yourself behind the eight ball.

Within 2 years of living in a home that we had to constantly fix (foundation, deck, stairs, plumbing), the financial collapse begins! Is anyone with me when I say I know what a sleepless night is all about? A wife, a child, huge monthly payments, and now the world seems like it’s ending.

In a way, that’s exactly what happened to us.

The Talk

Prior to the collapse, we had just survived an unusually devastating winter in Seattle. I car was stuck in the driveway for 2 weeks (as all cars were), and I began to believe we needed a new car. Maybe an SUV or some type of 4-wheel drive. So I started to look for a new car, only to come across a Dave Ramsey video about a free car for life.

After seeing this video, I began to see the error of my ways, and started the investigation into living debt free. I started to consider living below our means, and living a frugal lifestyle.

Following this revelation, my wife and I spoke about my new found knowledge, and believe you me, it wasn’t an easy subject to approach. Some of the things we spoke about that evening:

• Sharing our home by renting out one or two levels (this would cut our living space from 2600sq/ft to 900sq/ft.)
• Cutting our expenditures
• Clipping and collecting coupons (before it was all the rage)
• Saying no to things we think we want
• Eating our meals at home more often

The toughest suggestion was the sharing our home by renting it out, but I needed to discuss worst case scenarios BEFORE they hit.

There is an enormous difference between choosing to live a frugal lifestyle, and being forced to live a frugal lifestyle.

Once “the talk” was over, I realized how amazingly understanding my wife was, and that she too was worried about the same things. We made the changes accordingly, and began the frugal walk down the aisle together.

Frugal living on our 5th

Our 5th anniversary was the first one where we decided to live frugally, however, we also wanted to do something special since it was such a special number. I decided to spend frugally at one of the most posh places in town. Knowing full well a dinner including appetizers, drinks, wine, and dessert may easily approach $500.00 or more.

Without getting into great detail, we managed to keep our night under $200.00, after tipping the wait staff and valet. Obviously this was an expensive night out, but my wife deserved something extremely nice for putting up with me for 5 years.

Some of the things we did to make our night a little less expensive:

• We brought our own wine and paid the minimal corkage fee
• I purchased 2 gift cards I found on Craigslist (after verifying they would work by telephone)
• We shared our appetizer and dessert (something we normally would not do)
• In spite of our living on the cheap, we made sure we had enough money to tip appropriately, as it is my opinion that you should always tip properly. If you can’t, you can’t afford to eat there.

We had such a wonderful time, and we didn’t walk out of that dinner with any debt or credit card payment. That made me even happier.

Frugality preparation saved our home and marriage

The change to a frugal lifestyle happened in 2007, and in the time that has passed we have been able to solidify our fiances while cutting our debt at the same time. This has allowed us to live freer, healthier lives, and set an example for our children.

It is my belief that if our open communication about our finances, and decision to live frugally together had not happened, there would have been an excellent chance of us not making it to 7 years. If we had, there is no doubt we would be absolutely miserable and crushed by mouting debt.

The decision is always in your hands, and making the frugal living choice togethe is far superior to being forced into that position.

About the author: Dr. Graeme Gibson, D.C. is a Seattle chiropractor. When he is not enjoying his practice he loves to spend time with his family, playing sports, and writing about physical and financial health. If you want to read more, please visit his Seattle chiropractor blog.

If you have money in the bank, those funds could be used to put a down payment on a home for newlyweds, or to pay off student loans. If you don’t have money to spare, are you sure that going into debt is the right decision for a pair of newlyweds?

But don’t despair: it’s not necessary to forgo the wedding entirely—just approach the planning with a level head and incorporate cost-cutting measures that will result in a memorable occasion for family and friends, without incurring outrageous expense.

Start by discussing wedding expectations with your bride and both families to make sure you are all on the same page—will it be beer and fried chicken at the Elks Lodge or Champagne and Lobster Thermidor or at the Plaza?—and be clear on who will be responsible for payment.

Once the general style is established, get quotes from several service providers, and arrive at a reasonable budget. You may find that your expectations need to flex in order to remain on track financially. Weddings on a budget do not have to be chintzy or cheap; when handled correctly, the guests will never notice your penny-wise choices.

Wedding Gotchas

Industry experts estimate that couples typically overspend their budgets by 15%. We all know about the standard expenses such as catering, music, flowers, rings, attire, decorations, printing, photography, site and equipment rentals, officiant fees, and the cake.

