If you are recently married or planning your wedding I know how much you have on your plate. I recently became engaged and the wedding planning is in full swing. I mention this to explain why there was an open wedding planning magazine in front of me. My wonderful fiancé showed me an article on financial planning for newlyweds that was in this magazine. After perusing the article I mentioned how most of the advice was good but some of it was really out there and nothing I would ever suggest to my clients. So after a little discussion I was encouraged to produce an article on the same topic but with only the good parts. What follows is that article. Yes, I do see the flaw in my advising newlyweds when I’m not married yet. However, I am going into my eleventh year in business and have given this same advice to many of my clients with rather good results over the years.
The very first thing is please have multiple checking accounts. You each had your own checking account when you entered into this relationship (hopefully) and it should stay that way. In addition to your individual accounts please open a joint checking account. The joint account can be used for household bills, joint savings, and major purchases. So if you cash a physical pay check just deposit the bulk of it into the joint account and the remainder in your personal. If you have your check electronically deposited, then see if your employer can split your check into multiple accounts or have the entire thing go into your personal account and then transfer money over to your joint account. Your retirement planning money and insurance premium money should be paid out of your joint account. After all you are planning on staying together forever (if you’re not, maybe the whole marriage thing wasn’t the best idea) and you will retire together so you can contribute together. This works very well since rarely are a husband and wife in total agreement on how much to put aside and how much risk to take. This way you can average it out or come to a compromise somewhere in the middle and use your joint money. If there is something you want to do separately, play the lottery, invest in speculative penny stocks, or be very safe and buy a CD, you can do that with your own money and not risk the “our” money.
To focus on my last point, the insurance premium money should come out of the joint account as well. In the case of homeowners or renters insurance, you are living together, or will shortly so it should be a shared expense. The same should hold true with your life insurance and disability insurance. You purchased it to take care of each other, so it should come out of the joint account. Also, if you’re going to pay monthly, many companies offer the cheaper option of auto-deduction from a checking account. Using the joint account makes accounting for these premiums easier. A joint account can make your advisor’s job easier as well. When I do a retirement plan for a couple I look at the total of the couples’ assets and where they are invested. So when we rebalance we can look at the investments as one pool of money. The joint account makes it easier because any recommendation for additional funds can come out of the joint account. This way you’re investing as a couple and growing your money together. This helps to eliminate the idea of one person’s investment doing better than the other. Long term this works well because one member of the couple doesn’t feel entitled to more of the money or the ability to spend recklessly because it came from “his or her retirement account”.
Here is my disclaimer concerning my next point. I am not an attorney and anyone reading this article should consult their own attorney for the proper legal advice. The following is only my opinion and some prudent ideas. Now that the legal part is out of the way…Get a Will. Like now, if you are married or shortly after the ceremony if you are still single. This is huge, does not cost a great deal of money and can prove very useful. That being said, and before you get the idea in your head, let me say, See an Attorney about drafting a Will. Do not do the “do it yourself” online kind. You may think it is fine, but I have seen a couple of incidents where it was not fine and needed correcting. Some of these mistakes were found after the person had passed away and permanent damage had been done. Some other wills were fixed after seeing a professional. That personal interaction is vital to getting your will done correctly and thinking ahead and setting up the correct planning provisions. It is worth the time and money, because once you do die, there is no do-over. The will is vital even if you don’t have kids or a lot of assets. It can take care of whatever money or debt you do have, as well as pets, and spelling out the persons final wishes.
Along these lines of planning, please set up a budget. You will each have different bills, spending habits and attitudes towards money. The new family budget can help you to figure out your bills, leisure spending, investing, and how much to keep in that new joint checking account. Also, please don’t leave this up to just one person. At first please do this together, so you both get familiar with what’s happening to your money and how you have things set up. If one person takes the lead for the bill paying that is fine and for most people more efficient. But neither person should be in the dark. So for the first couple of months, do a budget together, to make sure you don’t get into financial trouble and so you both get comfortable with where your money is.
Back to the wonderful topic of insurance. Disability insurance is being cut from worker’s benefit plans at an alarming rate. When benefits get expensive and employers need somewhere to cut back on the disability insurance is usually the first to go. This is particularly bad for younger couples. It is true that you may not have kids depending on your income, but you have each other and probably some big bills. Even today, disability is the largest cause of someone defaulting on their mortgage and losing their home. It causes more defaults then all of this sub-prime and adjustable rate mortgage mess combined. Disability insurance is very important for younger people, and you have a higher likelihood of using it than your life insurance. The majority of people who get hurt or sick and become disabled go back to work within 2 years of the incident. How you pay to live for those two years is up to you, but most people do not have savings adequate to cover that. So please make sure you have the correct disability coverage at work, or go get some from a good company and competent advisor.
This brings us to the topic of life insurance. I think this is one of the key building blocks to a strong financial foundation. A number of advisors I have seen on TV recommend not getting insurance until you have children. I do not always agree with this and it can be a harmful blanket statement for these people to make. Insurance can be used to help guarantee a loan, or fund a buyout plan for a business. More and more young people are becoming business owners, and if you have partners, the life insurance can be a necessity to secure financing or setting up a buy-sell agreement with your partners. If you are young and healthy and plan on having children or financially protecting your spouse you can buy your insurance early. Say a large block of 30 year term. It is inexpensive and you can lock in that coverage you will need just down the road. Insurance gets more expensive the older you are when you purchase it. Also, most people do not get healthier as they age, so there is a good chance your health rating for your insurance will be better today than it will be in the future. For me, the piece of mind to have that protection locked in at a cheap price is worth paying for it, for a little while before I “need” it. I don’t want to take any chances when it comes to taking care of my future family.
Please don’t think that this is the end of the line, far from it. But for the sake of attention span, I think this is enough to digest for one article. The road ahead will be filled with a lot more discussions concerning money between you and your spouse. But take it from me, if you set up a budget, have a joint account, take care of your insurance and investments, and start saving and working on this together it will be a lot easier. You will be very far ahead of the curve and creating a strong foundation for your financial future. The one thing I really wanted to stress in this article was the concept of savings. Savings is such an important topic that I gave it its own article. So please look back into the archives of this blog and also read the article on “Back to Basics: Savings.” I think it will be most helpful to you, and prevents having to make this article any more cumbersome then it already is. Until next time, happy investing, good luck and best wishes to your lives together.
