Congratulations, you've found Mr. or Ms. Right, fell in love and now the Big Day is right around the corner! Whoa! Hang on a minute, and read on. We've uncovered some great ways to make sure your Big Day doesn't turn into Big Debt!
But before your special day arrives, do your soon-to-be and yourself a huge service by sitting down to ask, and discuss, some mighty big questions, from Kiplinger's Personal Finance Magazine. You may save yourself some arguments later by talking about your money now.
More important than the cake, flowers or even the invitations is
preparing for your financial future together. Make a date to sit down,
discuss your goals and expectations and come up with a plan for an
effective merger of your financial lives. It may not sound romantic,
but considering that quarreling over money is one of the biggest causes
of marital discord, a money talk may be just what Cupid ordered.
"Financial dates are a great way for couples to set priorities,
build trust and increase marital bliss," says Jennifer Openshaw, chief
executive of FamilyFN, a Los Angeles company that provides financial
advice. "Probably the biggest mistake couples make is not talking about
money. It's really about setting aside time so you can both plan for
your hopes and dreams."
1. Where would you like to be in five or ten years? This
question is the best way to start a money conversation, says Openshaw.
For example, does one of you want to go back to school, start your own
business or own a vacation home? And if you plan to raise a family, how
many children and when? Would you both continue working, or would one
spouse want to quit and stay home with the kids? You may think you know just what your future husband or wife is expecting, but have you asked in detail? Talk about your hopes
and dreams together, and now, to set your mutual priorities, and pinpoint for both of you what you need to do to achieve your savings goals.
2. What are our assets and liabilities? Before you can create an effective strategy to reach your goals, each person should fill out a net worth worksheet,
detailing your own assets and liabilities. Once you know where you
each stand right now, it's much easier to move forward. If you need help, you might think about consulting a financial professional to help you navigate through this, and make a livable plan.
This is the time, too, if you haven't discussed it already, to bring up a prenup.
A prenuptial agreement spells out how assets will be distributed in
the event of a divorce. No one likes to think about it, especially right before the "happiest day of your life", but with about one-third of first marriages and
half of second marriages ending in divorce, it makes sense to protect
your financial interests.
Prenups aren't just for the super-rich. If either of you owns
a home or has investments, owns a business, plans to support the other
through school, or you have children from a previous marriage, you
probably need a prenup.
Make sure you broach the subject with your partner as soon as
possible. It may not be the most romantic discussion, but better now
than bringing it up the night before the wedding. Learn more about prenups.
3. Should we keep our finances separate or combine them?
Some couples relish the unity and trust that joint accounts foster,
while others prefer more freedom and autonomy by maintaining separate
accounts. Many couples decide that there is good to be said for both- some couples set up a joint account
for household expenses, to which each of you contribute based on your respective
incomes, while keeping separate accounts for personal spending.
The key is to find a system that works for you. Make sure you
consider your individual money styles. If you are a saver and your
partner is a spender, for example, you might find managing an
all-purpose joint account too nerve wracking and opt for a combo
approach or separate accounts entirely.
4. What about our investments? Whether or not you choose to
combine your investment accounts is, again, entirely up to you. (Note:
You cannot open joint IRAs or 401(k)s, but you can change
beneficiary information.)
Nevertheless, it's important to view your portfolios as a
whole to make sure you aren't overlapping. If you both hold shares of
the same stock, for example, you could be placing yourselves at risk
should anything happen to the company. Check for overlap in your mutual
funds using Morningstar's free Instant X-Ray.
5. How will we handle daily spending decisions? One of the first tasks newlyweds should tackle is creating a budget. Sit down together and plot out how much you expect to spend on groceries, clothes, eating out and other household expenses. Then be sure to add in a certain amount to prepare for unexpected expenses.
"Budget" doesn't have to be a four-letter word -- think of it as a means to reaching your goals.
You should also take this time to discuss other spending issues,
such as how much each of you can spend without consulting the other.
You probably don't want to discuss every $5 purchase, but you don't
want to come home from work to find a brand new, and quite unexpected new car in the
driveway, either.
6. Who will be responsible for paying the bills and preparing the taxes?
Don't make what seem to be natural assumptions here, friend. Sure, one of you might seem the logical choice, but all you need to do is bring it out in the open. Be sure one of you won't feel any resentment about the choices to be made- who's going to write the checks, rebalance portfolios, sift through the dust every year at tax time, and other issues. Is one of you more organized than the other? As I said, these decisions might seem perfectly obvious to one of you- be sure they're clear to you both. Make a monthly date to review the month's expenses, spend a few extra minutes to review where you stand on your current saving progress, and talk about the possibility of upcoming expenses, like vacations or bigger purchases.
No matter who ends up handling the bills in your marriage, make
sure each partner knows where to find all the different account
information, including Web sites, passwords and bill due dates in case
anything should happen and the other person needs to take over the
responsibilities.
7. What is your tolerance for financial risk? One of the biggest culprits in marital money fights is a mismatch of risk tolerance, says Jonathan Rich, author of The Couple's Guide to Love and Money.
"A lot of life's most important decisions involve weighing
risks," Rich says. From investing strategies to career moves, if one of
you prefers to take bigger risks in hope of bigger rewards while the
other is content to play it safe, you could each end up resenting the
other for his or her carelessness or for holding you back, says Rich.
Here's a small test, too,
to see where you both stand. If you're on different ends of the risk
spectrum, don't even try changing your spouse's point of view -- it
won't happen. Instead, try to compromise on financial strategies that
both of you can stomach.
8. What are our insurance options? Adding a spouse to your
health insurance may be cheaper than maintaining separate plans.
Consider your specific health needs, then look at the costs and
benefits of each person's plan choosing. Combining your auto-insurance
coverage will probably also save you money. You'll want make sure you
have enough homeowners or renters insurance to protect your combined
possessions. And what about life insurance? Do you need it? If you
already have some, either privately or through an employer, do you need
to change your beneficiary information?
9. How does your credit report look? The good news is that
simply marrying a person with bad credit will not drag down your
stellar record. What's his is his and what's hers is hers. So, if you
apply for a car loan by yourself, your spouse's credit report won't
even enter the picture.
But when it comes to applying for joint financing --
say, you plan to buy a house together -- lenders will consider both
your histories. It's better to know ahead of time of any potential
problems than to receive bad news in the mortgage lender's
office that you're stuck with a higher interest rate, don't qualify for
as much money as you'd planned or that you're being turned down for the
loan entirely.
Order copies of your credit reports. You are entitled to a free copy each year from the three major credit bureaus through AnnualCreditReport.com.
You and your partner should examine your reports, look for errors and
fix them. Then, if there's room for improvement, come up with a plan to
boost your credit score.
10. How will we tackle existing debt? Make a pact to pay off your debts. Start with the balances that carry the highest interest rates. You may choose to work individually or collectively to pay off debts
you accrued before the wedding, but don't add each others names to your
obligations. Also, consolidating your own student loans to lock in
record-low rates is a good move -- but, again, don't merge your loans
with your spouse's. The
commingled debt would be nearly impossible to
untangle should you ever divorce, and if one of you were to default,
the other would be left holding the bag.
THERE. Take these steps now, and enjoy the feeling of financial peace of mind and confidence that are as much a part of your new life together as the vows you're ready to take together.
John
Email John: johnsblog@teshmedia.com
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