You've discussed the flowers, the seating arrangements and your honeymoon plans — but before you walk down that aisle, there's one more chat you probably need to have: the money talk. And it just may be the hardest. A recent survey from the National Foundation for Credit Counseling found that nearly 70 percent of survey respondents have had negative feelings about discussing finances with their future spouse.
But it can be one of the most important talks you'll have. "The way that people manage their money can be very different," says David Blaylock, LearnVest Planning Services CFP®. "It doesn't mean that differences can't be managed, but it's something you should know before you tie the knot."
Not sure where to start? Here are 10 steps to help get you that much closer to happily ever after.
1. Broach the topic.
For some couples, this can actually be one of the hardest steps. "Maybe you've made some bad decisions or aren't great with money and you're fearful of being judged by your partner," says Blaylock. "But marriage really is for better or worse, and it can be helpful to know how much better or worse your future partner's financial situation is."
Try starting with some easy questions like, "What was your earliest memory regarding money?" suggests Blaylock. Or share some of your own financial mistakes. "One important thing to keep in mind is to make sure you hold your judgment," he says. "Your future mate will most likely clam up the second they feel they are being interrogated." When you're comfortable with the topic of money, you'll want to discuss some basics: What are your spending habits? How much debt do each of you have? Do either of you feel strongly about a prenup?
2. Decide how you'll handle money in your household.
Once you have an idea of each other's financial past, it's time to talk about your financial future — together. Will you combine your bank accounts? Who will handle which aspects of the finances? Which joint accounts do you need to open? Research has found that more and more couples are opting to keep individual accounts in addition to joint ones. But every couple is different, and you need to decide which approach works best for both of you.
3. Discuss financial goals.
You've probably talked about how many kids you want to have and your dream home, but have you discussed these hopes in terms of finances? How much do you want/need to save for a down payment on a home? (LearnVest generally suggests putting down 20 percent and setting aside 3 percent for closing costs.) To start a family? To save for your future children's college expenses? For your own retirement? Will both of you continue to work if you have kids?
If all this planning sounds overwhelming, remember to prioritize your goals. At LearnVest, we advise that you focus on basic financial security (retirement, emergency savings, and debt repayment) first. Then you can move on to other personal goals, like financing your kids' college education and paying down your mortgage.
4. Determine how much is going out/coming in.
One of the most common financial mistakes, especially among young people, is not knowing how much you earn or spend each month. Now that there are two of you, it's a good opportunity to figure out your new financial reality. Track where your money is going on Learnvest.com, where you can link up to your accounts, calculate your net worth, and see how much you're spending from month to month.
5. Figure out how much money needs to be in your emergency savings.
LearnVest Planners typically recommend that every couple have at least six months' worth of net income (for the highest earner in the household) in their emergency savings fund. A lot of unexpected events may crop up in your lifetime together — job losses, health problems, car repairs — but if you prepare for them now with an emergency fund, they won't derail you as much as they could.
6. Create a budget.
Having an idea of how much money you're going to spend each month and what you're going to spend it on will help keep you both on the same page — and help mitigate disagreements about finances. Not sure where to start? You can create a budget for free on LearnVest.com.
7. Establish a five-year plan and a 10-year plan.
"Planning for the future is so important, not because we want to drive expensive cars and live in huge houses, but because without goals, saving and planning can become boring," says Blaylock. "When that happens, we may then stop saving and start spending because we think that will cure our boredom."
After you have a budget and you've discussed your financial goals, come up with a loose timeline of when you want to meet those goals. Where do you want to be financially in five years? 10 years? 40 years? "The plan should be flexible and can change over time," says Blaylock. The point is to have goals set in a loose timeline, so you have a good idea of where you're headed together — and how much you may need to contribute to get there.
8. Make sure you have the right insurance.
"This is often the most overlooked area in all of financial planning because it deals with pretty unpleasant events," says Blaylock. But the reality is, houses can burn down, cars can crash, and all of us will face death, at some point. It's important to be financially prepared and protected. So what insurance do you need? Health, life, disability and property (homeowner's or renter's insurance, auto insurance, and scheduled personal property) all may be important to an adequate financial plan. You may also want to consider umbrella insurance if your income or assets make you a target for a potential lawsuit, or if you own rental property. "If you're having trouble deciding the appropriate amounts of coverage, it may be time to check in with a professional who can help," says Blaylock.
9. Think about estate planning.
First things first: Everyone should consider having a living will and health care POA (power of attorney). A health care POA designates the person that will oversee your medical decisions and follow your medical wishes outlined in your living will in the event that you are unable to make them for yourself, says Blaylock.
After you get married, be sure to update your beneficiary forms and add a TOD (transfer on death) or POD (payable on death) designation on any individual accounts, like checking, savings, and brokerage assets. These forms, in a sense, act as substitutes for a will and allow money to transfer to a beneficiary directly — without the overhead or complexities of probate. For any joint accounts, you can also consider titling the account as Joint Tenants with Rights of Survivorship, which serves the same purpose.
Once you own a home and/or have children, you should consider setting up a last will and testament to plan for the transfer of your home and designate a legal guardian for your children. And finally, you may want to consult a trust and estate attorney to discuss your specific estate planning needs if you are combining significant assets. "This is a specialized field of legal practice," says Blaylock, "so working with an estate attorney can sometimes be necessary depending on the complexity of the couple's financial situation." Specifically, if you have significant assets and live in a Community Property State and/or you are blending families, you should especially consider consulting an estate attorney about setting up a prenup and/or a trust.
10. Automate your financial life.
Set up automatic withdrawals or direct deposit to pay yourself first for things like retirement and your emergency savings funds. Designate time once a month to discuss budgeting to help make sure your spending levels are within set limits. Then review your investments quarterly and your financial goals annually. "This gives you a chance to course-correct throughout the year if you begin to get off track," says Blaylock.
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