But there are other hidden wedding costs that can add up to foil the best budgeter. These are costs such as dress alterations, tips, postage, delivery charges, gifts for the wedding party, salon costs for the bride, taxes, cake-cutting, corkage and coat check fees, and overtime charges for the band, photographer or servers. Keep these items in mind, and quiz vendors to nail down all costs beforehand.

Top 10 List for Planning a Frugal Wedding

1. Invitations. Never order oversized or oddly shaped invitations, no matter how attractive they are. Postage for a standard size first-class letter is 44¢. Over-sized or over-weight letters can costs as much as $2 each to mail. Consider sending a save-the-date email in lieu of a separate snail-mailing. If you are artistic, you may decide to make your own invitations either on your computer or by hand-writing the invitation cards.

2. Attire. Shop on eBay for the wedding dress. A gorgeous, used-once, designer dress can be had for a fraction of the price and no one will be the wiser. The groom and groomsmen can all wear dark suits from their own wardrobes (if available), meaning that only matching ties need to be purchased.

3. Timing. Avoid high-season (May through October) when prices rise sharply across the board. Avoid Saturdays and evenings to get the best deals.

4. Venue. Go for the non-traditional: parks, museums, sporting venues, private homes, botanical gardens, or beaches. You may incur extra charges for deliveries or rentals such as tents, tables and chairs, but you will probably come out ahead compared to a hotel or other event space.

5. Guest List. Trim mercilessly. This is the quickest way to reduce your bottom line.

6. Music. Consider creating a playlist of songs that can be set up on an iPod and played during the reception. You may have to rent a sound system, but this is a vastly cheaper (and more personalized) option than a band or DJ.

7. Decorations and Flowers. Make centerpieces and decorations with inexpensive, yet eye-catching items such as round paper lanterns, twinkle lights, tulle fabric, seashells, miniature potted plants or fishbowls with real goldfish. Choose flowers that are in season and avoid tropical flowers. Choose simple arrangements and add volume with less-expensive greenery.

8. Photography. Hire a pro for shots before and during the ceremony. Have friends and family take candid shots during the reception.

9. Bar. Stick to beer and wine and skip the liquor. If permitted, purchase your own beer and wine at a discount store, and bring it to the event. Even if you are charged for corkage, you will generally save on the total bar bill. Skip the Champagne toast. Champagne toasts are symbolic, and guests frequently don’t drink the Champagne anyway!

10. Seating. Use fewer, larger tables in place of smaller tables. You can seat 120 at 12 tables for 10 or at 20 tables for six. Using fewer tables saves on linens and table decorations and creates more interaction between guests.

Many blissful couples enter the meat-grinder known as the wedding industry completely unprepared. With research and planning, weddings on a budget are perfectly realistic. Planning a wedding can be a rewarding experience that will provide memories for a lifetime. And for the faint of heart, there is always Plan B: elope!

For more ideas, check out the excellent book Bridal Bargains: Secrets to Throwing A Fantastic Wedding On A Realistic Budget and the following blog posts on wedding budget tips:

• The Best Wedding Tips and Stories (an awesome collection of wedding-related posts!)
• 10 Budget Wedding Ideas From a Satisfied Bride
• The Frugal Wedding: How to Get Married On the Cheap
• Cheap Wedding Ideas On A Small Budget

My wife and I got married last July in what turned out to be an amazing day. She looked beautiful, I looked stunning and we had a great time. The last thing on our mind that day was opening up a joint checking account or consolidating our auto insurance. However, as soon as we returned from the honeymoon, the focus shifted to getting things done. We moved into a new apartment and the week after that, I was heading off for five weeks of training. We had little time and a lot to do. So, for all of you newlyweds out there, I will make it easy for you and let you know what you should get done financially.

Talk to Human Resources

One of the first things we did was to add me to my wife’s benefits at work. When you have a life changing event such as marriage or having a child, you are allowed to change your benefits. This can save your a good chunk of change. I estimate that it saved us approximately $100 per month since I was on individual health insurance.

You should also change the beneficiaries on your benefits. Change the beneficiary of your life insurance and retirement plans to your new spouse.

