Merging Finances When Marrying
Planning a life together is an incredible journey for a couple. The two of you plan every detail for the perfect wedding day, but have you spent any time planning how you will handle and merge finances once you are married? If you are like most couples, probably not. But it’s important to have an open and honest conversation about each other’s financial behaviors. This is the area where many couples get into trouble. If one is a saver and the other a spender, this can cause some major friction. The best way to deal with this is to make a financial plan that both of you can live with. Here are some important issues to discuss in regard to your marital financial plan:
Determine Your Financial Goals
The financial future you build together has to begin with goals, both short and long term. You will want to begin with short-term goals, such as paying off wedding and student loan debt, purchasing a new car, or dealing with credit card debt each of you may hold individually. Next, list your long-term goals, like sending children to college, saving, investing, and retirement. Now you can establish priorities for both your short- and long-term goals so you can focus your plan on helping achieve your goals.
Developing a budget is a very important step. Each of you should list your income sources and a complete list of expenses. A good way to identify all of your expenses is to thoroughly review several months of both your checking account and credit card transactions. After you add them up, compare the totals. Hopefully, you are spending less than you earn, but this is where the negotiation begins. Identify which expenses are essential and which are discretionary. Are there are any expenses you can reduce or eliminate so you can put those funds toward your goals? Determine how you are going to allocate your funds across your expenses and goals.
Who Will Manage the Finances?
While it may be more efficient for one spouse to manage the budget, pay the bills, and keep the financial records, it is still very important for both parties to be completely aware of the finances. Many people find themselves at a complete loss about their financial situation when something happens to their spouse. So, if one spouse is going to take the day-to-day responsibility of managing the finances, the other spouse should take the time on a monthly basis to review the budget. It is also a good idea to develop a filing system that both of you understand and can access.
Separate or Joint Bank Accounts?
What will work best for both of you? Having a joint account can make it easier to keep track of expenses, but it can also make it more difficult to keep track of how much money is in the account when both parties are withdrawing from it. With today’s online banking tools, most transactions are posted to the account immediately, making it easier to maintain a joint account. If you and your spouse are better off going separately, you should then determine who is responsible for which expenses and how you are going to manage your savings.
This is an area to pay close attention to if one party has less than stellar credit. For example, if you are good at managing credit and your spouse is not and adds you to his/her credit card account, you are now also responsible for that debt. Additionally, it will also negatively impact your credit rating. In this case, it may make more sense to keep separate cards or make the spouse with good credit an authorized user of the card, which means you can use his/her card but will not be liable for the debt. Likewise, if you are the spouse with good credit, it’s not in your best interest to add the spouse with poor credit as a joint account holder. You will also need to determine if it makes sense to add your spouse as an authorized user.
If both you and your spouse have separate health insurance coverage, you’ll want to do a thorough review of both plans to determine the option that will provide the best benefits at the lowest cost. Carefully look at the portion of the premiums you have to pay, the deductibles and copayments, and the benefits associated with each plan to determine if one plan is better for both of you. You should also compare the cost for having one family plan versus maintaining two single plans. This is also a good time to look at your auto insurance. If you have separate cars, you most likely have different auto insurance carriers. You should consider pooling your auto insurance policies with one carrier to receive discounts for insuring multiple vehicles. However, if one of you has a poor driving record, make sure consolidating with one company won’t make the premium higher.
Is Little Johnny Going to College?
If you plan on having children and know you want to send them to college, start a savings plan as early as possible. With the cost of college tuition, saving for college is almost like saving for retirement — the earlier you start, the better. Take the time to research college-saving options, because there are many good college savings plans that provide tax credits and tax-free growth.
What Will Your Golden Years Look Like?
If both you and your spouse participate in an employer-sponsored retirement plan, you should carefully review and decide which plan offers the best benefits. The ideal situation would be to participate to the maximum in both plans, but if your cash flow won’t allow for, then determine which plan is the best for your retirement strategy, including:
If both plans offer matching contributions, determine which plan offers the best match and take full advantage of the free money.
Determine the vesting schedules for the matching contributions from the employer.
Identify which plan has more investment options, so that you can develop an investment mix that will meet your needs.
While all of this may seem overwhelming to a newly married couple, having a plan to merge your finances should actually help reduce the stress of bringing your lives together.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.