The winding down of the pandemic has brought a flurry of wedding activity. Aside from determining living arrangements, newlyweds often start contemplating the merger of their financial lives following all the wedding festivities. In my family, there have been a few wedding celebrations this summer and I have been asked what advice I could share to newly married couples regarding their finances. The following thoughts come from many years of experience as an advisor, reflections on my own 40+ years of marriage, and tips from financial planning colleagues.
Emotional Advice First
Money is an emotionally charged topic that most people have a difficult time talking about. It might be said that as we get older, we look back and realize how early experiences influence us. And when it comes to money, these experiences aren’t always shared between both newlyweds.
My first advice is simply to discuss money openly. I would start by talking about the past. Tell a “money story” that describes a defining moment for you. Describe your family’s approach to money when you were growing up. How did your parent(s) talk about (or not talk about) money? What messages did you get? What messages did you incorporate into your thinking, and what messages did you reject? Are there things about money that make you uncomfortable? What are you satisfied with in your financial life and what would you like to improve? The idea is to start with a discussion that is more descriptive and isn’t judgmental.
As you become more comfortable, move towards talking about your future together. What goals do you have? Where do you want to be in the future? What are your financial values?
In her book How to Give Financial Advice to Couples, Kathleen Burns Kingsbury speaks about the need for couples to “reconcile” their approaches to money. I interpret this to say that you don’t have to have the exact same approach—you can each be different. However, you must understand and acknowledge each other’s approach and find a way to work together and (hopefully) respect and complement each other.
The second piece of advice is that you need to recognize that you are not only forming a romantic family union but also an economic union. It may seem like continuing to keep finances separate is the easiest way to proceed, however I encourage you to take a fresh look and not resist merging some financial areas. From a tax standpoint, the government views your marriage as a tax union, and trying to fight this is fruitless and leads to less-than-optimal results.
Please don’t interpret this to mean that you should own everything jointly. There are good reasons to keep separate accounts—inheritances, pre-marriage assets, trusts, etc. This will depend on your individual circumstances.
Think about how to best coordinate your effort. It’s relatively easy to get started!
- Start with a review of your health insurance and employment benefits. In most cases you have 30 days to make health insurance plan changes, if appropriate. If you missed this deadline, the next opportunity would be the annual open enrollment period, typically in the Fall for most companies. With respect to retirement plans, we’ve seen couples where one works for a company with a great 401(k) retirement plan, and the other doesn’t have a good one. If there isn’t enough budget flexibility to maximize both plans we would suggest that the spouse with the better retirement plan maximize their contributions and the other “under save” from their paycheck to free up cash flow for living expenses. This would optimize their savings. In an extreme example, one client couple had kept their finances separate so long that when they reached retirement one was able to keep saving while the spouse was withdrawing from an IRA, which created more taxes. It was suggested that the saving spouse “pay” the withdrawing spouse and cut the government’s take in the process.
- Marriage is also an important time to review beneficiary designations for retirement plans and life insurance policies.
- You will also want to update your estate planning documents or create them for the first time if you haven’t yet done so. This includes a will, durable power of attorney, healthcare power of attorney, living will and HIPAA form. It does not have to be costly to complete your estate plan, and sometimes, legal firms will have a package rate for new young adult clients. There are online products available that may be appropriate if at this point your situation is simple.
- One final suggestion is to designate one month a year as “financial planning month”. Typically, one spouse may be the “lead” on finances. That spouse should make a point to share regularly with the other spouse. In this month, you:
- Inventory all your assets and income and look at your savings and spending by creating a spreadsheet or using a software application such as Mint – but keep a copy. Most credit card companies and banks provide annual activity summaries which can make the process of creating a combined budget easier.
- Review your insurance.
- Look at your tax return.
- Set savings goals. Ask yourselves how you are going to make it happen.
- One year later, repeat the process. How does your financial situation compare to a year earlier? Do you feel good about what you achieved? Are you on track? If you are off track, what put you off track?
If you work together and communicate with respect, you’ll have a greater likelihood of succeeding in both your marriage and your financial life.
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