If you're planning to get married soon, you need to take a number of financial steps in order to ensure your union starts off on the right financial footing.
Looking forward to a marriage can be a very exciting time. If you’re planning on tying the knot soon, chances are you’ve ironed out the big questions, such as whether or not you plan to have kids, where you will live, and which household chores each of you despise less than all the others.
Getting on the same financial page is important, too. A life partnership means sharing most things, including your financial status, goals, and objectives. These types of issues are much better discussed prior to your pending nuptials, so that there are no misunderstandings down the road. Let’s get you started with a few things to consider.
Establish a Basic Budget
It’s amazing how many of these financial planning articles start at this same point, but there’s a very good reason for it: the budget should be a big part of the foundation for your financial life, even if you’re not necessarily living paycheck to paycheck. In the course of establishing your budget, you’ll go over financial priorities, spending habits, current income and debt, and your retirement goals. You’ll work together to establish who will be responsible for what expenses, and what the expectations are in terms of banking and separation of assets.
Discuss — and Possibly Align – Your Financial Objectives
What’s that “possibly” doing in the subhead? You and your future spouse may go together like peas and carrots, but that doesn’t necessarily mean you share a brain — or a retirement vision. You don’t have to be perfectly aligned, however, to establish some financial objectives that fit both of your hopes and dreams. That means that you can have separate, but complementary approaches to things like saving for retirement and building a contingency fund. You can even have completely different philosophies when it comes to saving and investing. Perhaps your future spouse is younger or otherwise willing to take on more risk for greater potential financial gain. Discussing these types of issues up-front doesn’t have to mean coming to complete agreement on all matters; it’s more about setting expectations and determining how aligned you are, and, thus, how aligned your financial strategies should be.
This is a good time to discuss whether a pre-nuptial agreement is right for your partnership. That topic is a doozy, though, and one we’ll steer clear of for now!
Make Your Plans, Then Put Them Into Motion
Discussing and planning are great and necessary, but whether you are approaching matrimony for the first time or remaining ever-hopeful into your third pairing, the sooner you put your savings and investing plan into action, the better off you’ll be. If your new partner brings a substantial amount of debt, you may want to consider addressing it alongside building your future nest egg. No matter what your new financial situation, always consider the tactic of paying yourself first, a concept we’ll return to in a future column. Basically, that means considering saving for retirement as an “expense” alongside your mortgage and car payment, and paying that “expense” accordingly.
Establish a Contingency Fund
We covered this topic in greater detail here, but the quick summary is that setting aside a portion of your investment income into a contingency fund has a positive overall impact on longer-term savings, because if a situation does arise, you can tap your contingency fund instead of siphoning off other investment income. Contingencies seem to happen more often once you involve a partner — and potentially a family – in the mix.
Update Your Insurance Coverage
If you don’t have life insurance yet, or if you have a simple policy that was fine when you were single, consider upgrading or adjusting for a new beneficiary. While you may have some coverage through your employer, particularly if you work in a group practice or a major institution, you may want to consider additional coverage for you and your spouse to be.
All of the issues discussed above — and many more – will require flexibility once you’re linked with another person. That’s part of the deal. Good communication and some flexibility go a long way in taking the potential stress out of join decision-making.
Oh, and by the way, congratulations!