Marriage and finances, what will they look like for you?
By Matt Krueger, The Star News
While the sentiment of two paychecks being better than one can be correct, merging finances when getting married can be much more complex than that.
Planning for your big day is a very exciting, albeit stressful, time. One topic of conversation in regard to marriage that needs to be discussed, is how you plan on merging your finances. It is a conversation that can be a hard one or one that gets completely ignored all together.
Although it is a difficult conversation, it is one that needs to be had, so you and your spouse are on the same page.
Planning the budget
One of the first exercises a couple should do before tying the knot, is create a budget. This budget should incorporate your income, assets and liabilities. Your income is the money you bring in on a regular basis. This would include working wages, rental income, investment income, etc.
Your assets are items you own. Some of the larger items to include would be a house, vehicles, other real estate, UTVs, ATVs, collections, furniture, etc. Your liabilities are debts you owe. This includes mortgages, credit card debt, auto loans, student loans, etc.
This will help give you and your soonto- be spouse a clear picture of what your finances will look like, when they are merged together.
Once you have these lists, creating a month-to-month budget, is critical. You will use the list of the income you have coming into the household. Then you will want to create a list of your expenses. The goal would be to have more income than expenses. If you do not have more income than expenses, it is critical to take a closer look at your expenses.
It doesn’t take a mathematician or finance degree to figure out that spending more than you are making, won’t last long-term.
When looking at your expenses, you will want to segment discretionary expenses and non-discretionary expenses. Discretionary expenses would be expenses that are wants and NOT needs. You don’t need these expenses to live your day-to-day life. This may include magazine subscriptions, going out to eat multiple times a week, entertainment activities, etc.
Non-discretionary expenses are expenses you DO need. This would include expenses such as mortgage payment, utilities, rent, telephone, food, healthcare, etc.
If your budget has a deficit, it is important to look at ways to lessen your discretionary expenses. No one likes cutting back on discretionary items, but by making sure you are bringing in more income than you are spending, you will set yourself and your marriage, up for success.
This conversation will also lead directly into spending habits. It is crucial for couples to discuss their spending habits, before marriage. You do not want any surprises a couple months into marriage, about how your spouse spends money.
Once you have created a budget and discussed spending habits, it is important to track your expenses each month, to make sure your budget is accurate. When just starting out, it is recommended to track your expenses each month, to ensure you are living within your means.
There are many different apps you can download on your phone or programs on your computer that will help track your budget. These programs can be very cost effective (if not free) and help make sure you are staying on track.
Once you have your budget clearly defi ned, you can move on to other discussions regarding finances. Having this budget to fall back on, will help dictate how you spend/save money going forward.
If either of you have debts, whether it be a mortgage, credit card debt, personal loan, student loans, etc., it is important to discuss a plan to pay off those debts.
Before moving on, you should dedicate time to making sure you have an emergency fund. An emergency fund is money you have saved in case of an emergency, where you are no longer able to receive a paycheck. This could be because of the loss of a job or disability.
Many financial advisers recommend having anywhere from three to nine months worth of savings, in your emergency fund. That can be a wide range for some and it really depends on each individual circumstance. But, deciding how much you need in an emergency fund is an important foundation piece, for setting your marriage up for success.
If you don’t have enough in your emergency fund when you are first starting out, you and your partner should create a plan on how you will get there.
Goals for the future
You and your spouse-to-be should discuss what your short-term, and longterm, financial goals are. Setting goals is a crucial aspect of any part or walk of life. Taking the time to think about what it is you want your life to look like, whether it be financially, work life balance, vacations, etc., is very important.
It is also important to write these goals down on a sheet of paper. According to Dr. Gail Matthews, a psychology professor at Dominican University in California, people are 42 percent more likely to carry out their goals, just by writing them down.
Retirement and what that will look like
Now that you have discussed your shortand long-term financial goals, you can start creating a plan on how to get there. Typically, long-term goals include retirement. When would you like to retire? How much money do you think you will need in retirement? (This number can, and most likely will, change throughout the course of time.) How do you get there?
