Anne Bednarz, CFP®, AIF® Financial Advisor
Congratulations on your upcoming marriage! It’s an exciting time in your life, with a new chapter to begin with your love and your lives together. Let the planning begin for the big day; it is also a good time to tackle a topic that will affect you long after your wedding day. This is an essential time to discuss your finances. Where are you currently? Where will you be after your wedding day? What are your long-term goals for the next five to ten years and beyond? By setting the tone prior to your wedding day and knowing what your goals are, you can work together as a team to accomplish them.
Where are you each currently?
How much do each of you bring to the marriage? Is it in a bank account, a retirement account, other assets, or debt? Bring it all to the table so each of you knows exactly what you’re stepping into. What are your spending habits? Do you live paycheck to paycheck, or are you a saver? Often opposites attract, so this could be an important discussion point for you.
Do you live in a common law state or a community property state? (Community property states are Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin.) This is particularly important for those in community property states. Anything that you own prior to marriage will remain your own in a community property state, and anything that is earned, purchased, or comingled during the marriage could be considered joint property. Will you keep these assets separate or combine them?
If you bring debt to the table, what type of debt is it? Do you own your own business and have business debt that you are personally responsible for, or do you have consumer or student loan debt? If it is student loan debt, there are several ways to approach how to pay it off, and a personal financial planner can help you understand the best way for you and your spouse to approach it. Some types of student loans can lose their potential loan forgiveness characteristic if not treated properly. Tread carefully.
How to conquer everyday living
How will you approach your everyday living situation… will you divide and conquer, or will you both take it on jointly? This is also a good time to sit down and make a joint spending plan. What items are essential for each of you beyond basic living expenses?
There are several approaches when setting up your finances together:
- You can combine everything and have a joint account from which you both spend.
- You can keep separate accounts. Each of you is responsible for one-half of the bills, or depending on earnings, keep it proportional to the income you earn.
- A combination approach. Have a joint account to pay for the basic joint bills, utilities, rent/mortgage, insurance, etc. Then have your separate accounts to pay for any separate debt obligations, or separate spending money for what you consider essential.
It is also a good idea to set boundaries for what amounts are okay to spend without seeking your spouse’s consent versus making an expensive purchase without consulting your spouse and possibly damaging your financial trust. As many of us have read, the divorce rate in the US is roughly 40 to 50%,1 and a common issue is money. If one of you handles the money most of the time, then set aside a time each month to review what is happening so you both are in the loop.
Future Goals — Do a little dreaming…
What would you each like to accomplish in the future? Write down the goal, the amount it is expected to cost, and the estimated time horizon. Revisit your goals each year, and modify them as needed. Life happens, and the best laid plans get interrupted, but being able to adjust and move on is essential in life.
For example:
Year 1:
- Start retirement savings accounts.
- Maximize the amount that your employer contributes.
- Set up an adequate emergency fund.
- 3–6 times your monthly expenses
- Set up a debt reduction schedule.
Year 3: Pay off all your student loan(s) by your third anniversary.
Year 5: Purchase your first home for $X.
Year 10: Purchase a boat or recreational vehicle for $X.
As uncomfortable as it may be, it’s also a good time to discuss your current financial situation now, rather than later. You will both be able to have a better understanding of where you were coming from and where you are going in the future. Enjoy your engagement and prepare for your life together.
Feel free to contact Anne Bednarz, CFP® with any questions by phone 806.747.7995 or email: ABednarz@EK-FF.com
1 American Psychological Association: Marriage & Divorce, http://www.apa.org/topics/divorce/
Evensky & Katz / Foldes Financial 