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Proper money management between two people is crucial to any successful relationship. Whether dating, engaged or married, sharing financial responsibilities is a huge factor that should not be ignored until it's too late. Many couples make the mistake of thinking that “love is enough” to get them through hard times. While this is a lovely sentiment, it is not quite accurate.
In today's world, where cash is obviously king, poor money management and financial problems will tear a relationship apart more quickly and efficiently than almost anything else that could happen. In this extensive guide to couples finances, I will walk you through all aspects of finances that you need to address as a couple.
In order to have the strongest relationship possible and avoid unnecessary money problems, start practicing better financial habits today. Believe it or not, developing shared money management habits together and openly discussing financial decisions openly will also build intimacy between you and your partner.
Pre-Marriage Financial Planning
Finances are one of the main sources of disagreement in a marriage that eventually leads to divorce. In this sense, It is critical to have a series of financially oriented conversations with your partner before tying the knot. Both parties need to be aware of exactly what it is they are getting into. Things to be discussed should include total incomes, total debt, financial goals and spending habits as well as plans for the future and many other topics.
In this section of Couples Finances - A Complete Guide we will discuss the steps that couples should follow prior to getting married.
How to Save for a Wedding
A wedding should be an unforgettable once in a lifetime event. It should also be a carefree and happy day. Being proactive about the financial planning of your big day will allow you to avoid needless stress and an early pitfall in your marriage.
According to various sources, including The Knot, the average wedding in the US can cost anywhere from just over $19,000 to just under $79,000. This includes wedding venue, food, entertainment, photography, planning and much more.
In order to make the most of your wedding, financial planning and proper saving are of the utmost importance. Couples need to be completely open and able to communicate clearly on their ideas and wishes for all aspects of their wedding.
First things first. Set an overall budget for the wedding and agree upon a timeline. Once these two important factors are out of the way, move on to deciding how much you will save and which bank account will be used for this purpose.
Next, move on to deciding exactly how the budget is going to be split for various usages. How much will be spent on the venue, invitations, food and beverages, entertainment, so on and so forth. Discuss everything fully and most importantly, stick to your plan.
Assessing Your Personal Finances Before Marriage
Openly discussing personal finances including past, present, and future is a major step to take on the way to tying the knot. It would not be fair at all for either party to inherit debt or poor spending habits without them at least being made aware prior to becoming legally obligated to share these financial burdens. “For richer or poorer” is not just words, it's a serious commitment.
Assessing your personal finances before marriage is a must for couples who are serious about a lasting relationship. Being untruthful about money is one of the surest ways to sabotage the trust between you and your partner. This can be a scary step to take, however, if two people love each other, money issues are something they will be willing to work with each other on.
Most debt that is acquired pre-marriage is subject to become a joint debt once two people become married. This can include personal loans, student loans, home loans, and more. Regardless if you are single when the paperwork is signed for pre-marriage debt, agreeing to marry someone means agreeing to share their financial status as well. Existing debt is a serious issue that absolutely needs to be discussed before getting hitched.
Credit Card Debit
Depending on the state or country that you reside in, you may or may not be responsible for credit card debt accumulated by your spouse pre-marriage. However, just about anywhere on the planet, you are fully responsible for any credit card debt that is incurred by your spouse while married.
Even if the credit card is specifically only in his or her name. Take this into consideration prior to marriage, make sure to discuss not only past and current credit card debt but be sure to also broach the subject of taking out credit lines in the future.
How to Get Out of Credit Card Debt
If one party or another has credit card debt prior to getting married, it is crucial to your financial future to begin eliminating that debt as soon as possible. The most important step is the first, stop using the credit line which is causing debt. Next, begin to keep a closer eye on finances, including tracking spending and cutting back on unnecessary purchases until you are in a strong financial situation.
Credit Card Debt Forgiveness
The chances of finding a credit card company that will outright forgive your debt is slim to none at all. However, many credit card companies will often forgive a small amount of debt one time in exchange for a payment on a larger portion of the debt. This is most likely to work out when the company believes they will keep you as a customer. Financial based companies are no fools, they know they will profit in the long run by allowing you to continue to use their services.
Credit Card Debt Consolidation
It is also highly feasible to consider speaking with a credit counselor about more affordable ways to consolidate your debt. Directly calling creditors and asking for a one-time deal to pay off the debt for pennies on the dollar is also a real possibility. You never know until you ask. Many creditors are used to taking losses and will be more than willing to work something out.
Bankruptcy is not the same as debt forgiveness or consolidation and falls into a category of its own. There a few different types of bankruptcy; each with its own set of rules and guidelines that are complex as each form is specific to your financial situation.
I will discuss a few different personal bankruptcy types in much greater detail further along in this article.
In the US, at least 44 million people have incurred student debt. According to Student Loan Hero, the average student loan debt is slightly over $37,000(Jan 24, 2018). Depending upon your financial situation, your program of study, and other factors such as the amount of your debt, there are several ways to start slashing your student debt.
How to Get Out of Student Loan Debt
Possibly the most popular way to pay down student debt, unfortunately, is making payments over the course of 20 to 25 years. The plus side to this method is that once you have hit the 20 to 25-year mark on your payments, the remaining balance is actually forgiven. The downside? By making agreeing to a two to two and a half decade long payment plan you are probably paying a nice amount more than your actual debt was, to begin with.
Alternative methods of student loan debt forgiveness are available depending on various factors. Teacher loan forgiveness programs exist if you are willing to jump through some loopholes. The same goes for public service loan forgiveness and Perkins loan cancellation and discharge programs.
It is also possible to have your total student loan debt forgiven by filing bankruptcy. Several other options exist, again, depending on your current situation and what you studied are going to play into these options. In addition, the government and
Techniques on Handling Debt
Handling the debt that is brought into your relationship by your other half, and vice versa is not always the easiest task. However, at the same time, it is far from the hardest thing to achieve. Early on in a relationship, honesty and the ability to be completely upfront with your partner regarding debt and spending habits will be one of your biggest allies.
In marriage, one of the biggest causes for divorce is simply poor money management and the constant bickering that it propagates between lovers. They say “love conquers all” yet money problems seem to be one roadblock that even love doesn't always have the magic ability to overcome. Don't put the wellbeing of your relationship in jeopardy needlessly. Communicate with your future spouse about the best ways to handle debt.
