Signed, Sealed, Delivered
Congratulations on your recent nuptials! Now that you’re back from that honeymoon (and hopefully enjoyed a moderate splurge on some remote island), it’s time to get serious about your finances. Here are a few experts on the five steps you’ll want to follow to keep the financial part of your marriage blissful — whether you’re merging finances or not.
Decide What to Merge — and What Not to Merge
To have a joint account or not to have a joint account? It’s a personal decision only you and your partner can make. If you do merge, make sure you understand your cash flow as a couple and develop a plan for paying bills together. Divide household expenses evenly or proportionately, based on each partner's income.
“A joint checking account is good for a few reasons,” says Deana Howard, a financial advisor and co-owner of financial planning firm Howard & Howard. “First, it sends a message to your spouse of ‘what's mine is yours.’ Second, it saves a lot of confusion over what has been spent and where you stand financially.” On the other hand, keeping separate bank accounts might feel more comfortable to you and your partner, and you can simply contribute to your joint expenses from your own accounts.
Bjorn Amundson, CFP(r), a financial advisor at Kaleo Advisor Group, suggests setting up two checking accounts: In one (the “fixed”) account, you deposit paychecks, then use that money to automatically pay bills like your mortgage and utilities. The “fixed” account also funds your second account, which Amundson calls the “spend” account. An agreed-upon amount goes in weekly. “This ‘spend’ account is used for groceries, shopping and the like,” he says. “When it is out of money, you have to stop spending! This simple system beats budgeting any day.”
When it comes to building credit, however, it’s important to maintain a separate credit history as individuals. (In any relationship, you need to protect your credit score.) The National Endowment for Financial Education (NEFE) — a private nonprofit national foundation dedicated to helping with financial decision making — recommends keeping a few bills in your name only and paying them on time each month.
Schedule Money Meetings and Stay Organized
Work together and communicate often: This is the first piece of advice Paul Moyer, an independent insurance agent and founder of the financial strategy site Saving Freak, gives to the married couples he counsels.
Moyer draws this wisdom from his own experience: Each month, he and his wife sit down to prepare their budget for the upcoming month and talk about short-term goals, like saving for next year’s vacation. “This type of communication will prevent fights and each person will be able to address what is important to them in the budget,” he says.
Amundson and his wife also sit down monthly to talk money. He recommends using a site like Mint.com or a money management app to aggregate everything in one place. It makes it easier to talk about your financial plans — and helps you and your spouse stay on track with saving.
Communicate Often About Long-Term Goals
Accomplishing short-term goals will get you where you want to be in one, five, or 10 years. But all that planning will help if — and only if — you share the same big, long-term goals like the growth of your family, the age you’d like to retire, etc. There’s no such thing as over-communication when it comes to accomplishing the hopes and dreams you had on your wedding day.
John Heath, directing attorney at Lexington Law, urges spouses to ask each other some tough questions: “Couples should ask each other things like, ‘Do we want kids, and if so, how many?’ Kids are expensive, especially if you haven’t planned for them. Talk to your partner if you are considering adoption or would like to start funding a 529 plan for your kids’ college education. Do we want to buy a house in three years? Is it feasible to be student-debt free in three years? Answering these questions will point the two of you in the right direction.”
To reach the goals in the most efficient way (and avoid getting overwhelmed by The Future), Health recommends ranking your mutual long-term goals together and working toward them side-by-side.
Create an Action Plan for Benefits, Retirement, and Emergencies
Your partner and you each came into the marriage with different things to offer financially. It’s likely you have various employment benefits to choose from, including life insurance, health insurance, 401(k)s, and more. Make the most of them by comparing each person’s plans. “For example, one spouse's employer may have much better health insurance than the other's, or maybe one 401(k) has much better investment options or a better match than the other,” says Ed Snyder, CFP(r), ChFC, of Oaktree Financial Advisors.
Plan for the unexpected, too, says Snyder. Have an emergency fund (that you both can access easily) so that if you have an expensive car repair or the furnace needs to be replaced — or one person loses their job — you have cash to cover it. Either spouse should be able to pay bills, access funds, and understand the budget in case the other physically can’t because of a medical emergency or health problem.
Finally, remember to name your partner in your will. Draft a will detailing the assets that you would like your partner and other beneficiaries to receive after you die. Name your partner as beneficiary on your retirement accounts and investment accounts, and consider giving your partner power of attorney, too.
Establish Fun Funds
Knowing the difference between “wants” and “needs” doesn’t mean you have to live in a state of constant deprivation. But it does mean that both of you have to agree on what falls into each category.
Alexandra Hopkin, a financial planner at Military Planners, offers this advice to her clients: Have allowances (or whatever you want to call it) that gives each spouse the same amount, regardless of their income, that they’re free to spend however they please, no questions asked.
“One spouse might spend their allowance on the first of the month each month, while the other might save up a few months for a larger purchase,” Hopkins says. “This helps couples stay within their household budget and reduces the number of arguments regarding finances, because it gives them an outlet for some controlled frivolous spending.”