Planning for Marriage: Financial Bliss
Wedding season is upon us and many couples are preparing for the next steps. Planning for marriage should involve more than just picking out invitations and deciding on the venue and date. More importantly, you'll want to take a look at how marriage will impact your financial situation. And while there are a number of issues you'll need to think about, careful planning can increase the likelihood that you'll have financial success as you enter this new chapter in your life.
Discuss your financial history
Marriage is the union of two separate individuals ... and their finances. While talking about money can be a stressful topic for many couples, you'll want to sit down and discuss your financial history and your future spouse's financial history before you merge your money.
Trust and honesty in marriage is extremely vital for your marriage to thrive. You must be willing and able to be completely open and transparent about all topics, not just finances.
Start out by taking stock of each of your respective financial situations. You should each make a list of your individual assets (e.g., investments, real estate, insurance policies) and any liabilities (e.g., student loans, credit card debt) you may have. This is also the time to address items such as how much each of you earns and if either of you has additional sources of income (e.g., interest, dividends).
Resolve any outstanding credit/debt issues
Since having good credit is an important part of any sound financial plan, you'll want to identify any potential credit/debt problems either you or your future spouse may have and try to resolve them now rather than later. You should each order copies of your credit reports and review them together. You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months (go to www.annualcreditreport.com for more information).
For the most part, you are not responsible for your future spouse's past credit problems, but they can prevent you from getting credit together as a couple after you are married. Even if you've always had spotless credit, you may be turned down for credit cards or loans that you apply for together if your future spouse has a bad track record with creditors. As a result, if you find that either one of you does have credit issues, you might want to consider keeping your credit separate until you or your future spouse's credit record improves.
Agree on a system for budgeting/maintaining bank accounts.
Right now, you are probably accustomed to managing your finances in a way that is comfortable for you and you alone. Once you are married, you and your spouse will have to agree on a system for budgeting your money and paying your bills together as a couple.
Either of you can agree to be in charge of managing the budget, or you can take turns keeping records and paying the bills. If both of you are going to be involved in the budgeting process, make sure that you develop a record-keeping system that both of you understand and agree upon. In addition, you'll want to keep your records in a joint filing system so that both of you can easily locate important documents. Even if you decide to keep separate accounts, it is best to decide who will be responsible for each payment.
Once you agree on a budgeting system, you'll be able to establish a budget. Begin by listing all of your income and expenses over a certain time period (for example, monthly). Sources of income can include things such as salaries and wages, interest, and dividends. Expenses can be divided into two categories: fixed (e.g., housing, utilities, food) and discretionary (e.g., entertainment, vacations). Be sure to include occasional expenses (e.g., car maintenance) as well. To help you and your future spouse stay on track with your budget:
- Try to make budgeting part of your daily routine
- Build occasional rewards into your budget (e.g., going to the movies)
- Examine your budget regularly and adjust/make changes as needed
While maintaining a joint account does have its advantages (e.g., easier record keeping and lower maintenance fees), it is sometimes more difficult to keep track of the flow of money when two individuals have access to a single account. If you do decide to combine your accounts, each spouse should be responsible for updating the checkbook ledger when he/she writes a check or withdraws funds. If you decide to keep separate accounts, consider opening a joint checking account to pay for household expenses.
Consider integrating employee and retirement benefits
If you and your future spouse have separate health insurance coverage, you'll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate. If your future spouse's health plan has a higher deductible and/or co-payment or fewer benefits than those offered by your plan, he or she may want to join your health plan instead. You'll also want to compare the premium for one family plan against the cost of two single plans.
In addition, if both you and your future spouse participate in an employer-sponsored retirement plan, you should be aware of each plan's characteristics. Plans may differ as to matching contributions, investment options, and loan provisions. Review each plan together carefully and determine which plan provides the better benefits. If you can afford to, you should each participate to the maximum in your own plan. Once you take the plunge, you should update any beneficiary designations.
Assess your insurance coverage needs
While you might not have felt the need for life and disability insurance when you were single, once you are married you may find that you and your future spouse are financially dependent on each other. If you don't have life or disability insurance, you will want to have policies in place in order to make sure that your future spouse's financial needs will be taken care of if you should die prematurely or become disabled. If you already have life and disability insurance, you should reevaluate the adequacy of your existing coverage and be sure to update any beneficiary designations as well.
You should also take a look at your auto insurance coverage. Check your policy limits and consider pooling your auto insurance policies with one company (your insurance company may give you a discount if you insure more than one car with them). As for renters/homeowners insurance, you'll want to make sure your personal property and possessions are adequately covered.
Map out your financial future together
An important part of financial planning as a couple is to map out your financial future together. Where do you see yourself next year? What about five years from now? Do you want to buy a home together? If you decide to start a family and when?
Together you should make a list of short-term financial goals (e.g., paying off wedding debt, saving for graduate school) and long-term financial goals (e.g., retirement). Once you have decided on your financial goals, you can prioritize them by determining which ones are most important to each of you. After you've identified which goals are a priority, you can set your sights on working to achieve them together.
Best wishes to all of the couples as you prepare to tie the knot! Cheers........
Shawn Clark, MBA
Managing Partner
Wealth Advisor
If you would like to discuss your individual financial plan or have an objective review of your investments or call (502) 290-1905 to schedule a free consultation.