Debt to Income Ratio Calculator
Debt to income ratio, or DTI, is something almost every creditor looks at when considering whether or not it makes sense to award you and your spouse credit. This includes homes and auto loans, personal loans, credit lines and more.
Understanding your DTI is critical to recognizing what your actual financial situation looks like. DTI is more or less the amount of debt that you pay on each month compared to the amount of income that you bring in each month.
To figure out your personal DTI, follow these easy steps:
- 1Add up your total monthly expenses including rent or mortgage, auto payments, loans, credit cards, or other debts you have (this does not count food, utilities, etc.).
- 2Take this total and divide it by your monthly income before taxes.
- 3This number will be your DTI.
The lower of a percentage that your DTI is, the more likely that lenders will work with you. Not so confident in your math abilities? Check out this pro debt to income ratio calculator by Wells Fargo.
How to Handle Debt as a Married Couple
First and foremost, always remember that you're in this together. Approaching things as a couple takes the stress factor and cuts it in half right from the rip. Being upfront and honest from square one also goes a long way to reduce debt-related stress. Simply knowing your not facing things alone is a wonderful feeling, knowing your partner has your back is something not to take for granted.
Be as clear as possible with your future spouse about exactly where your debt lies. Start working on a plan to pay debt down as soon as possible. Again, understanding your combined DTI will be a huge aid here. Knowing this number will allow you to more accurately decide how much you can afford to pay on existing debt each month.
Other things to consider are, planning for the future with debt in mind, and lowering your monthly debt payments whenever possible. Debt consolidation can take multiple debts and merge them into one payment that can be more affordable on a monthly basis. Likewise, remortgaging your home can lower monthly expenses but will expand the overall time spent paying down the debt.
Talking Openly About Your Financial Past
Talking about past debt is perhaps not the easiest aspect, in regards to you, your partner, and your combined finances. However, it is something that must be done. And the sooner the better. In other words, having a no holds barred conversation about each other's financial pasts is something you need to carry out long before getting married. Keep in mind, if your partner truly loves you, they are going to accept your financial past and help to alleviate it.
This could be pretty awkward at first, but believe me, the last thing you want to do is put this off. Avoid putting yourself in the position to have to explain some embarrassing debt six months into your marriage. Openly discussing past debt is absolutely necessary between two people who are planning to be married. Individual debts become community debt, debt that is legally shared by husband and wife, once married.
Basically, sooner or later the truth will come out anyhow. You might as well be the one to tell your partner exactly how your finances look. These “money meetings” will go a long way in establishing trust in your relationship as well as allowing you to be on the same page. Developing and maintaining an accurate view of your shared financial situation is extremely important before progressing with planning for the future.
Talking to your future spouse about future financial goals should be an obvious priority. At this point, as your wedding day approaches, understanding exactly what your partner wants out of life is a pretty major thing. Discussing goals is a definite conversation that needs to take place and then be revisited regularly through your marriage.
Serious questions about each other's goals for the future might include the following:
Deciding on Getting a Prenup
A prenuptial agreement, or prenup for short, is a legal agreement that can be made in order to protect oneself from possible financial damages incurred from divorce or death. In basics, in the case of death or divorce, a prenup agreement will clarify which assets are considered community and which are personal. A prenup should be highly considered if you own property, business, or have a substantial amount of wealth.
In an example, a wealthy individual may exclude ownership of businesses, or certain bank accounts and properties, from falling into the hands of their ex-spouse during the divorce process, by having a prenup arranged and signed prior to being married. As an extension of this example, the same prenup which protects assets from being divided and awarded to an ex-spouse, in the case of divorce, would also decide exactly which assets would be given to children or other family members in the case of death.
It should go without saying that this can be an extremely important conversation to have prior to being married. On the other hand, many people overlook the option of a prenup agreement due to believing that they don't have anything to lose. Love is also a powerful motivator and can be downright blinding. However, this is not an option that should be taken lightly as one never knows how drastically their financial situation can quickly change.
If you and your spouse have decided to create a prenuptial agreement, it must be done at least one to three months prior to your actual marriage in order for it to legally stick. The average cost of a prenup is right around $2,500. Slightly less than the average cost of an engagement ring in the US.
While it is possible for you and your spouse to create and sign a prenup without the help of attorneys, it is highly unlikely that such an agreement would hold up in court. Each state has its own rigorous laws regarding prenups which could make an unprofessionally drafted document invalid. If you have come to the conclusion that a prenuptial agreement is necessary, both parties should hire separate attorneys to draft, witness, and/or review the agreement.
All that being said, a prenup can be a hard pill to swallow for one party or another. Feelings of not being trusted or even respected can begin to surface, and that is truly the last thing you want happening before you are even married yet. If a prenup is something one party or another feels is necessary, it is highly suggested that they be completely open and honest with their partner about the reasons why.
Also, some situations might leave room for considering inserting a sunset clause in the agreement. This will allow the prenup to dissolve after a certain amount of time. This can be done in order to protect one's wealth in the case of uncertainty about their partner's true intentions for marriage, yet still, show one's faith and willingness to give things a real and honest try. If you have any doubt to your partner's sincerity, make sure that you're protected by arranging a prenup with a sunset clause for 10 to 15 years, much longer than your average gold digger would dream of sticking around.
When it comes to the subject of marriage and finances, honesty is the best policy. Every. Single. Time. After taking your vows, you have no just committed to spending the rest of your time on Earth with this person, you have committed to sharing your finances. Completely.
Money problems will drive the ship that is happy marriage onto the rocks of distrust and leave its passengers shipwrecked and headed for divorce. Avoid the death of trust and respect in your relationship by being open and honest about every penny that you spend.
From buying a home to saving for a vacation, from taking your parents out to lunch to buying school clothes for the kids, every cent affects your combined finances and needs to be fully accounted for. From saving to spending, from dinner plans to retirement plans, your in this together from here on out.
In this section of Couples Finances - A Complete Guide we will discuss a wide range of financial topics that all married couples need to consider.
The big day has come and gone. You're finally married. Up to this point, you have discussed your financial pasts, current money situations, future goals and everything in between. You and your legal spouse are now ready to make some major steps to securing your financial future together.
So you're finally a happily married couple, but now the honeymoon is over and reality begins to set in. There is no reason to become stressed because you followed the steps to this guide and can breathe easy. Simply move forward and conquer the next steps to mastering couples finances. It's time to get serious.