Change Your Auto/Homeowners/Renters Insurance

Changing your auto insurance (or any insurance) and putting both of you names on one policy can save you a substantial amount of money. When my wife and I did this, I estimate that we saved about $1,000 over a year. My wife had a couple dents on her driving record and if she were to get insured by herself, it would have cost about $1,200 a year. Add that with my $1,000 policy and you are up to $2,200. When we went to purchase a policy together and they said our premium would be $1,200, I was shocked. I guess being married shows some responsibility!

Combine the Cash

People have different opinions on this, but I recommend getting a joint checking account. It forces you to keep each other accountable for the money that’s being spent.

Marriage is a team effort and your finances should be no different.

Have a Financial Meeting

Hopefully, you did this BEFORE getting married. Either way, you should sit down again and come up with a game plan. I recommend creating a financial mission statement. In it, you can set your financial goals, determine how you are going to achieve them and find ways to stay on track.

If you are bring debt into the marriage, the new living arrangements and two incomes can help free up a good amount of cash. Use that extra cash to pay off debt fast!

Update Your Wills

If you have a will or are bringing children into the marriage, make sure you update your will to document your new wishes. Obviously, as things change, so does your need for proper estate planning.

Well, there you have it. Those are the things that I came up with (and did). Can you think of other things that may need to get done or should be change with a new marriage?

I love Socrates.  The genius of Socrates was his ability to ask questions.  He made a reputation as being a person who taught simply by asking well focused questions.

So taking a cue from this Socrates we’re going to try and help you improve your money relationship with your spouse simply by asking questions.  At times a well framed question can be more effective than a perfect statement.  Financial togetherness cannot occur in marriage until you open your heart, open your ears, and listen to your spouse.

First, a note about setting.  Try asking these questions in a non-threatening environment.  Consider talking about them across the table at a restaurant, while holding hands on a relaxing walk, or during a quiet moment on the couch.  Don’t try and ask these questions at the end of a hectic day or in the office with so many papers that are demanding your attention.

Second, a note about your disposition.  It is quite possible that when you ask these questions you will be surprised or shocked at the answers.  Don’t take things personally.  Let your spouse feel free to express their opinions.

Questions To Consider Asking Your Spouse

1. Did your parents talk to you or teach you about money?  Did they have a similar approach to money or did they often disagree?  Are your money management habits more like your mom or your dad? Why?
2. How much money did your family have?  Do you remember an occasion where you felt like you were rich/poor?
3. Is there anything you would like me to learn to do better or differently with money?  Would you say I’m frugal/cheap or a flagrant spender?  Do you wish I’d learn to loosen up with money or spend it more freely?
4. Are your comfortable (emotionally) with our current debt level?  Do you think we’re on the right track as far as debt repayment?  How much debt are you comfortable with?
5. What is a “major purchase”? How much would I need to spend, without consulting you, to make you upset?  What kinds of purchases do you think we should both consult each other regarding?
6. How do you feel about wives earning more than their husbands? Why?  Do you have any issues or concerns regarding how much we each make?  Do you think I make enough money?
7. Is there one thing that you dread when it comes to money?  What is your greatest financial fear?  What do you think can be done to help minimize the possibility of that fear becoming a reality?
8. Have you ever thought about starting your own business?  How would you fund it?  What would you do if you could do anything in the world?
9. Imagine that you’ve won or saved a million dollars.  What would you do with it? Why?
10. What would you like retirement to look like?  Where would you live, in what kind of house?  What work, if any, would you be doing?

It is quite possible that you will be surprised and shocked by some of the answers you hear.  So what do you do now with these responses.  After asking some of the questions above, you’ll have a good idea about the level of financial oneness you and your spouse enjoy.  You should have been able to identify some areas of marital strength and even some places that have room for improvement.

Now you have a hard job.  Start to humbly and patiently address these sensitive money issues.  If you feel overwhelmed, seek outside help as counseling can be a great way to heal a broken marriage.

Last week I wrote about a newlywed couple that had to deal with the issue of “financial infidelity.” To make a long story short, Karin bought a laptop (with her own money) without telling her husband Jim about it first.  He flew into a rage and started throwing temper tantrums, accusing his wife of “financial infidelity.”

Photo by Ed Yourdon

I personally think the husband is out of his mind, but the situation does bring up an important question; what constitutes financial infidelity and how do you deal with it?