Creating a well drawn-out plan will show you exactly what you need to do, to meet your goals. You and your spouse should discuss savings, and investing options, that fit your current financial situation. You should also agree upon monthly contribution amounts. Setting clear percentages or dollar amounts establishes a savings expectation.
As with any long-term goal, circumstances or goals themselves can change over time. These goals aren’t written in ink. Be sure to re-evaluate goals from time to time, and adjust accordingly if need be.
Bank accounts – who has what
Bank accounts are another discussion you and your partner need to have. Are you combining finances or keeping them separate? Some couples co-mingle their bank accounts right away. Others prefer to keep them entirely separate. Others choose a hybrid approach, with some combined accounts and some separate.
There is no right or wrong answer to how you should combine bank accounts. You need to do whatever works best for you and your partner. If keeping money completely separate, you will need to create a plan for if something happens, where one of you are incapacitated or pass away unexpectedly.
How will your spouse be able to pay the bills you were paying? What about how to pay expenses related to your care? These are important questions when deciding how to combine your finances.
Life insurance is a must-talk-about topic
On the topic of passing away unexpectedly, life insurance is another topic that needs to be discussed. You are now relying on each other and if one of you were to pass away unexpectedly, how would the other be able to live the same life you were used to living? If you have children or may in the future, it is important to consider what the cost of having children is and what would things look like if one of you were to pass away.
One remedy to that problem, would be life insurance. It is important to discuss what types (if any) policies you have. It would be very beneficial to talk to a life insurance agent, to make sure your specific needs are met.
Beneficiaries on existing accounts
Changing beneficiaries on existing life insurance and retirement accounts is something that needs to be completed, once you are married. Wisconsin is one of nine states, that are community property states. This means that spouses are considered joint owners of nearly all assets and debts acquired in marriage.
In order to leave a life insurance inheritance or retirement account to anyone but your spouse, your spouse would need to sign off, by signing a spousal consent form.
Where things can get forgotten and cause a messy situation, is when you have retirement accounts or life insurance policies, before you are married, and you don’t change the beneficiary on those accounts or policies. If you have somebody else named as beneficiary, your spouse can still receive a portion of those funds, but it has to go through the court and can get messy.
It is highly recommended to change beneficiaries on all your accounts or policies to your spouse, once you are married. If there are special circumstances, it may behoove you to talk to a financial professional about your specific circumstance and what should be done.
Real estate is usually the biggest asset
For most people, real estate is the largest asset they own. A mortgage is most often the largest debt a couple incurs. It is important to discuss where you want to live. If one or both of you own a home now, you need to decide what you would like to do with it. Are you going to live there, keep it as an investment property or sell the home?
If you are both currently renting, it is important to talk about where you would like to live and if you would like to continue renting. Another option may be buying a home together. For many couples, buying a home together is the next step, after getting married. It is essential to discuss your aspirations and plan for owning a home.
Employer benefits shouldn’t be overlooked
If you and your spouse have benefits at your employers, it is important to compare and contrast the options you have, regarding health, dental and vision insurance, as well as any additional benefits an employer may have for employees and their families. These can vary from company to company. The first step would be to talk to your boss or HR, about what your options are.
We arrive at the wedding and honeymoon
One of the most exciting topics to discuss, when talking finances and marriage, is the wedding and honeymoon. No matter who is paying for the wedding, you will want to discuss the budget, location, number of guests and other details. You will want to ensure that you are not sacrifi cing your future goals.
Remember, it is just one day of your life.
That sentiment surely does hold true, but it is still a very important day of your life, as memories made that day, will last a lifetime.
A similar conversation needs to be had about your honeymoon. You and your spouse-to-be will need to decide how much to spend, where the money will come from and if any changes need to be made, based on wedding costs.
According to a survey of more than 1,000 people by TheCashlorette, 48 percent of people, who are married or living with a partner, say they argue with their partner over money. Data that was released by TD Ameritrade, says that 41 percent of divorced Gen Xers and 29 percent of divorced baby boomers, ended their marriage, because of disagreements about money.
Discussing financial topics may not be the most exciting topics of conversation for some, but having these discussions, and being honest and open, before tying the knot, will be crucial to your marriage’s success.
