As a newly married couple, you have many exciting life milestones to look forward to. You may buy a home, start a family, or travel the world — the possibilities are endless. However, in order to achieve your goals, it’s important to make sure your financial house is in order. Here are six financial planning tips for newly married couples.
1. Understand each other’s approach to finances. Have an open and honest conversation about your approach to money. Most people’s views on spending and saving are formed early in life, and it can be difficult to alter your mindset. Consider your earliest memories about money, any financial fears you have, what your savings priorities are, and how much debt you’re willing to take on. Find common ground and establish a strong foundation on which to build your financial lives.
2. Share financial histories. Gain an understanding of your starting point. This means sharing details about your past and current finances. Important topics to cover include:
• Income — What’s your gross and net income monthly? Do you receive bonuses? Do you have any contract income to consider for tax planning?
• Spending habits — Discuss monthly expenses and understand where discretionary income is spent. That can help plan for how you’d like to adjust your expectations and work toward a compromise early on.
• Savings amount — Identify how much is kept in savings on average and how much each partner saves regularly.
• Investments — Does your partner have a 401(k), IRA, Roth IRA, or investment account? Which are you saving toward regularly? The amounts you can save for each may change once you’re married.
• Debts — Understand debts your partner may have: credit cards, student loans, personal loans, mortgages, or even back taxes.
3. Establish shared financial goals. Work together to establish shared goals in the short term and the long term.
What do you envision for your financial future? What savings goals do you have? New home? Future children’s college expenses? Retire early? Travel the world? Start a business?
How do your goals differ from your spouse’s? It’s okay to have differing goals. The key is to communicate and come up with a financial strategy that allows you to pursue both your shared priorities as well as your individual objectives.
4. Create a budget. A budget provides insight into exactly where your money is going each month and can help identify spending issues.
Start by determining how much money you anticipate spending each month. Then divide your expenditures into nondiscretionary and discretionary expenses. Once you have a handle on your expenses, compare that amount to your income. Are you spending less than you earn? Are you saving enough to hit your targets? If not, find ways to reduce discretionary spending.
You may also want to combine some bills into shared plans. Bundling your auto or homeowners insurance will likely reduce your nondiscretionary expenses.
The key is to establish a budget that allows you to pay for nondiscretionary and certain discretionary expenses while progressing your financial goals. If you and your spouse have different spending habits, you may consider giving each other an agreed-upon monthly “allowance” that can be freely spent or saved without the other’s input. Establish separate accounts so that you both have complete freedom over this limited amount of money.
5. Cover your bases. After the difficult discussions, take time to restructure your income, expenses, insurance, and savings plan. Establish joint checking, savings, and investment accounts; update your income payouts into the appropriate bank account(s) for your overall goals; and review existing insurance policies and purchase/update any relevant policies.
6. Review beneficiaries and create an estate plan. If beneficiary designations are not updated and you’ve listed someone other than your spouse, when you pass they won’t have the ability to contest or receive those funds. Update designations on retirement or savings accounts and establish estate planning documents to ensure your spouse receives assets as you desire.
Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit creativeplanning.com.