Changing Your Last Name & Notifying Your Bank
One of the first steps to take after marriage is to update your bank accounts, social security cards, and driver's licenses to your new name. This is truly just a formality, but one that is absolutely necessary. You are a new person now and need to be legally recognized by your new name.
Simply visit your banks with the proper documentation proving who you are and you're good to go. This includes an official marriage certificate(with the government seal stamped on it), and an updated identification card with your new name. It's that simple.
Continue Your "Money Meetings"
As mentioned before, discussing each other's financial pasts is an important aspect of your relationship. One that should be revisited on the regular. Debt is an aspect of life that most of us can't escape, it is also a subject that we can not escape from sharing with our partner if we want things to work out. Being upfront and honest at every turn is a habit you will both want to invest in.
Make sure that you are taking time out of your busy lives to discuss these matters. Consider having a specific “date night” or “money meetings” strictly for holding these important conversations. This doesn't have to be a scary thing, and there are no rules that say you cant have fun while doing it. Go out to a movie, full up with dinner and a long walk. First and foremost, you should enjoy your marriage and money should not ruin that.
Regularly updating beneficiaries is a vital aspect of anyone's finances, though perhaps not the most pleasant to think about. This is particularly true in the case of marriage or divorce. The last thing you want happening is that your ex-spouse inherits your benefits instead of your current spouse due to lack of action on your part. Make sure the financial future of your loved ones is properly secured by updating your beneficiaries.
A beneficiary is in basics the person(or people) who will receive benefits from your estate in the case of your death. This can include siblings, children, spouses, and others whom you have legally designated. It is necessary to update beneficiaries of bank accounts and insurance policies from time to time. Once every year or two, as your position in life changes(such as getting married), revisit this in order to ensure the right people are designated for inheriting the benefits of your estate.
“Till death do we part” means more than just loving each other. It means sharing in everything, yep, I said everything. Finances too. Including saving, spending, planning, and managing bank accounts.
Once you've taken the ultimate step in your relationship, tying the knot, it's time to take a few more steps. This means reevaluating your banking situation as a couple. There are several options for you to consider.
The Pros & Cons of Joint & Separate Bank Accounts
As far as bank accounts go, there are multiple methods that have worked for married couples. Depending upon your separate financial assets, as well as your ideas and views on how to handle them, married couples have a few main routes that they can go.
Combine bank accounts into a joint account - combining bank accounts once married is considered by many couples as the best available option. Not only are you cutting back on the maintenance and service fees associated with each of your individual accounts by doing so, you're also making a statement of trust to each other- A joint account also makes it that much easier to track overall spending and saving.
You can keep separate accounts - in the case that one party holds quite a bit more in financial assets, such as savings, inheritance, or property, it may make sense for each person to keep their own separate accounts. This way there is protection not only from outside lawsuits but also in the case that the marriage falls through.
You can do a combination of the two - sometimes it makes the most sense to do both. For example, If one partner has large savings or inheritance, they make wish to keep this account in their name for various reasons. And there is nothing wrong with that. In order to avoid hurt feelings, however, it would do well to also open a joint account that can be used by both parties for the majority of their financial needs.
Keep in mind when considering a joint account with your spouse that there is more than one type of account that you can open together:
- 1Joint Tenant with Rights of Survivorship - this is probably the most common type of joint account that you open together. In basics, it is a completely shared account which both parties have equal access to all funds. More than likely this will be a checking account
- 2Tenants by the Entirety - another type of joint account wherein each person on the account has to sign off on every transaction that they make. This is typically a type of savings account.
- 3In Trust For - this sort of account is practically the same as a Tenants by the Entirety account, however, ts made with specific beneficiaries designated in the case of death. Its a popular choice for couples to create a savings account which will be passed on to their children in the case of their death.
- 4Joint Tenants in Common - even though this sort of joint account is more often used by business/investment partners than anything, it is also an option for husband and wife. All funds deposited are split right down the middle.
How Open a Joint Bank Account
Opening a joint bank account is a sinch. The most complicated part of the decision is honestly deciding which type of account will meet your combined needs. After the decisions have been made in regards to which financial institution you will open an account with, and which sort of joint account it will be, the next steps are easy.
Prepare your application together, either online or in person, present your legal identification cards, or passports, as well as both of your social security numbers. Next, all you need to do is make your first deposit and you're done. It is as simple as that.
Just like any other financial decision that you will make during your marriage, opening a joint account can be a good thing or a bad thing. Depending upon the level of trust in your relationship, as well as similarities and differences in money management techniques, the results of owning a joint account will vary from couple to couple. Take your time and discuss all of the pros and cons over a series of conversations before rushing to any final decisions.
As far as money and marriage go, there is little that is more important than discussing and setting financial goals together as a couple. This can include everything from the amount of money that will be saved on a monthly basis, whether or not you will sell the family home or leave it as part of an inheritance to your children, as well as how often a new vehicle will be purchased, what type of budget will be used for vacations, and how much money, if any, to set aside for an emergency fund and more
Financial goals are not all family oriented either. Even though you are now a legal couple, and hopefully will remain that way for life, there should always be room for understanding that you are still individuals and always will be. And individuals have desires and needs of their own. A wise couple will help and support each other to plan and to attain both family goals and individual goals.
These are the goals that you have as an individual. This may include wanting to go back to school for a certain degree, buying a drum set to use in performances at local pubs with “the boys”, saving for a Harley Davidson, or investing in the that crazy idea you've not been able to shake since it popped into your head 10 years ago during college.
These are the goals that you share as a couple. This may include saving for your dream vacation to Rome, buying the families 150-acre farm back from the bank, or opening a family owned and operated business. These type of goals should be discussed early on in your marriage and revisited regularly to make sure both parties are still on the same page.
Along with the “money meetings” that you've been holding with your spouse since before being married, you should now be moving on to the point of establishing firm financial responsibilities between yourselves. Now that you're married it's time to get serious about teamwork. This includes deciding who pays what and when, as well as where the money to be used as payment will come from.
Creating a Budget
A monthly budget should be a major concern of yours in the early stages of marriage. Depending upon the level that you have been sharing financial responsibility up until this point, this could be a pretty simple step. On the other hand, if you haven't been exactly working closely together, this could be a little more complicated. Either way now is the time to put your financial heads together once and for good.
