June 29, 2016. By Courtney Faria:
Whether the wedding bells are around the corner or have just rung, one challenge many couples encounter includes discussing the management of money. This tends to be a sensitive topic, however is an important item to discuss early on, preferably well before the wedding. The best way to make financial conversations less stressful is to agree to communicate openly and honestly, recognizing that you can achieve the life that you want working together as a team. Here are some tips to help facilitate the conversation:
- Talk About Finances in Real Numbers.
Make sure to have all relevant financial documents including account statements, pay stubs, credit reports, insurance policies, etc. handy for your discussion. Don’t hide any assets, income or debt. Using these numbers, you can determine your approximate family net worth by subtracting the sum of all your debts (school loans, credit card, mortgage, etc.) from the sum of all your assets (savings accounts, checking accounts, retirement accounts, real estate, etc.). This will give you a starting point and the opportunity to discuss any debt repayment strategies. Debt affects your credit rating which can impact your ability to purchase a house or a car with your spouse. If there is an issue that one or both of you need credit repair how will you accomplish raising one or both credit scores?
With a clear understanding of your current financial picture, this is the time to share financial memories from when you were growing up. How your parents dealt with money can be a strong influence on your relationship with money. Did they fight often? Were they big spenders or were they frugal? Were they open about discussing finances or secretive? This gives your spouse a great background picture for the two of you to build on.
After knowing where you have been, where do you want to go? After you and your spouse have had this opportunity to understand your overall financial situation as a family, you can then devise a plan. As a couple, you should set financial goals, including the accumulation of emergency savings which would comfortably support your expenses for several months in the case of lost income. Other goals to discuss include intermediate (i.e. car and home purchases) and long-term goals (i.e. retirement and legacy planning).
- Decide on Budgeting and Banking.
The beginning part of building your budget is to determine all of your essential costs (housing, utilities, transportation, groceries, etc.) and your discretionary spending (shopping, gym membership, eating out, etc.). Look at these items on your statements for the past few months and see where you can reasonably afford to continue to spend and where you need to cut back in order to reach your goals. Do you get take-out for lunch frequently? Is Dunkin Donuts the first stop on your commute every morning? Do you like to go out on the weekends rather than staying in? The purpose of the budget is to designate which day-to-day expenditures are necessary, and to develop smart saving habits. When it comes to discretionary spending, it may be wise to set a limit on bigger ticket items that require a discussion prior to purchase.
Part of your plan is to decide whether you want to pool your assets into joint accounts, a combination of joint and separate accounts, or all separate accounts. Each couple is different and needs to find which of those three options works best for them. One method is not necessarily better than the other; although one advantage of a joint account is the ability for either spouse to easily access the funds should something happen to one of you. After your banking discussion, you may wish to determine who should take the primary role of paying the bills. Having one person assigned to the task means there is a slimmer chance of something slipping through the cracks. It is important to note that both partners should always be aware of the family cash flow, and this should be discussed regularly to keep everything cohesive and on target.
The last item to consider at this stage of planning is investing. Many newly married couples miss the opportunity to invest due to lack of saving, hefty student loans, or simply being at the early stages of their earning years. A benefit of using a financial adviser is that he or she can help determine whether and how you can meet your life goals through the proper management of your financial resources.
- Review Estate Plan and Legal Documents.
Estate planning is a key element of financial planning and wealth management. Once you are married, you will want to consult and estate attorney to create or update your basic estate documents, including powers of attorney, health care proxies, wills, and trust titling.
You will also want to review your Insurance coverage to be sure that your beneficiaries are updated and your coverage is sufficient for your new family unit. As far as health insurance, you both may receive coverage through your separate employers, but you should determine which option gives you the best coverage for the cost, and whether to stay on separate plans or be on the same plan.
Lastly, if you still feel uncomfortable broaching the discussion, think about employing the help of a financial planner to facilitate the creation of a formalized budget or cash flow analysis. Topics surrounding money can include difficult subjects, but is essential for newlyweds to discuss each of the items above as a foundation for successful financial management. Tackle this conversation early to start building the life together that you envision and deserve.