While I am no expert in infidelity (thankfully), it occurs to me that other forms of cheating are a bit more-clear cut.

When you break an implicit or explicit promise – that’s cheating.

But money is tricky.

Where do you draw the line?

If I come home to find that my wife put the house up for sale without discussing it with me first, I’m going to feel cheated.

If, on the other hand, I bring home Honey Nut Cheerios rather than Corn Flakes because the Cheerios are on sale – it’s no problem.

So do you draw the line simply based on the dollar amount? Do I have discretion up to $10 and after that, I have to consult with my wife?

In my household, we both work.  I happen to make more money than she does.  Does that mean I have more discretion than she does?  If that’s the case, she’d be guilty of “financial infidelity” at a lower number than I would.  Does that make sense?

I believe there is no “global solution”.  Each couple has to make their own agreement, be crystal clear where the boundary is and communicate about it often.

So what do you do when your spouse breaks that boundary?

Here’s an approach I’ve come to rely on:

1.   Communicate what you feel and why.

Rather than blame your spouse from the get-go, just tell him/her you are upset, scared, afraid, whatever…and tell them why. You may find out that they did what they did for a perfectly justifiable reason – even though they failed to talk with you about it first.

2.   Get agreement on how to handle similar situations in the future.

Communicate how you would like to handle the situation going forward and find out if your partner agrees. Don’t try to force them into agreeing.  Just ask them how they would like you to handle it if the situation were reversed.

3.   Don’t expect perfection.

Your wife is probably a great person – but she’s not perfect.  Neither are you.  There may be some area where she continually lets you down in the financial world.  Can you accept it?  Has your wife accepted your imperfections?

Some battles are just not worth fighting.  Make sure you pick your battles well.

How have you dealt with issues like this in the past?

A Giveaway for Frugal Dad Readers

As an extra incentive to pick your brains, Jason has twisted my arm and convinced me to give away 3 copies of my course, “Money School for Couples”. It’s a course I created to help couples stop arguing about money. It’s made up of 10 short videos, some exercises and a few whitepapers.  Basically, it’s everything I’ve learned over the last 25 years. The course teaches you how to fix a marriage by fixing the finances. I’m going to use Random.org to pick the lucky winners.

All you have to do to have a chance at snagging your free copy is:

a.   Enter a comment with your answer to one of the three questions below.

b.   Agree to give me your honest feedback about what you like and dislike about the program.

1.   Have you ever had to deal with “financial infidelity”?

2.   Have you ever crossed the line when it comes to cash?

3.   What system do you use that has helped you and your spouse avoid these kinds of battles?

It seems like divorced couples still have problems even after the divorce.

That’s something I’m going to have to deal with next week. Here’s the story:

Mary & Harvey have been divorced for more than 15 years. Their split was amicable. Harvey was the principle support provider. Truth be told, Harvey was the only provider and Mary was grateful and lucky. In fact, they were both pretty lucky – that is until this morning.

Harvey is a high-priced advertising executive who was pulling down over $500,000 a year. Somehow he and his firm continued making the big bucks in 2008 and 2009 despite the economy. But reality finally caught up with them recently.

In late 2009, his firm cut Harvey’s salary by 50% and then by another 50% this morning. Harvey is still pulling in about $125,000 – and that is certainly a very nice check. But it’s a far cry from $500,000. And Harvey isn’t used to the reduced wage. He’s having difficulty making the support payments to Mary. And it gets worse.

He called asking her to sign off on the documents so he could take a loan against his 401(k) to pay taxes and credit card bills.

I’m not sharing this story because I think we should all go on a hunger strike in solidarity with the pain and suffering of all those who used to earn a half a million clams.

But I do have a great deal of empathy for this couple. Even though they make a lot more money than most of us, they face problems we all do.

Both Harvey and Mary made a number of mistakes for many years. Of course that doesn’t matter now and it won’t help them or anybody else.

Here are the steps I’m going to recommend when I meet with them:

1. Track expenses.

There is nothing more important than knowing what it costs you to live – especially if you are forced to make drastic cuts. I believe they have to write down everything they spend money on to make sure they know where to make those cuts.

2. Mary is going to have to find work.

If Harvey’s company had to make these kinds of cuts, the firm he works for might be on the ropes. That means there is the real possibility that Harvey is going to be out on the streets before long. At that point, Harvey won’t be able to give Mary any support. What is she going to do then? Loans and advances only go so far.