In order to create a feasible budget together, first, look at total income and expenses over the past several months. Use these basic figures to create a financial plan that both parties can agree upon. Make sure to include finances for not only the necessary bills like mortgage, utilities, and insurance, but for extra spending, a.k.a. “fun money”, and general savings as well.
There are several well-known methods used for budgeting. For example, the 60/40 method. This involves directing 60% of your monthly income to main expenses such as bills, utilities, food, and anything else that fits into the “must have” category. The remaining 40% can be further broken down into a 30/10 split. Where 30% is directed towards various savings accounts and insurance payments, the last 10% is earmarked for fun money if all other expenses are met.
Another popular budget technique is the is the 50-20-30 method. 50% goes to all major needs for the month, 20% goes towards various savings, and the remaining 30% covers all want for the month. Look into various budgeting techniques with your spouse and be sure to discuss them at length in order to find which one works best for your financial situation. You can always create a hybrid budgeting technique, in fact, that is exactly what you should try to do in the first place.
Budgeting Apps & Software
In today's digitally advanced world, there are several solutions for budgeting that come in the form of convenient apps and software. Below are two excellent examples that you and your spouse can benefit from using during this stage of your financial planning.
Mint Budgeting App
Link your bank accounts, bills, credit cards, investments, and daily spending seamlessly in this one powerful budgeting tool. Manage your money, track your overall finances, monitor your credit score and more with this app.
Mint is brought to you by the same trusted developers who created TurboTax® and out of the wide variety of third-party budgeting mobile applications, Mint is probably the most widely known and used.
As of 2016, Mint serves over 20 million users and is intergrated with over 16,000 North American (more specifically, United States & Canadian financial institutions).
Wally Budgeting App
Wally is another excellent option for managing your finances all from one app. Easily monitor all of your income and expenses. Compare your spending habits to others in the same income bracket as you and your spouse. Set goals and gain insight into your finances with Wally's built-in smart notifications
You can break down your finances into various catagories such as personal, food & drinks, clothes, and travel. Unfortunately the app does not sync with your bank account, so you will have to manually enter figures into the app to get an idea of how and where you spend your income.
Tracking Your Budget
Tracking the performance of your budget is vital, especially in the beginning. Without closely monitoring your finances you would have no way to gauge whether or not the budget you created with your spouse is actually working out or not. The good thing is that you can always adjust your figures to assure that you are optimizing things. Perhaps you need to save less each month than you had initially planned, in order to pay down past debt. On the other hand, if everything is working out nicely, maybe you have more breathing room for “fun money” than you had originally anticipated. Tracking your budget is the only way you will be able to know.
Techniques for Budget Tracking
Aside from the modern way of doing things, apps and software like Mint and Wally, there are several proven old-school techniques for tracking your budget.
These may include:
- 1Relying on online banking systems - works best when all spending is done via credit and debit cards.
- 2Cash & envelope method - withdraw cash each month and put exactly what you need in individual envelopes for all expenses including “fun money.”
- 3Using third party budgeting mobile applications like Mint, Wally, Acorns or PocketGuard.
- 4Keeping track of income and expenses strictly by hand.
Planning For Financial Hardships & Emergencies
Financial hardships and emergencies are an aspect of finances we all hope that we won't have to face. Unfortunately, with the shaky global economy of today, this is a real factor that must be considered. It is nearly impossible to predict the exact future of your finances, let alone the status of world economics. There are just too many variables.
For example, the Great Recession of 2008 was a national emergency that severely impacted the entire United States of America. Nearly everyone faced one form of financial hardship or another. Within 24 months, the national unemployment rate increased 100%, raising from 5% to 10%. This fact alone was devastating to millions of Americans who were caught completely unprepared to face such a financial disaster.
On September 29th, 2008, in one day, the MSCI World Index(the measurement of global stock market performance) was knocked down 6%. The largest drop it has ever experienced since its inception in 1970. This day became known as the day the stock market crashed for the second time. The first time having been back in October of 1929, which initiated the Great Depression.
Times like these are reminders that anything can happen. The bottom line is that we always need to prepare for the worst. If it doesn't happen, well, that's great. If it does, then we are as prepared as possible. This makes proper money management extremely important.
In order to protect yourself from financial hardship in the face of emergencies. You should:
Creating an Emergency Fund
An emergency fund, also known as a “rainy day fund”, is something all married couples need to establish as part of their financial budget. As described in early sections, there are several known formulas that are handy for establishing a budget. In most of them, a small percentage of monthly income is dedicated to savings, insurance and so forth. This is where your emergency fund will come from.
Whether following the 50-20-30 method, the 60/40 method, or some other hybrid budget formula, most anyone who is serious about the stability of their financial future can find a way to squirrel away 10-20% of their monthly income for a rainy day fund.
If need be, cut back on “wants” and “fun money” in order to establish an emergency fund. You'll thank yourself later. It could mean the difference between losing your home or vehicle in the case of another national recession. It could also be the difference between having your lights cut off or whether or not you have food on the table after being laid off for several months.
Emergency Fund Calculator
In order to calculate a reasonable emergency fund there are a few easy steps that you and your spouse can follow:
- 1List all of your monthly income.
- 2List all of your monthly expenses.
- 3Decide where your fund will be kept. This can be in cash, a savings or checking account, or through other methods like stocks, bonds, or certificates of deposit.
- 4Get the ball rolling by developing a plan to fund your initial deposit.
- 5Once you have made your first deposit, stick to the plan and keep adding to your fund. Interested in crunching numbers with a more in-depth emergency fund calculator? Click here!
Spending Habits (Your Risk Level & Purchasing History)
While you are working out your overall budget as a married couple, it is important that you fully address financial risks. This includes everything from uncertain investments to poor purchasing habits.
As always, it is vital that you be open and honest about everything with each other. From purchasing histories to plans for future investments. Leave no room for surprises, in marriage, every financial decision should be shared.
Avoid the blame game, whatever you do. As a married couple, you've become united for better or worse, finances included. There should be no “I'm a spender” and “your a saver” or “your debt and my debt” type scenarios in your “money meetings” and financial planning discussions. Instead, when focusing on differences in spending, consider the best ways of how you can balance them out. The point is to find a happy medium that works for the budget you have designed.
How to Address Those Issues & Concerns as a Couple
Addressing financial concerns should definitely be a part of your budgeting process. Preparing for risks is as necessary as saving for the future. In many experts opinions, the best defense is a good offense. Being aware of the possibilities of financial hardships and having a plan of action in place as well as an emergency fund is a great step.
