As my wedding anniversary approaches, I found this post from the PrimeLending blog to be a timely reminder of those early days of marriage. In addition to these great tips, I highly recommend my friend Pam’s book I Now Pronounce You Fiscally Fit.
The honeymoon is over and now it’s time to settle into life with your new partner. There are a lot of big adjustments that will take place during this phase of life, including changes to your finances. When it comes to setting up finances, where should newlyweds begin?
Here are 14 tips to help you on your way to establishing a healthy financial relationship as a married couple.
Set Your Financial Goals — What are your goals, dreams and visions for the future? Where do you want to be in five years? 10? Consider goals for emergency funds (at least three months of essential bills), one- to five-year goals (such as for a down payment for a home or a big trip) and long-term goals (for your retirement or child’s education). It can be beneficial to find a professional financial advisor to help make big financial decisions. Be sure your goals are S.M.A.R.T. (specific, measurable, attainable, relevant and timely).
Discuss Money and Spending Habits — Talk about your parents and how they raised you in regards to finances. Do you come from a thrifty background? Was monthly bill paying a stressful experience? Did your parents fight about finances? What are your current money habits? Are you a big spender or big saver? How do you make decisions whether to buy something? Chances are, there will be differences between how you and your spouse were raised and current financial habits, and that’s OK. It’s simply important to discuss these issues to better understand the other person’s perspective.
Evaluate the Numbers — Tally up all assets, including checking, savings, retirement accounts, real estate and collectibles. Then add up debts, such as car payments, school loans, mortgages and credit card debt. This is also a good time to go over each of your credit reports. Share your income with each other and reveal anything else regarding finances that might be unknown. Honest, open communication about finances is essential to avoid conflict or problems down the road.
Decide How to Set Up Accounts — To merge or not to merge? That is the question. There are three main options couples have when it comes to setting up bank accounts: 1. All joint account; 2. Separate accounts; or 3. A combination of joint and separate accounts. Most married couples either merge accounts entirely or have a combination of joint and separate accounts, such as a joint account for savings, one for bills and big purchases and separate accounts for discretionary spending. If there are big differences between spending habits, or if one person has bad credit or debt that is in collections, separate accounts may be most beneficial.
Create a Budget — Add up your essential living expenses — this includes housing, transportation, utilities and groceries — and set a maximum amount for discretionary spending, such as shopping and entertainment. Financial services like Mint can be very helpful in tracking bills and spending categories. Determine a monthly savings percentage and create a plan to tackle debts. With a budget, you should be working toward paying down debt and putting away an emergency fund, rather than accruing more debt.
Designate a Bill Payer — Who will be responsible for paying bills? If you are keeping accounts separate, discuss who will be responsible for which bills, ensuring all bills are covered. No matter which spouse is paying bills, it’s important the other person is always aware of what is happening with your finances.
Set a Weekly, Bi-Weekly or Monthly Financial Review — Regular meetings to review finances, including spending and savings habits, can help keep you on track with your debt payoff and savings goals. Have an open dialogue to discuss any changes that need to be made as well as upcoming bills or big expenses you need to plan for. Take time to celebrate progress when you meet goals or pay off debts.
Determine How to Handle Big Expenses — Avoid arguments over large-ticket items by agreeing on a minimum threshold cost for discussing big expenses. This might be $50, or it could be $1,000. How much are you comfortable with your spouse spending without first having a conversation with you? Respect each other’s wishes and come to an arrangement on which you can both agree.
Set a Policy for Dealing with Friends or Family in Need — If you have an income surplus, will you be willing to help fulfill a financial need for others, should the opportunity arise? Some factors to consider include the severity of the situation and the frequency with which a particular individual or family asks for help.
Consult Your Accountant — When tax season comes around, will you file jointly or separately? Ask your accountant which option will be most beneficial. If one individual has a bankruptcy or other financial problem on record, filing jointly may not be the best choice.
Make Adjustments to Insurance Policies — Evaluate your insurance policies. Does it make more sense for both of you to be one insurance plan? If so, select the plan that gives you the best coverage. Purchase life insurance (if you don’t already have it), take a look at disability insurance and review auto and home insurance policies and add your spouse as needed. In most cases, you can bundle car and home insurance policies to save some cash.
Update Beneficiaries — A beneficiary is the individual or entity who will receive assets from your financial accounts upon your death. When you get married, you’ll probably want to change the beneficiary on your will, trust, life insurance policy 401(k) or other financial accounts to name your spouse.
Create or Update Your Will — A will is the most important legal document in your estate and is especially important if children are involved, but should be something every married couple (and adult for that matter) considers. A will establishes your wishes in regards to the distribution of your property and assets after your death. Without a will, the state will make decisions for you in the event of your death, and dying without a will can cause emotional and financial turmoil for your surviving family members.
Establish Power of Attorney and Healthcare Proxy — Designating a power of attorney and healthcare proxy (a.k.a. durable power of attorney) to make legal, financial and medical decisions for you is an important step for any adult to take. Understand what powers this person will hold and designate your spouse, if so desired.
Managing your finances as a couple rather than as individuals doesn’t have to be stressful. Remember, your spouse is your cheerleader and your accountability partner. Take advantage of the fact that you’re not in this alone, you now have someone in your financial corner to help carry the burden and push you toward your financial goals.
Is saving up for your new home among your financial goals? Contact a PrimeLending home loan expert to get prequalified for a home loan.
From the PrimeLending blog by Mandy Jordan