Financial planning too often
focuses on the end game—estate planning, retirement planning, life insurance,
legacy building, etc. The need to help
young people just starting a life together plan their financial world is
sometimes lost in the scuffle.
New couples must focus on how to
meld two individual financial entities into one, how to talk about money, and
how to make decisions for “we and us” rather than “I and me.”
If I were asked for advice by a
young couple (not that the young often seek such advice, as any parent would
attest), here is what I might tell them.
First and foremost, your
financial world together is now a team game.
It should be something you are willing to openly discuss in a
non-judgmental environment. In this
game, there are few right or wrong answers . . . just differences of opinion
that should be respected by both.
Second, work out a plan to
handle money. An easy first step,
particularly where both spouses have careers, is to set up a joint checking
account for paying common expenses incident to running the household and
contributing to joint savings accounts.
Pay your personal expenses from your own checking account, but be
accountable for contributing your share into the joint account.
Third, remember that saving
first and spending what’s left will help you build wealth and live within your
means. Setting up a simple budget to
cover fixed, predictable expenses such as housing, food and utilities will help
you define what you need to live on and what you have available to save.
You should have three savings
accounts: 1) An emergency fund for
unexpected larger expenses should hold 3-6 months’ simple living expenses; 2)
Each should contribute to his or her respective retirement account, even if
only a small amount each month; 3) Set up a savings/investment account for
larger, longer-term goals, such as a first home, new car or furniture. Set small targets for accumulation targets in
this account. When you hit these
targets, reward yourself with a treat—dinner out, a show, etc. The little treats make the bigger sacrifice
worthwhile.
As a new husband and wife, you
should also check the beneficiary statements on your IRAs, employee pension
plans and life insurance. Your new
spouse should be the primary beneficiary of all.
Property insurance, car
insurance, health insurance and life insurance should all be reviewed to ensure
that each of you is covered appropriately.
The titles of property each of
you owned before marriage, such as cars, stock accounts and real estate, should
be reviewed. You may want to make it
community property if you reside in a community property state. If not, at least title it in joint tenancy so
that if one spouse passes, the surviving spouse is not disinherited.
Finally, start your new life
together with a simple will and durable powers of attorney for health and
financial affairs. This will ensure that
if one spouse becomes disabled, the other spouse could make necessary financial
or health decisions for both.
Building a life together is more
like running a marathon than the 100 meter sprint. It takes time, understanding and good
communication to make it work. It’s all
about teamwork.