The best way to prepare for financial concerns as a couple is by having a plan for emergencies as well as investing in good saving and spending habits. This is where keeping a well-balanced budget comes in. Better money management means less room for suffering due to potential financial risks.
Financial Risk Management
When it comes to saving and/or investing money, financial risk management is a must. This can include everything from refraining from loaning money to certain untrustworthy friends or family or will more than likely not pay you back, to hiring a professional to help you diversify your investment portfolio in order to minimize potential future financial risk.
Due to events such as the recent 2008 Great Recession, financial risk management has become even more popular than ever before. Modern financial risk management professionals can help you to avoid operational risks, investment risks, legal risks and more. Decide whether you and your spouse have enough at stake to need the aid of a professional.
The main goal of a married couple, as far as debt is concerned, is paying debt down as quickly as possible. The next step is budgeting in such a way that allows you to stay out of debt in general. If new debt as a married couple is not completely avoidable, at least minimizing it should be a priority as well as of course paying it off as soon as possible.
Continue Having "Money Meetings"
Tackling debt as a couple is not nearly as daunting of a task as it is for single folks. First of all, you have a partner to rely on, which gives you more breathing room in general. Secondly, combined incomes should make it easier to handle as well. And even if there is only one income in the household, two heads are better than one when it comes to budgeting for debt.
Filing taxes as a married couple will allow you and your spouse to enjoy better benefits and higher deductions. You will quickly find that it is much more convenient to file as man and wife than it is to continue filing separately.
Filing Jointly or Separately?
It is possible to file separately as a married couple, however, it is for the most part, not a wise financial move to do so. Filing jointly affords many more tax benefits than filing separately. Separate filing will automatically disqualify you for many benefits only available for those who file joint tax returns. In certain cases, such as if one spouse has a heavy tax liability, it is only then wise to file separately.
The Benefits of Joint Tax Filing
There are several benefits available to married couples who file jointly. If taxes paid are lower than they would have been by filing separately, the couple is eligible to receive a bonus. Last year(2017), married couples that filed separately received up to $6,350 in deductions, whereas couples that filed jointly gained up to $12,700 in deductions. Make sure that you fully explore your options as a man and wife before filing your taxes each year.
As the years of marriage roll by, there are several areas of finances that need to be focused on as a couple. Having children, saving for retirement, buying life insurance, creating a will, and much more. In this section of Couples Finances - A Complete Guide we will cover in detail all of the most important financial aspects that occur “down the road.”
Having children is one of the most important decisions that a married couple can make. Raising children is one of the most expensive things that married couples will undertake. The overall cost of raising children is arguably equal or even greater than the price tag of buying a family home.
Budgeting for a Baby
Budgeting for a baby is a big deal. You have nine months, possibly a bit shorter or longer depending on your situation, to set aside enough money for some breathing room. Babies are expensive, to say the least. You will need to figure out a budget which covers all of the equipment that is needed for a baby. Crib, high chair, playpen, bottles, diapers, and so much more. You also need to save a certain amount of money for unforeseen expenses like doctors bills and other emergencies.
It is bound to happen, in marriage, a spouse may have children from a previous relationship. In these situations, it is vital to both your relationship, as well as to a positive upbringing for the children themselves, that they are treated as equals to children which are the result of your marriage. That means including them in your will, taking out insurance policies in their names, as well as opening savings accounts for them.
There is nothing more beautiful to a married couple than the physical result of their love. Their offspring. Children are the pride and joy of man and wife, that being said, they are also their financial responsibility. Establishing savings, college funds, life insurance, and adding them to your wills are important financial factors that must be discussed and carried out. The sooner the better! Help your children to get the most out of their life by beginning to plan for their financial future before they are even born.
Budgeting for Kids
It is crucial to start saving right away when it comes to having kids. As soon as you know that your expecting a child, begin ciphering money to the side. A good place to start is 5-10% of your total income. If you can afford a little extra here and there, even better. There is no magic numbers or formulas that work for everyone.
The budget for raising children basically boils down to you and your spouse and the lifestyle you choose to live while raising said children. Popular statistics project that raising a child today costs anywhere from a quarter of a million dollars to nearly half a million dollars. The truth is, there is no real way to plan finances down to the penny. Simply save as much money as possible, make wise spending decisions, stick to a realistic budget, and do the best that you can.
Aside from having children, or buying a home, saving for retirement is one of the biggest financial factors that you and your spouse will ever be faced with. Broaching this subject as soon as possible is of the utmost importance and makes the difference between this process being downright frightening to actually being exciting and enjoyable. Discuss options for retirement savings with your spouse as often as possible and avoid turning the process into a scary race against the clock as time marches on.
What is the Best Time to Save for Retirement?
The best time to start saving for retirement is now. There is no time like the present. Regardless of amounts, it is vital that you start as soon as possible. Time isn't going to stop or rewind, so it is crucial to start right away. 10, 20, even 30 years will pass by much quicker than you can imagine. Whether 5% to 10% of your total income per month or 5 to 10 dollars per pay period, now is the time to begin. You can always increase the amount you save as your combined income grows over the years.
How to Start Saving for Retirement
Saving for retirement doesn't have to be some impossible mountain to climb. Having the discussion with your spouse is extremely important, better sooner than later. Starting now is one of the best moves you can make. Much like having children, there really is no magic formula or amount of money set in stone that will work for everyone.
The main point is to save as much as you can, as often as you can. These numbers will be completely different for every married couple. Decide whether you will open a savings account, make certificates of deposit each month, invest in the stock market over time, purchase real estate, or devise some other unique retirement plan that fits your financial situation.
When to Start Saving for Retirement
There is no set age for starting to save for your retirement fund. However, that being said, 25 is a nice solid number which many experts have pegged as a good age. By this time in life, you should be earning money, granted there will be plenty of time for your income to increase. Saving a few thousand per year, from this early age, can easily turn into roughly a million dollar retirement over the next 40 years. Again, the main idea is to start as early as possible and to save as much as possible.
Finding Matching Retirement Plans
Finding and investing in a matching retirement plan can be an extremely lucrative financial move. By doing so many people are able to save far more than they would ever be able to do on their own. A 401(k) is an excellent example of a matching retirement plan. Typically, employers will match roughly 5% of an employee's pay each year.
