Financial Planning for Newlyweds – 6 Critical Items

If you are recently married, or planning on getting married, congratulations! But the last thing you need from me is relationship advice. So I’ll stick to money.  After interviewing a lot of newly wedded couples, and having done many premarital financial counseling sessions, I can boil down a few critical principles of money and marriage.

Pool your money
Once you are married, you are no longer two separate economic units, but one. That’s how the tax code looks at you, too. Except in some cases where one partner comes into the marriage with a small business that the other partner has no interest in, I’m a big believer in the joint checking account.

Why? Because the joint account forces you to communicate effectively about money! If you track your money together, and one of you is a big spendthrift, that’s going to become apparent to the other partner right away. That gives you an opportunity to confront the issue right away – before one partner spends down all his/her private resources.

When spouses have financial weaknesses, they tend to hide them from one another. The other partner doesn’t get a chance to be strong and support the other in the relationship. Maintaining two separate accounts facilitates this bad habit.

Furthermore, you show me how someone spends two things… his money and his time… and I will be able to tell you a lot about that person’s value system. Sharing a joint checking account forces the both of you to come to an agreement about your values – at least for half that equation. 

Don’t Go Broke on the Wedding
I don’t believe in big weddings. I believe in jointly-held assets. I believe in a down payment on a home together, a start on a small business, a paid off car or debt free, credit-card free start for the newlywed couple. I believe in a start on a college fund for children and a start on a retirement fund to secure both of you in your golden years together, decades from now. I believe in a fully-stocked emergency fund with six months’ worth of expenses in it, in cash, as fast as you can get there.

If you must spend the money on consumption now, take a honeymoon, and build some memories together. This will bind you together more than a wedding banquet will – I don’t care how good the band is.

Update Beneficiaries
Update them right away. Unless there are some real extenuating circumstances involved, the best beneficiary is usually your spouse. There are exceptions for estate planning purposes and advanced life insurance planning purposes, but for most people at the newlywed stage in their lives, it’s ok to go ahead and name your spouse as the named beneficiary on life insurance policies, retirement funds and annuities.

However, where small businesses are involved, stepchildren, or in-laws who are financially dependent on their children, give us a call first. Step-children are especially tricky, because probate laws can actually cause you to accidentally disinherit a beloved step-child if you aren’t very careful.

Buy Life Insurance
Life insurance is a basic responsibility of marriage
. It is a commitment to take care of your partner, even to your death. Go ahead and get life insurance, if you don’t have it already. If you’re in your 20s to early 30s, 15 to 20 times your annual income in term insurance is reasonable to start.

Get some coverage for a stay at home spouse, too. How much? As much as you can easily afford and can qualify for.

There is some more advanced planning with life insurance you can do later. But you should get the coverage in place when you are young and healthy and can get the best rates. Use a strongly rated company (AA or better) and an agent you trust. Look for mutual life insurance companies that offer some options to convert your coverage to permanent life insurance later, as you become more financially established. You want options.

Don’t worry about going overboard with fancy insurance solutions at this point. Just get the basic term coverage in place… whatever you can easily afford, and we can work on converting to a permanent insurance plan later, if it makes sense in your position.

Get organized
Each of you should know exactly where your key financial documents are. What’s key? Well, anywhere you have money that your spouse may need if you die or become incapacitated. Bank accounts, retirement accounts, account numbers, passwords, etc.

You should also have the following documents on file: Any limited power of attorney documents, a living will or medical power of attorney, your last will and testament (your state may not divide the assets the way you would want them to. Either create a will, or the lawyers will divide your assets for you when you’re gone).

Part of the basic counseling we do for newly wedded couples is going over these documents and establishing a plan if the worst happens to one of you. It’s not a pleasant topic – but it’s a must, and planning for the unthinkable from the outset is an important part of taking care of each other.

Create a Spending Plan
The two of you need to come together on the ground rules for how much money each of you can spend without getting the approval of the other. In some cases, that’s going to be a pretty small amount. Every family is different. But this is an important part of creating a life together.

Pre-marriage financial counseling is one of our favorite things we do for our clients. This article just barely scratches the surface. If you are getting married, or you are thinking of getting married, please do give us a call. We would love to be of service.

A humble suggestion
If you have friends who are getting married, an appointment with a skilled, unbiased fee-only financial planner – one not beholden to pushing any product, nor tied to any one financial company – is just about the best and most lasting wedding present you can give.

Just, you know, throwing that out there.

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6 Comments

  • By Brent Pittman, April 14, 2012 @ 12:40 pm

    Great suggestions! It’s important to get off on the right financial foot. Preengagement counseling is a must, either with a counselor or clergy.

  • By thomas, April 15, 2012 @ 10:27 am

    Yep … and I might add, a financial planner. Thanks for your readership Brent!

  • By Ellery, May 14, 2012 @ 10:47 am

    I have been hesitant on joint-checking, but your thorough facts have persuaded me to give it further thought. Thank you for your advice.

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