You’ve
discussed the flowers, the seating arrangements and your honeymoon plans—but
before you walk down that aisle, there’s one more chat you probably need to
have: the money talk. And it just may be the hardest. A recent survey from the
National Foundation for Credit Counseling found that nearly 70% of survey
respondents have had negative feelings about discussing finances with their
future spouse.
But
it can be one of the most important talks you’ll have. “The way that people
manage their money can be very different,” says David Blaylock, LearnVest
Planning Services CFP®. “It doesn’t mean that differences can’t be managed, but
it’s something you should know before you tie the knot.”
Not
sure where to start? Here are 10 steps to help get you that much closer to
happily ever after.
1.
Broach the Topic
For
some couples, this can actually be one of the hardest steps. “Maybe you’ve made
some bad decisions or aren’t great with money and you’re fearful of being
judged by your partner,” says Blaylock. “But marriage really is for better or
worse, and it can be helpful to know how much better or worse your future
partner’s financial situation is.”
Try
starting with some easy questions like, “What was your earliest memory
regarding money?” suggests Blaylock. Or share some of your own financial
mistakes. “One important thing to keep in mind is to make sure you hold your
judgment,” he says. “Your future mate will most likely clam up the second they
feel they are being interrogated.” When you’re comfortable with the topic of
money, you’ll want to discuss some basics: What are your spending habits? How
much debt do each of you have? Do either of you feel strongly about a prenup?
2.
Decide how you’ll handle money in your household.
Once
you have an idea of each other’s financial past, it’s time to talk about your
financial future — together. Will you combine your bank accounts? Who will
handle which aspects of the finances? Which joint accounts do you need to open?
Research has found that more and more couples are opting to keep individual
accounts in addition to joint ones. But every couple is different, and you need
to decide which approach works best for both of you.
marriage-money
3.
Discuss financial goals.
You’ve
probably talked about how many kids you want to have and your dream home, but
have you discussed these hopes in terms of finances? How much do you want/need
to save for a down payment on a home? (LearnVest generally suggests putting
down 20% and setting aside 3% for closing costs.) To start a family? To save
for your future children’s college expenses?
For your own retirement? Will both
of you continue to work if you have kids?
If
all this planning sounds overwhelming, remember to prioritize your goals. At
LearnVest, we advise that you focus on basic financial security (retirement,
emergency savings and debt repayment) first. Then you can move on to other
personal goals, like financing your kids’ college education and paying down
your mortgage.
4.
Determine how much is going out/coming in.
One
of the most common financial mistakes, especially among young people, is not
knowing how much you earn or spend each month. Now that there are two of you,
it’s a good opportunity to figure out your new financial reality. Track where
your money is going on Learnvest.com, where you can link up to your accounts,
calculate your net worth and see how much you’re spending from month to month.
5.
Figure out how much money needs to be in your emergency savings.
LearnVest
Planners typically recommend that every couple have at least six months’ worth
of net income (for the highest earner in the household) in their emergency
savings fund. A lot of unexpected events may crop up in your lifetime together
— job losses, health problems, car repairs— but if you prepare for them now
with an emergency fund, they won’t derail you as much as they could.
6.
Create a budget.
Having
an idea of how much money you’re going to spend each month and what you’re
going to spend it on will help keep you both on the same page — and help
mitigate disagreements about finances. Not sure where to start? You can create
a budget for free on LearnVest.com.
7.
Establish a five-year plan and a ten-year plan.
“Planning
for the future is so important, not because we want to drive expensive cars and
live in huge houses, but because without goals, saving and planning can become
boring,” says Blaylock. “When that happens, we may then stop saving and start
spending because we think that will cure our boredom.”
After
you have a budget and you’ve discussed your financial goals, come up with a
loose timeline of when you want to meet those goals. Where do you want to be
financially in five years? Ten years? 40 years? “The plan should be flexible
and can change over time,” says Blaylock. The point is to have goals set in a
loose timeline, so you have a good idea of where you’re headed together—and how
much you may need to contribute to get there.
8.
Make sure you have the right insurance.
“This
is often the most overlooked area in all of financial planning because it deals
with pretty unpleasant events,” says Blaylock. But the reality is, houses can
burn down, cars can crash and all of us will face death, at some point. It’s
important to be financially prepared and protected. So what insurance do you
need? Health, life, disability and property (homeowner’s or renter’s insurance,
auto insurance, and scheduled personal property) all may be important to an
adequate financial plan. You may also want to consider umbrella insurance if
your income or assets make you a target for a potential lawsuit, or if you own
rental property. “If you’re having trouble deciding the appropriate amounts of
coverage, it may be time to check in with a professional who can help,” says
Blaylock.
9.
Think about estate planning.
First
things first: Everyone should consider having a living will and health care POA
(power of attorney). A health care POA designates the person that will oversee
your medical decisions and follow your medical wishes outlined in your living
will in the event that you are unable to make them for yourself, says Blaylock.
After
you get married, be sure to update your beneficiary forms and add a TOD (transfer
on death) or POD (payable on death) designation on any individual accounts,
like checking, savings and brokerage assets. These forms, in a sense, act as
substitutes for a will and allow money to transfer to a beneficiary
directly—without the overhead or complexities of probate. For any joint
accounts, you can also consider titling the account as Joint Tenants with
Rights of Survivorship, which serves the same purpose.
Once
you own a home and/or have children, you should consider setting up a last will
and testament to plan for the transfer of your home and designate a legal
guardian for your children. And finally, you may want to consult a trust and
estate attorney to discuss your specific estate planning needs if you are
combining significant assets. “This is a specialized field of legal practice,”
says Blaylock, “so working with an estate attorney can sometimes be necessary
depending on the complexity of the couple’s financial situation.” Specifically,
if you have significant assets and live in a Community Property State and/or
you are blending families, you should especially consider consulting an estate
attorney about setting up a prenup and/or a trust.
10.
Automate your financial life.
Set
up automatic withdrawals or direct deposit to pay yourself first for things
like retirement and your emergency savings funds. Designate time once a month
to discuss budgeting to help make sure your spending levels are within set
limits. Then review your investments quarterly and your financial goals
annually. “This gives you a chance to course-correct throughout the year if you
begin to get off track,” says Blaylock.
Credit:
Forbes
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