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Discussing and planning are keys to a bright financial future.
According to a study by the Creighton University Center for
Marriage and Family, money is one of the biggest obstacles to
satisfaction in the lives of newly married couples. The study found
that debt brought into marriage, the couples' financial situation,
balancing job and family, and the frequency of sexual relations were
the biggest concerns among newlyweds. But personal finance is one
obstacle that can be avoided -- or at least eased -- prior to walking down
the aisle. Of course, talking about the reception and planning the
honeymoon are much more fun than discussing your attitudes toward debt
and savings, but communication now can help improve your future as a
couple.
Separate vs. Joint Accounts
Every couple runs into the question of whether to keep separate
accounts or combine accounts after marriage, but there is no right
answer. It is an individual decision that must be based on each
couple's situation."It's a personal decision that often depends on the personalities
involved," says Sophie Beckmann, CFP, CPA, Financial Planning
Specialist with AG Edwards. "It's a good idea to have at least one
joint account so you are going through the process of saving
together. It gives you more accountability to each other and forces
you to be more disciplined. Problems often start because one person is
less likely to save and more likely to spend. A joint savings account
is a way to mitigate the problem."Donna Wilson, Investment Representative with Edward Jones agrees
that a joint account is beneficial. "It may help consolidate the
financial relationship easier if you have a joint account for paying
the big bills such as the mortgage."
Joe Sheehan, Managing Principal with Moneta Group LLC, says keeping
separate accounts may help resolve some financial issues. "If both
spouses are working, I recommend keeping separate accounts. They
should have both names on the accounts, but each is responsible for
his or her own account. They can decide who pays which bills from
their own account. Maybe he pays the mortgage and she pays all
utilities. Each would have to help pay down debt and contribute to the
savings plan. Whatever is left over is each person's to spend or
save."
Debt
Whether or not you are the person who incurred debt, it has a large
effect on your financial future as a couple. It is important to have
open and honest communication about debt and how you plan to handle
it.
"For starters, the couple needs to sit down and ask a few
questions. Talk about what debt you have. Maybe one person has student
loans, maybe one already has a mortgage, car loan, or credit card
debt. You need to establish a payment plan for paying down debt as a
couple. What are your thoughts and what is the timeframe for paying
down these loans? Maybe she was going to take them to term and he
wants to pay them off in a year so they can achieve their secondary
goal of buying a home. You need to set goals, compromise and find ways
to reduce debt together so you can make a plan to reach your long-term
financial goals together," says Wilson.
Reducing debt is the first step to establishing a savings plan as a
couple. So if you and your husband want to buy a house or plan to
start a family soon, eliminating debt is a priority.
"You need to look at your income and decide how much you need to
live on a monthly basis. Hopefully you have some discretionary income
that can be put toward debt," says Sheehan. "Pay off your most
expensive debt first. In most cases there is a minimum payment, but if
you have the financial wherewithal, pay all you can to the highest
interest charging debt."
"If you are just making small payments, you aren't making a dent in
the debt. In fact, in the long run you are doing a disservice to
yourself because you are using your funds to pay interest on the debt
when you should be paying down the principal. The most important thing
is to make a plan to get that debt paid off quickly," says Beckmann.
Once you've retired a debt, Sheehan tells couples to recognize
their accomplishment. "When you pay off that debt, go out and
celebrate reasonably to congratulate yourself. Then take whatever you
were putting toward that debt and put it toward the next one. Debt is
the most devastating drag on what you want to achieve. Be it a home,
children, or furniture, debt is the thing that will prevent you from
being able to do it."
Assets
To establish a comprehensive financial plan, you need to discuss
your entire net worth. Along with debt, your discussion should include
any assets you have, such as savings, retirement plans, savings bonds
or CDs. Find out where your resources are and how to best put them to
work for you.
"Make sure you are taking full advantage of savings opportunities
in the right order. For example, if your employer offers matching
savings for a 401(k), are you putting all you should into that first?
Too many married couples find their investments are in disarray. It
would be a shame to be married 20 years and save well, but not in the
proper vehicles or in the right order to maximize your savings
potential," says Wilson.
Sheehan recommends setting your goals and tailoring your assets to
achieve them. "I recommend making a list of what you want to
accomplish over the next three years, ten years. Funding your
retirement is important, but you don't want to be in a situation where
you can't put 20 percent down on a house because all your savings is
in your 401(k). Certainly take advantage of your 401(k), but not to
the extent where you can't save for a house."
Couples also need to discuss how they will make investment decisions.
"At some point you have your debts paid off, you're putting the
maximum in your 401(k), and you have enough money in your savings
account. What will you do with additional money? One person may want
to bury it in the backyard while the other wants to invest in hedge
funds. You need to decide how you will handle investment decisions as
a couple," says Sheehan.
Budget
One of the most difficult parts of financial planning is
establishing and sticking to a budget, particularly if you are
combining people with different attitudes about spending.
"Often times the way we approach finances in a marriage is wired by
our parents and we don't all come wired the same way. Conversations
about how you will achieve your financial goals will help avoid
problems later. Money can really become a control issue in the
marriage," says Sheehan.
Maybe your husband-to-be has a weakness for electronic gadgets or
maybe you like to splurge on designer shoes and clothing. Planning a
budget may require some give and take from both individuals. By taking
a thorough look at your spending, you can typically find expenditures
to cut out in order to increase savings.
"Just as in any other area of marriage, you must be willing to
compromise. Maybe you put a limit on how much a person can spend so
that both people are comfortable with the arrangement. The person who
likes to spend has some money to play with, but the other person feels
some control over the amount of spending," says Beckmann.
