Of the many exciting and potentially stressful items on the to-do list prior to or after getting married, is to organize joint finances. Hopefully, conversations around finances have already been had prior to getting married so that each spouse has a good idea of the other’s financial situation. Having these conversations are extremely important because it helps avoid any financial surprises once the knot is tied. Marriage is ultimately a legal action as much as it is an act of faith, commitment, or love. Once married, spouses share in each other’s finances. This article will provide a financial checklist for newlyweds to ensure you start your marriage off on strong financial footing!
1. Determine How You’ll Manage Day to Day Finances
There isn’t a right a wrong way to manage day-to-day finances once married. Some couples prefer to add their spouse as a joint owner of their accounts and close any individual accounts. Others, choose to maintain separate accounts and continue to manage their variable expenses separately.
The key it to ensure a conversation is had about savings/investments rates and how you’ll split expenses. If you’re both making relatively the same income, saving to retirement accounts at the same rate and splitting living expenses makes sense. If one spouse is making significantly more, ensuring both spouses are still able to contribute retirement accounts while the spouse earning more takes on a larger role in paying for livings expenses could make sense. It’s important both spouses feel empowered in managing joint finances and that there’s a clear plan in place for managing the day-to-day living expenses.
Other questions to address are who will pay the monthly bills? Ensure that credit cards are paid off? Or ensure spending is in line with your budget?
2. Develop A Joint Budget
A valuable exercise to conduct for newlyweds is to determine on average how much you’re spending on a monthly basis. Comparing how much you’re spending with how much you’re earning, is the fundamental backbone to any strong financial situation. Ensure that spending is LESS than what you’re earning, while also being able to make progress towards long-term financial goals and typically you’ll find yourselves in a good situation.
In the process of completing an expense worksheet or budgeting exercise, both spouses should openly discuss whether how they’re spending money adds value to their life, or in this case, lives. Spending should always align with things that add value to your life. It’s an extremely simple notion, yet, powerful if kept top of mind when completing a budgeting exercise. It makes it easier to identify expenses that can be “cut” or to add more meaningful experiences or “things” to your life that actually add value. Of course, now that you’re married, it should also take into account both spouses values.
3. Establish Joint Financial Goals
Again, this is likely something that spouses should or have already discussed prior to marriage. However, once married, it’s important to clearly articulate these goals and provide a joint financial purpose to work towards together.
Short-term goals could include, saving for a home down payment, paying off student loan debt, preparing for a family, or automating your finances. Long-term goals commonly include adequate retirement savings for both spouses.
How will both spouses contribute towards progressions of these goals? What’s the time frame? What steps need to be taken in order to begin?
4. Update Beneficiaries
Once married, the easiest most cost-efficient way to ensure that assets are passed to a spouse in the unfortunate case of an early passing is to name your spouse as the beneficiary of accounts. Retirement accounts make this extremely easy and allow you to name both a primary beneficiary and contingent beneficiaries.
For non-retirement accounts such as bank accounts (if they’re not jointly owned), adding a “transfer on death” designation to the account allows you to add a beneficiary. The benefit of doing so is it allows accounts to avoid probate court, which can be time-consuming and costly.
5. Create a Will
If spouses have more complex financial situations, in most cases meaning more assets to potentially have to account for, creating a will is an important step in the estate planning process. A will outlines exactly how to manage your estate in the event of an early passing. Assets that do have beneficiaries outlined can be passed without a will, however, assets such as cars, real estate, or collectibles can all be clearly outlined in a will.
Talking with an estate planning attorney about setting up a will along with other important documents should be an early item to take care of once married.
6. Review Insurance Needs
Life insurance is an important aspect of financial plans. While it’s not a happy subject to discuss soon after marriage, it is integral. The only worse thing than losing a spouse unexpectedly is also losing their income and ability to maintain your lifestyle or potentially having it fully uprooted. For example, if it’s decided only one spouse will work, if the working spouse were to pass, the family would no longer have their income to support themselves. Therefore, a life insurance policy that replaces the lost income would be important to have in place.
Typically, for most young families or recently married couples, term-life insurance policies provide adequate coverage for this risk. Whereas there more expensive counterparts, whole life policies can also provide coverage, but at more expensive premiums (in exchange for an “investment” aspect to the policy).
7. Review Joint Net Worth
A basic principle of personal finance is to grow net worth over time. In essence, paying off debts and building assets, in turn growing net worth. Establishing a starting point is a good idea for newlyweds in order to help jumpstart the goal setting conversation. Through calculating net worth, couples will gain a better understanding of ALL their assets and liabilities, helping further the conversation around where to begin? Should more cash be put towards paying off debts, or are we better off investing extra cash in our 401(k)’s?
Once a starting point is established, it can provide future motivation and a sense of accomplishment once reviewed every year or so. Seeing net worth grow over time will re-affirm that joint financial planning and goal setting is working!
The Bottom Line
There are many financial conversations to be had for newlyweds. The key is that these conversations are actually had! Keeping an open line of communication and deliberately having a plan for joint finances will lead to long-term financial success for couples. Whether you need a third-party such as a financial planner to assist in that process or not, is up to you! For assistance in building a joint financial plan, schedule a free consultation today.