3. Don’t sign off on Harvey’s request to take a loan against the 401(K)

If Harvey doesn’t have the cash to pay the IRS and the credit card companies, that means he is still living way beyond his means. It also indicates that he’s not a great planner.

Theoretically, half of that 401(k) belongs to Mary but those IRS and credit card bills are 100% Harvey’s.

Finally, I don’t know what tax liability Mary takes on if Harvey is unable to repay those loans.

I’m more a fan of the couple finding a way to drastically cut their spending and find a payment plan for the IRS and credit card companies.

What have I missed? What other advice would you give Mary? If you were in her place, would you allow Harvey to borrow against the 401(k)?

How would you advise a recent college graduate who wants to get married, is in debt but is able to save money every month?

I received this email from Dean who is in this situation right now:

I have about $24,000 of low interest student loans to pay off, and am building up emergency savings. I know it’s smart to pay the minimum on the loans while they are at a low 3% and invest some extra money, but am I really able to invest for a year knowing that I need a full year to gain long-term gains privileges?

Even as I write this it seems like putting in $300 a month would be a good idea, while putting the rest ($400+?) in savings.

I think I’ll have to pay for a ring in about a year (knock on wood), so I should keep that liquid.

What advice would you give Dean?

Before I get started, I have to come clean on my own bias.

I just hate debt. It’s more than just a financial issue. I just don’t like owing money to anyone and I don’t like it for other people either.

My experience tells me that nobody ever got rich having debt.  More important; I’ve never met anyone who had a lot of debt who was really happy.

Of course, plenty of people made money in real estate.  And they did that by taking out mortgages.  But that is just about the only kind of debt that ever makes sense to me. And as recent events prove – mortgage debt can also be dangerous.

Having owned up to that, here are my thoughts for Dean:

1. You have to take a great deal of pride in having the foresight to even look at this issue.   Many young folks don’t even take the time to consider asking for advice. They do what they think is right without bouncing the ideas off of other people.  Dean is a frequent visitor and commenter on many financial blogs.  That means he’s doing what he can to educate himself and make smart decisions.  Bravo Dean!

2. I also like the idea of building up an emergency savings account.  Just make sure you know how much you need in that account.  From the information you provided, it’s tough for any of us to tell you what that amount needs to be but a good rule of thumb is 6 to 12 months of spending.  But remember than an emergency fund is liquid and it’s invested in the bank.  You won’t get much of a return but you get liquidity and safety.  That’s what you should be looking for when you set up an emergency fund.

3. I don’t like the idea of investing the money you could be using to pay off debts.  If you invest that money, it assumes you can do so and earn more than the 3% that you are paying on your debts.  Bank accounts aren’t paying 3% so you must be investing in the stock market.  While you’ve made a killing on that strategy this year (so far), nobody can guarantee that strategy will work out over your own time frame.   In fact, the interest they charge you on your debts could sky rocket just at the time when your stock market investments tank.  Not a pretty picture.  I’d play it safe and throw everything I had at the debt.

4. I’m not a huge fan of making investment decisions based on tax consequences.  The tax angle is important, but it’s secondary. The most important consideration should be your goals and risk tolerance.  You can’t control where the market is going to be when you need the money.  For that reason, if you invest in the market, you should do so with the idea of keeping your money invested for at least 5 to 10 years.  If you need the money in 12 months and you invest in the stock market, you are speculating and therefore, taking on much greater risk.  This doesn’t turn me on all that much.

5. “The Ring” scares me.  Dean, if you are in debt, I’m going to assume that your fiancé knows about it.  Have you discussed your finances with her?  Is a ring the best use of your money when you are just starting out?  Do you think it’s more important to invest in a ring than it is to invest in yourself?  Have you and your future wife considered the trade-offs between the rock and the freedom (of having less debt)?

Again, I admit that I have a bias against spending a ton of money on jewelry and I might be alone on this. In fact, I only bought a “nice” ring for my wife on our 20^th anniversary – when it was well within our budget and at a time when we were fortunate enough to have no debt.

(Had she insisted on having an expensive rock on her finger before we got married, it would have been a huge red flag for me.  It could signal that we had different values and therefore not well suited for each other.)

When considering the choice between a diamond or cubic zirconia, price can play a major factor in that decision.