Wilson suggests that couples make sure they include regular payment
into your savings plan as part of a monthly budget.
"Pay yourself first like a bill. No one is going to do it for
you. Put money away for the future, whether it is a short-term goal of
saving for a home or a long-term goal of retirement or college savings
for future children," she says.
Setting a budget is one area where you and your husband may find a
financial planner helpful.
"You don't have to take it all on yourselves. Sit down with a
financial advisor to discuss your collective needs, make priorities,
and set goals. Then meet with that person on a regular basis to make
sure you are sticking to the plan and approaching your goals
together. If one spouse is spending above and beyond the plan, that
needs to be addressed and compromised to get back on common ground,"
says Wilson.
Beckmann agrees that a financial planner may be helpful for
newlyweds, particularly if there are areas of disagreement. "In some
cases it may be best to sit down with a financial planner who can act
as a middleman, much like a marriage counselor, to help you work
through problems."
Paying Bills
Typically one spouse takes on the responsibility of paying the
bills. Or perhaps one of you keeps the files organized and the other
writes the checks. However you decide to organize the duties, make
sure both people are familiar with each other's responsibilities. You
never know when illness or travel may require one person to take on
all the duties.
"I think it should be the person who wants to do it, but in some
cases both people want to do it. One couple I know takes turns each
year, so every January 1 they have a complete turnover of the
books. That's a little extreme, but you do need to work out who is
going to pay which bills," says Sheehan.
Furthermore, couples need to communicate throughout their marriage
to avoid one person feeling as if they have no control over financial
issues. Keep your records very accessible so if one partner passes
away the other knows how to access all financial information.
Taxes
Typically, married couples will file a joint tax return. There are
penalties for filing separately that usually make it an unattractive
option. However, the best way to find out is to run the scenario both
ways. In some cases there may be a situation where filing separately
is best.
Beckmann suggests looking at your withholding. "Run a projection of
what you think your tax liability will be to determine if you need to
adjust it either way."
"If you were filing singly with no dependents but now you are
married and you have a mortgage, you may be able to withhold less,"
says Sheehan. "Don't give the government more than you have to."
Patience and Planning
Money problems are one of the leading causes of divorce. As
difficult as it may be to talk about money, it's crucial to the
success of your marriage. Some couples find it easiest to designate a
time each week for discussing financial issues. You'll need to find
what works best for your marriage and make a commitment to stick to
it.
"Communication is the number one key. Sit down and review your
debts and assets. Look at your entire financial situation. Seek the
advice of a professional if needed. Set goals and find the best ways
to reach those goals. Review your finances to make sure you are
sticking to the plan. Get on a systematic savings plan. Don't just sit
back and see what happens or hope that at the end of the year you'll
have some money to put into savings. Take advantage of opportunities
for savings," says Wilson.
Your debt isn't going to disappear overnight and your assets aren't
going to balloon immediately, but having a long-term plan in place
will enable you to reach your goals.
"The important thing is to recognize that you aren't going to be
able to do as much as you want as far as savings at first, especially
if you are paying down debt and trying to buy a house. Keep your
expectations reasonable. Some people get frustrated because it takes
so long, and they abandon the plan, but that isn't the right
answer. If you stick with it you'll see that each year you are making
progress," says Sheehan.
"I think the key is to understand that it isn't going to happen in
one day. It may take a while to get on the same page and to get a plan
in place. You have to work at it and adjust the plan as changes come
into your life," says Beckmann. "You are two separate people, but you
are working toward a common goal. You need to be flexible, which can be
difficult for some people. But the more you communicate, the more you
build trust. Financial difficulties can really unwind a marriage. It's
important to pay as much attention to this issue as you do everything
else."
Financial To-Do List for Newlyweds
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Change your beneficiaries. Look at all of your assets --
investment accounts, 401(k) plans, IRAs, insurance policies, etc. --
to review your beneficiary designations and ensure they will go to
your spouse should something happen to you.
"This is especially important for life insurance policies and
retirement plans," says Beckmann. Some will default to the spouse, but
it is important to check that they are accurate."
Wilson adds that beneficiary designations are crucial if there was
a divorce prior to the marriage or if children from a previous
marriage are involved. "The new couple has to state their wishes. If
the wife has two children from a previous marriage and the husband has
none but then they have a child together, you need to make sure the
beneficiaries are changed appropriately."
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Review insurance coverage. Review current life insurance coverage
or get life insurance if you don't have it already.
"This is a very important area that is commonly overlooked by young
couples," says Wilson. "If you need both incomes to manage expenses,
you need to cover that through life insurance. It becomes even more
important if you have children."
Additionally, review your health insurance plans to determine the
best option for you as a couple. It may be best to have both spouses
on one plan or it may be more efficient to retain separate plans. Look
at both coverage and cost to determine what is best for you.
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Review retirement plans. Take a look at the retirement plans
offered by your employer and make sure you are taking full advantage
of the saving opportunities.
"If your employer offers a matching 401(k) program, give to the
maximum allowed," says Beckmann. "The earlier you start saving, the
longer the money has to compound."
Sheehan suggests comparing plans to see if one offers better
savings. "If you're both putting three percent in your plans, but one
employer matches 100 percent of the first six percent you contribute
and the other matches 50 percent of the first three percent, put more
money in the better savings plan."
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Make a will or update your will. Seek the advice of an
estate-planning attorney to determine your needs.
"Estate planning is important in case something catastrophic
happens. At the very least get a will, but also look at getting a
health care directive and durable power of attorney," says Beckmann.
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