Each employer has its own requirements for 401(k) accounts, however, in many cases, an employer will practically match you dollar for dollar for your contributions to your retirement plan. Finding and investing in a matching retirement plan like a 401(k) early on in life can be one of the most beneficial financial maneuvers that you ever make in concerns to retiring.
Unlike 401(k) accounts, which are retirement accounts owned by employers that you can be added and contribute to, a traditional IRA is a separate and individual account by itself. These are tax-deferred retirement accounts which allow your savings to grow exponentially over time. You will pay zero taxes on the money you have saved in a traditional IRA until you reach retirement and begin to make withdrawals.
What is a Traditional IRA
A traditional Individual Retirement Account, or traditional IRA, is a powerful tool which allows individuals, including married couples, to set aside untaxed money for their retirement. IRA accounts are able to accumulate money for your retirement much faster than normal savings accounts as all dividends, interest, and other gains are left to grow year after year with no taxes deducted.
Traditional IRA Rules
There are two basic types of traditional IRA accounts. Deductible and non-deductible. The difference is self-explanatory. With a deductible account, you are eligible for tax deductions, or a refund on taxes that you paid each year. A non-deductible has no such option. Whether or not you qualify for a deductible IRA depends on various factors such as if you are part of a 401(k) or other work-related retirement accounts and your income level. As of 2018 individuals are allowed to contribute up to a maximum of $5,500 per year.
Traditional IRA Calculator
A traditional IRA calculator can help you to determine which potential saving options work the best for you and your spouse. Feel free to play around with some figures and plug them into a calculator in order to come up with a unique formula for saving that fits your overall financial budget. You can visit an online traditional IRA calculator here.
Roth Individual Retirement Accounts, or Roth IRAs, or a type of retirement account which no tax deductions are possible. These accounts are funded with post-tax income. And while there are no tax deductions connected with these accounts, they are in basics absolutely tax-free as long as the account rules are followed 100%.
What is a Roth IRA & How Does It Work?
These specialized accounts are set up to be funded with income that has already been taxed. Due to this factor, they are tax-free in general as long as account holders adhere to the guidelines. What does this really mean? You pay taxes on the money you deposit, upfront, so there are no additional taxes associated with these accounts once you hit retirement and make withdrawals.
Roth IRA Rules for 2018
Roth IRA rules for 2018 remain basically unchanged from the previous year. Individuals are allowed to contribute up to a maximum of $5,500 to their account. For individuals, 50 years of age, or older, an additional $1,000 contribution limit is allowed. For married couples, the income threshold beings at $189,000 and ends at $199,000, up $3,000 from the previous year.
Roth IRA Calculator
A Roth IRA calculator can aid you in determining which potential saving options work the best for you and your spouse. Feel free to play around with different numbers and plug them into a calculator in order to create a unique formula for retirement savings that will fit your overall financial budget. You can visit an online Roth IRA calculator here.
Traditional vs Roth IRA
Traditional and Roth IRAs are very similar, yet have very real differences as well. It is critical to understand the full specifications of each type of account before dedicating your hard earned money to one or the other. This is definitely a topic for the “money meetings” between you and your spouse.
As of 2018 the contribution limits allowed are exactly the same between both traditional and Roth IRAs, $5,500 and an additional $1,000 for individuals over the age of 50.
The income limits between the two vary greatly. For a Roth IRA, the income limit for married couples as stated earlier in this article begins at $189,000 and ends at $199,000. This is the area of income where phase-out begins. While anyone with earned income can contribute to a traditional IRA.
Another difference in the two types of IRAs is the tax rules. There are no tax deductions with Roth IRAs, whereas with traditional IRAs tax deductions are a possibility if you qualify. This means the difference between having to pay taxes on your money when you reach retirement(traditional IRA) or paying taxes on it at the time of contributing it to your IRA(Roth).
Possibly the biggest difference, aside from tax rules, is when it comes to withdrawing money. Roth IRAs allow you to begin withdrawing money as soon as five years after making deposits, with zero penalties and zero taxes. Roth accounts also allow you to stretch out your savings as long as you want without withdrawing. Traditional IRAs, on the other hand, require you to wait until the age of 59 and a half to begin penalty-free withdrawals, and absolutely must begin at the age of 70 and a half if they haven't already. Also, it is worth noting that benefits inherited by family members are 100% subject to tax.
Roth vs Traditional IRA Calculator
You can visit Charles Schwab to further compare the differences in Roth and traditional IRA accounts. Crunch numbers and find out which type of account is better for you and your spouse in the long run. Use this Roth vs traditional IRA calculator for getting a rough idea of which sort of IRA will enable you to gain the most from your money in order to have the best retirement possible.
Revisiting and updating 401(k) plan is something that needs to be done every so often, the same as your will. Due to the fact that these things are affected by life changes such as marriage, divorce, job changes, income increases, and other unforeseeable circumstances.
Many individuals are automatically enrolled in the 401(k) plan offered by their employers. And while this is a nice benefit, because it takes little to no effort to begin saving for retirement, they need to be revisited and adjusted. The biggest factor to consider is the amount of your income that is being contributed to the plan.
Many matching retirement plans, such as employer 401(k) plans, are matched up to 5% for a return of 100% by the employer. This means that when you are automatically enrolled, more than likely, the amount of contribution is going to be a standard of 3% to 5% of your income. A small amount for your employer to match.
In reality, contributions to your plan will be at a rate of 6% of your income. In most cases, that is a number which is barely enough to manage the fees included in the plan let alone stimulate actual growth. A much better percentage to contribute to your 401(k) plan, in order to actually see real growth for your retirement, is between 10% and 15% of your income.
Updating beneficiaries is another important reason to revisit your 401(k) plan from time to time. Things happen in life, whether marriage, death in the family, divorce, or a host of other things, it is a wise practice to revisit your retirement account at least once every two to three years. The last thing you want is the wrong people to end up as main beneficiaries to your estate.
Roth IRA vs 401(k)
The main difference in a Roth IRA and a 401(k), for the most part, is that it is more flexible as well as practically tax-free upon hitting the actual retirement stage. If you have the option for a Roth IRA, it is typically the better financial move to make in regards to saving for retirement. However, this is not always the case. In the long run, many aspects come into play, such as your income level, employer, marriage status, and other factors.
