March 17th, 2013
All the Single (or Married) Ladies: Why it’s Important to Have Financial Independence
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Imagine this: You’re a happily married stay-at-home parent and your husband has been supporting the family with his one income for years. You’re frugal and smart with the family money, but then your husband is laid off and has trouble finding work.
You’re forced to drain your savings and max-out the only credit cards you have—the ones you hold jointly.
Or another scenario: You’re going through a divorce and you husband who has always been the one to manage the family finances, including credit, savings and checking accounts.
While dividing your assets you find out that your soon-to-be ex-husband has been spending the family’s savings, little by little, and putting some of your hard-earned cash toward expensive overseas trips to see his girlfriend.
It’s an extreme case, but it happened to one woman’s parents.
Ok, let’s take a breather now that I’ve sufficiently scared you. These tragedies might not ever happen to you. And I’m certainly not disparaging marriage. (I’m happily married myself.) But that doesn’t mean you should turn a blind eye to two very important words: financial independence.
What does “financial independence” mean?
In all honesty, I’m not just talking to women here, though that’s what my two examples above would lead you to believe. If you’re living with and relying on someone else for financial support, I’m talking to you, too.
Financial independence can mean something different depending on who you are and what your priorities are. Being a stay-at-home parent is admirable, but unless you find a way to bring in your own income—shout out to the work-at-home parents—you’ll most likely be depending on a partner for financial support. That’s fine, but it doesn’t mean you can’t have your own lines of credit in your name, for instance, and have a say in the family finances. (I just found this study that says 90 percent of middle-aged women in the U.K. manage the family finances!)
5 Steps to Kick-off Your Financial Independence
1. See where you stand. First you need to take a survey of your own finances:
- If you’ve never checked your three credit reports, start by getting your TransUnion credit report from Credit Karma and your other two reports from AnnualCreditReport.com. This checklist gives you a step-by-step guide on what to do. Make sure to mark on your calendar the date that you checked your reports so you remember when another free check rolls around (in 12 months).
- Check your credit score. Take a look at your Credit Report Card, too, to see how you’re doing in the different factors that influence your credit score. (You can read more about those factors here.)
- Make a list of the different debts you owe. Include the name of the account, when it was opened, what the monthly payment is and the total remaining balance. Add all of the totals together to get an overall picture of your outstanding debt. (You can find your current, reported balances in your list of accounts on Credit Karma.)
- Make a list of your assets. Include your checking, savings, retirement and investment accounts. Add up the total.
- Figure out your net worth. Using the assets and debts your just listed, figure out what your net worth is. You can do it manually or use an online calculator like this one.
- If your credit needs establishing, open a secured credit card. This type of card comes with guaranteed approval because it’s backed by a cash security deposit that you provide. There’s little risk of getting into credit trouble with a secured card, so it’s a great way to start out.
2. If you have credit cards, use ‘em. Credit cards are the easiest way to establish credit and the best way to continue building credit. If you have some cards in your name that have gone unused for a while, that’s no good. In fact, some credit card issuers will stop reporting your inactive cards to the credit bureaus. And some might even slash your credit limit if your cards go unused. Charge just a little on your cards each month and pay them off in full before the due date.
3. Slowly build your credit, one account at a time. I’d never, ever recommend that you open a loan just to build credit. BUT if your family is in the market for a new home, and you don’t plan on paying cash, make sure your name gets on the new account. If you’re buying a new car, consider putting getting the loan on your own. Whatever you decide, keep the lines of communication open with your partner to figure out what works best.
4. Monitor your own stuff. Ok, bear with me here. I’m going to talk in hypotheticals again. On the off chance that your partner uses your social security number to open a new account without your permission, you need to know that. You can use Credit Karma’s credit monitoring alerts to keep an eye on your credit reports.
5. Keep your own records, or get access to the family’s records. Every couple does money differently, and that’s the way it should be. (Hear that? There’s no right way to manage your couple money.) But it’s a good idea for both parties to have access to shared accounts. Let’s say your partner is out of the country on business. Something happens and you need to access an account to resolve the situation—just having the credentials to gain access can save you a world of hurt. If you and your partner have a lot of online logons for your accounts, I highly recommend using a service like LastPass to keep track of everything.
Bottom Line: I’ll say it again—there’s no right way to manage your money as a couple. But remaining comfortably ignorant to your family’s finances can put you and your spouse in a world of hurt later. If you’re partner’s credit is ruined because of mismanagement and you never had credit to begin with, you’ll both be in trouble.
Ok. I’ll stop making up scary stories. Promise.
Bethy Hardeman is the Social Media Manager and Writer at Credit Karma, where she’s been since February 2011. When she’s not writing about credit and finance all over the web, you can find her playing her guitar, catching the latest movie, training for her next race or just exploring the city of San Francisco. Say “Hi” on Twitter: @bhardeman.
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