Smartest Money Moves at Any Age
From first job to retirement, we tell you how to manage a dozen events that can change your life.
From Kiplinger's Personal Finance magazine, July 2005
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Merge your money when you tie the knot
Before they married in May, Adam and Jennie Esbenshade had already discussed some aspects of combining their finances. As medical residents in training to be pediatricians, they knew they would start married life with substantial student-loan debt. And they had agreed that they would make financial decisions jointly.
But when it came to working out some of the details, the Memphis couple weren't exactly on the same page. Asked who would handle the checkbook, Adam, 28, said they hadn't decided yet -- but Jennie, 26, assumed their minds were made up. "I'll do it," she said. "My gift is organization, and Adam is the deal-finder."
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Working out a system for what Jennie calls "street-level money management" is a must in any marriage. A joint checking account, which Adam and Jennie expect to have, has the virtue of keeping each spouse's spending habits out in the open. An alternative solution is for each of you to make contributions to a joint account, based on your income, to pay for shared expenses only. Then keep individual accounts for personal expenses and mad money that each of you can spend with no questions asked.
Tracking your expenses for a month or so will pinpoint duplications. (Do you really need two Netflix accounts?) "The miscellaneous category can get pretty big pretty fast when there are two of you," says Mary Deshong Kinkelaar, a financial planner in Chicago. (Use software such as Quicken or Microsoft Money, or a paper-and-pencil tool such as The Budget Kit, by Judy Lawrence.) By cutting in half what you spend on manicures, massages, meals out and mocha Frappuccinos, you'll have enough to start an emergency fund.
Take a look at your spouse's credit report. But don't add your name to his or her obligations. Make a pact to pay off outstanding debt, starting with balances that carry the highest interest rates. Assuming your spouse has good credit, the two of you could apply for a joint credit card. But each of you should keep one card in your own name to maintain your personal credit history.
As for the rest, pay off the balances and cut up the cards, but don't close the accounts. Closing an old account shortens the length of your credit history, which could be a negative.
Consolidate your own student loans to lock in record-low rates (see Rock Bottom). But don't merge your loans with your spouse's. If you were ever to get divorced, the commingled debt would be nearly impossible to untangle. And if one of you were to default, the other would be left holding the bag.
As a couple, you can deduct up to $2,500 a year in student-loan interest, even if you don't itemize deductions. Remember, the deduction begins to phase out once your income exceeds $100,000 on a joint return.
Review your insurance coverage. Because marriage is a "qualifying event," you can add your spouse to your health insurance. That may be less expensive than maintaining individual plans. If you share significant debt, such as a mortgage, that would burden a surviving spouse, consider supplementing employer-provided life insurance with low-cost term-life coverage.
Make sure you have enough homeowners or renters insurance to protect your combined possessions. Do you need a rider to cover your engagement and wedding rings? It's also wise to combine your auto-insurance coverage. -- Pat Mertz Esswein
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