A major difference between the way a Roth IRA and a 401(k) plan works is the difference in taxes. With a 401(k) all funds are contributed prior to being taxed. The taxing comes in only once you are ready to retire and begin withdrawing money. Whereas with a Roth IRA, all funds are contributed after being taxed and there are no more taxes added on once you are ready to retire and withdraw from the account.
Like with anything other major financial investments, your retirement fund especially is something that needs to be discussed with your spouse over the course of several “money meetings” so that you can come to the very best decision. Saving for your retirement basically defines the lifestyle that you will be able to afford in the latter part of your lives. Don't rush this one!
Writing a Will
Writing a will is a very serious matter. One that should be discussed between spouses far ahead of time. A will is a document which dictates who inherits your estate including property, bank accounts, life insurance payouts, and anything else of financial or otherwise importance. Without a will, the country or state that you live in would basically make these decisions on your behalf.
How to Write a Will
Writing a will is a lot simpler than you might imagine. However, it is a very sobering experience as it forces one to think about life without a spouse, or even further, a life where your loved ones will be left without you. Depending on the state or country that you reside in, there are several options for how to write a will.
Handwritten wills are acceptable in many places, however, only if they are signed by the testator(you) as well as two people who are unaffiliated with your estate and inheritance known as disinterested witnesses. Other places require a legal document drafted by a legal attorney, others even accept handwritten wills signed only by the testator.
Things to include when writing a will:
As with writing a will, planning for an unexpected death is not a pleasant subject to dwell on, however, it is absolutely necessary for the financial well-being of your loved ones. The creation of a financial plan for you and your spouse can save your children and family members from Struggling with debt.
A common method of assurance in the face of unexpected death is taking out life insurance. During your “money meetings” discuss potential options for dealing with the unexpected death of one another. You'll feel much better afterward by knowing for sure that your loved ones will be financially stable after you've passed on.
Term Life Insurance & Whole Life Insurance
Discussing life insurance policies is another important aspect of the “money meetings” you've been having with your spouse. In the event of your death, unexpected or not, life insurance is one of the safest methods to ensure that your loved ones are not saddled with debt on top of losing a loved one and provider. Below, well take a closer look at the differences between the two most popular forms of life insurance, term life, and whole life.
Term life is perhaps the most popular form of life insurance. This is in part due to the fact that it is the most affordable. Choose a length of time you wish to be covered, make payments, and your beneficiaries will receive payment in the case of your death. Term life only pays out if you pass away during the term of your coverage. This is a great choice of coverage to provide your family if you are 35 to 40 years old and the main income earner in your home.
What is Term Life Insurance
Term life is a form of life insurance which covers the insured person for an exact and specified amount of time. 5, 10, 15, 20, 25 and 30-year policies are the most common. If the insured dies during this term, their loved ones will receive payment from the policy.
How Does Term Life Insurance Work?
You choose the amount of time you wish to be covered and make monthly payments. If you pass away during this time period, rest assured that your loved ones will be covered financially. Unlike whole life, which we will discuss in a moment, term life does not have any true cash value aside from a payout upon your death. However, with certain policies, after a certain amount of payments have been made, the insurer may borrow against the accumulated value of money paid in.
Term Life Insurance Rates by Age
The following rates are samples based on various factors. Contact a local insurance agent and share your health details for the most accurate rates.
Term Life Insurance Calculator
Interested in learning more about term insurance rates and which amount of coverage is right for you? Visit an online term life insurance calculator and crunch your own numbers to find out.
Whole Life Insurance
Whole life is another popular form of life insurance. It also offers what is considered by many to be the best coverage possible. Unlike term life, whole life covers your entire life. Aside from being able to withdraw a portion of the money you have paid in during the life of the policy, the death benefits are typically greater than what is offered by term life policies. A whole life policy can also be a nice way to add to your retirement fund.
What is Whole Life Insurance?
This form of life insurance covers the whole life of the insured and upon death pays out a large sum of money to their beneficiaries. Another bonus that comes with whole life insurance, that is not possible with term life insurance policies, is that after a period of time you can actually cash out a portion of your insurances accumulated value. This is the better of the two forms of life insurance especially if you have at least a couple of decades to pay for it.
How Does Whole Life Insurance Work?
Whole life insurance, though it takes longer to build value, is a far better investment for your loved ones in the long run. Initial payments are higher than term life, however, the return is also greater. Cash value can also be extracted during the life of the policy in case of emergencies. Typically after 10 to 15 years, a whole life insurance policy will have enough value to adequately cover the financial needs of your loved ones for years to come.
Whole Life Insurance Rates
The following rates are samples based on various factors. Contact a local insurance agent and share your health details for the most accurate rates.
Whole Life Insurance Calculator
Interested in learning more about whole insurance rates and which amount of coverage is right for you? Visit an online whole life insurance calculator and crunch your own numbers to find out.
Unfortunately, in this day and age, it is not so uncommon that a marriage doesn't work out. People grow apart, their goals and desires for life change, and other various factors can influence a married couple to call it quits. In this case, there are several important financial aspects to discuss together before parting ways for good.
Common Sources of Arguments & Marital Tension
Parenthood, financial burdens, sexual frustration, miscommunications and the hurt feelings that can stem from all of the above are some of the most common sources of arguments and marital tension. If not dealt with openly and honestly these sources of distress can very easily lead to divorce between a man and wife. Even if they still love each other.
Discuss What Will Happen Financially if Divorce Happens
The last thing that a married couple wants is to discuss divorce, however, if things have come to the breaking point then there is little else to do except to discuss how to move on. This includes some crucial financial discussions and decisions. Take some of the stings out of this hard time by being as financially responsible as possible, this will help both parties to walk away feeling at least somewhat respected.
Typically the children will stay with one parent full-time and have set visitations with the other. However, this is something that varies from case to case and is up to the parents to decide what is best for both the children and themselves. It is also absolutely vital to discuss how the children will be financially supported by the two parents. Again, these matters are totally up to the parents, unless the divorce ends badly and lands in custody court. At which point these decisions will be left up to a judge to make. Avoid unfair decisions that more often than not no one is going to be happy with by taking the time to thoroughly discuss these important aspects.
Discussing finances fully during a divorce is of the utmost importance to both parties. The last thing either of you really want is a team of attorneys or a judge deciding the fate of your financial futures. This includes discussing property that needs to be divided, how to share debts from financial decisions made while still married, child support payments, dividing up retirement funds, and tax filing related issues.
