Getting married? If you're looking for financial advice, just ask anyone who's divorced. Chances are they will tell you exactly what NOT to do when you plan your new financial life. Of course, a divorced person might also be somewhat jaded, and in the spirit of trust you may be looking for more positive advice.
According to a recent article on About.com's Financial Planning section, "Marriage and Money - Planning Your New Financial Life Together," a couple's financial situation will have an effect on every aspect of their married life. Knowing this, it's a whole lot smarter to put some effort into planning than it is to just "let things happen." No matter how compatible you are with your new spouse, it's very possible you hold different viewpoints on how to manage your money.
Everything from credit card debt to personal financial goals should be openly discussed before marriage. Otherwise, they could bring unforeseen challenges to the relationship. Learning how to navigate these issues while you're still in the "honeymoon phase" may be difficult, but it is too important to put off for later. You will be much better off with a strong financial foundation. Second marriages can be particularly complicated because each party has a more complex financial life, often involving support for children and/or an ex-spouse, as well as retirement assets, college funding, prior bankruptcy filings and estate planning.
Here are the four areas that will need your attention, preferably before you walk down the aisle:
Bank Accounts – One of the biggest questions everyone seems to ask is whether a married couple should have joint or separate bank accounts. Some couples have both a joint checking account and a separate account for each person. Whatever you do, please don't wait until "later" to decide this. Most financial planners will recommend both joint and individual accounts. The joint account would be used for family expenses and bills such as the mortgage, utilities, insurance and groceries. However each person would also have an individual discretionary account to use for personal spending – or "fun money." This approach helps to simplify things and it tends to limit too much personal spending.
Creating a Budget - Not only is this is an important issue to discuss, it is something you should do on a regular basis in order to stay out of bankruptcy court. Remember, your new spouse will add many complexities to your financial life, including debt, assets, bills and even savings; so even if you had a working budget in the past it's time to revisit that and make a new one.
Have a Plan for the Unexpected - Now that you're married, you will need to make some alternative plans for the unexpected. Not only will your beneficiaries change for insurance and investments, you will need to change your coverage limits. Proper estate planning will also include a new will. Take a look at your health coverage and determine which of your plans will be more beneficial to your overall health and finances. Marriage is one of the few life events that allows you to change your health insurance elections without waiting for the next open enrollment period.
Life insurance is another important topic to newlyweds. When no one else is depending on your income it's not necessary to carry a lot of life insurance, but when you have a spouse and children these needs will change, especially when a sudden loss of income would be devastating.
Planning for Retirement - Once you insurance benefits are all squared away, it's time to look at retirement plans, pensions and IRAs. When you establish the proper beneficiaries on these accounts, it ensures your assets will be properly distributed when you die. But beyond that, you may also wish to consider consolidating your retirement accounts. Take advantage of the many different tax advantages available from a Roth IRA and other tax-deferred investments. You will find that having two incomes will make it much easier to save for retirement.
Communicate Often - If there is one piece of advice that has kept many couples out of bankruptcy court (and divorce court), it is this: Talk about your financial situation frequently! Don't wait until an investment goes bad, or a business deal falls through. Don't spend first and explain later. A true partnership includes full disclosure of all money-related concerns in a timely manner. Joint financial planning may be stressful, but it can keep small problems from becoming big ones. Be open with each other from the onset and talk about your concerns, keeping in mind that no two people have identical values when it comes to money. Once you identify what is important to you as a couple, you can make the best decisions possible about your finances.
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