Financial Bliss for Newlyweds
Talking about money might not be the most romantic activity, but it can help ensure your marriage lasts happily for as long as you both shall live.
Summer is the busiest season for weddings, and it's very important for couples that are getting married to get their financial vows right, too.
One of the biggest contributors to a successful marriage is communication and agreement over finances. Couples should openly discuss their core values and priorities with money. Do you enjoy shopping, or are you a spendthrift? More often than not, there will be differences that can be worked out in a healthy way, as long as you have mutual respect for each other.
As part of this conversation, you should discuss what each of you is bringing into the marriage financially. What are your current assets and debt? Look at savings and checking accounts, retirement accounts, school loans, credit-card debt, mortgages, etc. Don't leave anything out!
It's also wise to get a credit report to see how each of your histories match up. You don't want to start out your marriage with your new spouse discovering she just inherited your credit card debt without knowing this before you tie the knot.
Immediately after marriage, you want to update your estate plan. This means verifying or updating the beneficiary designations on your retirement accounts, investment accounts, life insurance and checking and savings accounts. In most cases, your spouse will be the primary beneficiary. If you have any children, you might consider adding them as beneficiaries.
Also be sure you have a will drafted, clearly stating who will receive your assets in case of your untimely death. But remember your beneficiary designations override your will or trust. You need legal documents for incapacity, too, stating who will make financial and medical decision for you in case of incapacity. Finally you may consider creating a trust to ensure timely transfer of your assets to heirs while avoiding the cost of probate.
Next comes developing a financial plan. This is an area where a financial planner can be of great assistance. The first thing you need to do is establish a budget. Have money allocated for emergencies, such as a car breaking down or an unexpected job loss. You should have at least three to six months' worth of living expenses in a liquid account for emergencies.
If you have debt, create a plan to pay it off as fast as possible, especially if it's high-interest debt from credit cards.
Once that is done, you should also be saving and investing at least 10% to 20% of your take home pay. Start with contributing to your company retirement plan, such as a 401(k), and maxing it out each year if possible. This will not only help you save money but will also shelter the money you contribute from taxes. If you have the ability to save after that, you may want to contribute to an individual retirement account each year.
For younger couples, usually a Roth IRA makes more sense than a traditional account. The Roth grows tax-free and later comes out tax free which, for a younger person, can be a huge boost with more potential years to compound. There are some income limitations in order to be able to contribute to them. The more you can invest and save, the happier your retirement years will be.
In addition to home, auto and health insurance, consider disability and life insurance, especially if you have children. There should be a plan to replace lost income if something happened to you, that would provide for your spouse and children.
Decide how to title your accounts; for example, single or joint. Some couples prefer to have their own checking and savings accounts, and some like to share joint accounts with survivorship. You might also consider an in-between option, in which you each have your own individual accounts, as well as a joint one for shared bills such as the mortgage or utilities.
Make sure to address who will be paying the bills, and setup as many as you can on auto-pay. Even if you're not the one paying them, it's important to monitor them so your everyday bills do not derail your financial plan.
Lastly, think about buying a home. Right now, interest rates are still near all-time lows. This can offer the opportunity to build equity over time, and also get some tax deductions.
Mike Piershale, ChFC, is president of Piershale Financial Group in Crystal Lake, Illinois. He works directly with clients on retirement and estate planning, portfolio management and insurance needs.