If you and your ex-spouse maintained a joint life insurance policy, it will be necessary to cancel or transfer to a new policy. Depending on your insurance company this could be relatively complicated. However much of a pain it may be, it simply has to be done. If you and your ex-spouse maintained separate life insurance policies, it will be much easier to simply update beneficiaries.
In regards to bank accounts, it is the same sort of process. Each account will need to be updated or be transferred to new and separate accounts. This way each party receives their equal share of finances. At the same time, you cut future financial ties connecting you and your ex-spouse. If you and your ex-spouse had separate bank accounts, simply update beneficiaries and your good to go.
A will is not revoked by divorce. What this means is that you will need to update it as soon as possible in case of your unexpected death or time getting away from you and simply forgetting to do this vastly important thing before it's too late. Most likely your ex-spouse was the executor of your will, this will be the first thing to change. You will also want to update any property or bank accounts that were lost or divided during divorce. Adding or removing beneficiaries, including your ex-spouse, is extremely crucial as well.
A leading factor in marriages that can lead to divorce is poor money management and financial stress. Eventually, the mismanagement of finances will often cause a couple to filing for Bankruptcy. Even worse, a divorce itself can lead to one or both parties to filing bankruptcy individually after the smoke clears and they realize they are financially ruined.
What is Bankruptcy?
Bankruptcy is the legal process which happens to a person who is unable to afford to pay off their debt. This process most times is initiated by the individual who holds the debt, however, in certain cases, it can be initiated by the creditor who owns the debt which can not be repaid. At which point all assets owned by the individual filing for bankruptcy are assessed and can be used to pay off as much of the debt as possible. When everything is said and done, the debtor is cleared of all debt and is left with a clean slate. However, they take a hit to their overall credit score which can stick around for around a decade.
What Can You Do Now?
Besides fully discussing the potential need to file bankruptcy before, during, or after your divorce, preparing your important documents is the smartest move possible. You will need recent pay stubs no more than a few weeks old, at least two years worth of tax return information, and paperwork from creditors that you have debt with. You will also need bank statements, mortgage papers, information regarding any liens on vehicles you own, driver's license or identification cards, as well as social security cards. Bankruptcy is not a fun process, do all that you can in advance to make it as painless as possible.
Filing for Bankruptcy
After you have discussed the possibilities and the time comes to actually file for bankruptcy, it is cheaper to file jointly. However, this is only possible if you have not yet gone through finalizing the legal divorce process. Filing separately, post-divorce is going to cost each party their own filing and attorney fees. Make sure to include these topics in the last of your “money meetings” before you are legally separated. Also, be aware that the average fees associated with filing for bankruptcy range from $1,500 to over $3,000.
What Happens When You File for Bankruptcy
On average, bankruptcy takes around four months from start to completion. All date up to the date you file is wiped clean from your slate. In the case of divorce, it makes the most sense to make it the very last thing you do together as a married couple. This way all other debts and fees are forgiven. Keep in mind that you will not be able to file for another bankruptcy for a minimum of eight years.
Types of Bankruptcy
In the United States, there are five types of bankruptcy, Chapter 7, Chapter 9, Chapter 11, Chapter 12, and Chapter 13. Of these five types, the three most common are Chapter 7, Chapter 11, and Chapter 13. We will briefly look at their differences below.
This form of bankruptcy is also known as “straight bankruptcy,” “complete bankruptcy,” or “liquidation.” Among individuals in the United States, it is the most common form of bankruptcy filed. In basics, chapter 7 allows you to be forgiven your debts and start anew. If you are let with no possible options to pay your debts, this is most likely the form of bankruptcy you should file. In the end, your assets will be liquidated and distributed among creditors that you owe the debt to, and you will be given a clean slate. A chapter 7 bankruptcy can cost anywhere between $1,500 and $3,500 in its entirety.
A chapter 11 bankruptcy is designed for companies who wish to stay in business yet have their debt basically consolidated. This form of bankruptcy allows businesses to afford to pay down their debt without losing all of their assets and having their company shut down. In basics, a court-ordered payment plan for your existing debt will be issued, reorganizing your debt and enabling your company to return to a profitable state of their business. Depending upon the size of your company, a chapter 11 bankruptcy can cost anywhere from $10,000-$50,000 for a small company, $50,000-$100,000 for a medium-sized company and up to $500,000 or more for a large company.
Similar to a chapter 7 bankruptcy, chapter 13 is for individuals who find themselves in a position that they are overwhelmed with debt and need a way out. The major difference between the two is that with a chapter 13 the individual must have a current income that will enable them to make payments on their debt over the course of three to five years. Also, the debtor will not have their assets seized and liquidated due to the fact that they will receive a court-approved plan for paying down the debt instead of a clean slate as with a chapter 7.
Finding a Bankruptcy Lawyer
In order to properly file bankruptcy, it will be necessary to hire an attorney. They will act as your legal aid and guide you through the entire process from beginning to end. It is absolutely necessary that you dedicate time and focus on finding the right attorney.
Things to consider when you start searching for a capable bankruptcy attorney include, experience with bankruptcy, a price that is affordable for you, and someone that is easy to communicate with - debt is not the easiest thing to talk about with strangers.
Expect to pay anywhere from $1,500 to $6,000 in total for the whole process. Which type of bankruptcy that you choose, your attorney and their fees, as well as the details of your personal finances will be the main factors which decide your overall costs.
Establishing a strong financial base for both yourself and your spouse is a foundational pillar to every relationship. Ensuring that both of you are financially secure allows your relationship to further blossom without any stress, so you and your significant other can have the freedom to be happy and healthy in the present as well as the future. The security it brings will allow yourselves to further develop intimacy as your relationship progresses in the future without worry.
We live in a world where money is key to daily survival. It would be unwise to potentially destroy not only your but your significant other's happiness over poor financial mismanagement or frivolous spending habits. By addressing the myriad and complex issues of both personal and couple's finance, my hope is that after reading this guide that you are now better informed to make sound financial decisions for you and your partner.
While it may be easier to think that "love will see you through" or that love is enough to keep a relationship strong, smart financial planning (while seemingly boring) will almost guarantee that your relationship will be secure to endure the various hardships that life has a habit of throwing your way; whether your relationship is in the marriage, long-term relationship or dating stages.