So you’re getting married, congratulations! Whether you are young and marrying for the first time or a bit older and tying the knot again, this column can help you build a good foundation as you begin your new life together.
As a couple, it is important to know where each of you stands financially as you embark on this new beginning. You are part of a joint venture where your income, debt and spending habits will be affected by another person. I know it is not romantic – or much fun – to have this conversation, but it is so important. Money is at the top of the list for marital conflict, so the better the foundation you can lay now, the fewer issues it should present later.
So grab your partner and let’s get started.
Have an open discussion about spending habits. Hopefully, you’ve had some time to observe your partner’s spending habits by now, but today we want to look a little deeper. This is not about right or wrong as no two people have the same habits; it is about communicating your beliefs, priorities and values, about getting on the same page. You each come with your own personal discipline, family background, past successes and mistakes; now you want to come together to share and learn from each other.
No surprises, full disclosure here! Candidly discuss your respective financial statuses, preferably prior to walking down the aisle. You will want to review income, debts, investments, retirement accounts and employee benefits. Review the past year’s bank statements to see how you have spent your money. Are there any problems or concerns?
Obtain a copy of your credit reports from each of the three credit bureaus (Equifax (800) 685-1111, Experian (888) 397-3742 and TransUnion (800) 916-8800). These, combined with a review of bank statements will help you have a clear picture of each other’s financial picture.
If one of you has had a previous marriage or has children, are their any financial obligations to them, i.e. spousal or child support? Do you help out a parent or other relative? If there are children, what about estate issues; who will receive any potential inheritance – the new spouse or the children? And are documents in place to provide for wishes to be met?
Along the same lines, you may need to update beneficiary designations on pre-existing life insurance policies, retirement and investment accounts.
Maintain individual credit cards. This is important to ensure that each spouse has an individual credit card record and credit score. Use the card regularly to keep it active, but always strive to pay it off monthly. Building a longterm payment history is an important factor in your credit score.
I would be remiss not to comment on The Big Day: is the party worth it? Although you want your big day to be special, with the cost of “traditional” weddings running $20,000, $30,000 and more, it can quickly become a pricey party. This kind of money could go a long way toward putting a down payment on a home or paying off student loans, for example. If you incur debt for some of the expenses, a good rule of thumb is take on no more debt than you can pay off in a year.
Kids are not cheap. If you plan to raise a family you will want to factor this into your financial future. Estimates for 2013 by the Department of Health and Human Services states that $4,020 is the annual basic cost of raising a child from birth to age 18; with an inflation rate of 3 percent, you are looking at total expenses of $389,670, not counting college. Starting to make the pricey wedding party not look so bad!
Now that you have gotten through some tough discussions, you will want to develop the framework for your financial future. Establishing a household account for bill paying is a good step. Establishing who is responsible for each bill, who will pay the bills and when is a good step. Setting up a time for an annual financial review is a good step.
Notify creditors of name and address changes.
A note on pre-marital debt; getting married will not make you responsible for prior debts. However, if you are added to the accounts, your partner’s debt will show up on your credit history.
This checklist, while it covers a lot of the basics, is not sufficient preparation for planning your financial future. Education is key. Go to the local bookstore and peruse the personal finance aisle and pick up a good book on personal finances – I know, not romantic, right? You may find it helpful to engage a financial advisor for many reasons; additional education, discussions to see that you are on the right track or running a formal financial plan, for example.
If you have gone through this exercise, it may have felt at times that I was playing the heavy, which is not the intention. As I mentioned, and as I see in my daily practice, disagreements over money can lead to a great deal of marital discord. My wish for you is that you start off on the right foot. This type of discussion, with regular review may be one of the best gifts you can give your new spouse.
Kristi Ellington is a local independent financial consultant who has been providing financial guidance to her clients for the past 18 years after a 12-year career in banking. Kristi Ellington is a registered representative with and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. She can be reached in her Gilroy office at 408-848-0874, her Hollister office at 831-634-1144, or at www.kristiellington.com.
