You just got married; the honeymoon’s over; a lot is changing quickly; and many things are competing for your attention, including your new spouse. While you hope romance will be foremost, Life will inevitably take on greater importance, with no greater reality than the major way money will impact your life. To help your prepare, let’s highlight some of the more important financial issues that you’ll likely face.
As a reminder, we covered two aspects of Couples Finances in other articles: Long-term Relationships (we discussed some of the points you should consider before entering into a long-term relationship) and Joint or Separate Bank Accounts? (we identified some of the approaches to managing day-to-day finances).
- 1 The family budget: spend vs save
- 2 Debt
- 3 Rules for major purchases
- 4 Emergency fund
- 5 Insurance
- 6 Retirement planning
- 7 Estate planning
- 8 Children
- 9 Shared responsibility
- 10 Financial advisor
The family budget: spend vs save
While many families run their households without budgets, having a budget helps reduce stress because it defines your spend vs save parameters. Once established, it is your guide that removes guess work and emotion out of every decision and also helps to avoid unnecessary disputes.
Each person will bring to the marriage a layer of income, expenses, assets, debt, and hopefully savings. Even if you previously had a personal budget, it may no longer be relevant given the finances brought in by your partner and the changes in your living arrangements. You may also discover duplicated expenses that can be reduced or eliminated to save money.
Your family budget should help you achieve your top financial goals, for example, buying a home, further education, children, savings, retirement etc. Each of you may have different goals, so it helps if each makes a list: for the common goals, you just need to prioritize them. Where goals are not aligned, compromise is necessary when deciding which goals make the family list.
Obviously a major objective of a budget is to help you increase your savings. While you can apply numerous approaches to save more, what should your target be? Rather than give you a dollar-value, here are two ideas we discuss in this website. One idea is, over time, aim to increase your level of savings to 33% of your after-tax income (see Creating Your Budget (33/33/33) to learn more), and for the second, in this article we suggested couples should consider adjusting their lifestyle to live on one spouse’s income only i.e. save the other.
Debt has the potential to become complicated in a marriage. Whether pre-marriage debt or new debt taken together, there is a lot to consider.
For example, if you both have pre-marriage debt, you may conclude that the combined debt payments are too high to allow you to achieve your new goals together. In this case, your family budget needs to be adjusted to permit faster debt repayment.
Another situation could be buying a home, which would likely require both incomes to support the mortgage (i.e. it is a joint loan). This may have an impact if one person wishes to take a loan alone e.g. to buy a car. The debt service required by the mortgage plus the car loan may be too much for one borrower.
Rules for major purchases
A good strategy is to set ground rules for major purchases. Every major purchase obviously has a financial impact, but it also has the potential to affect the family in non-financial ways.
For example, let’s say you decide to manage your finances separately (see Joint or Separate Bank Accounts?), and one partner wants to take a loan to buy an expensive car. This means less cash available overall to the family; therefore, other purchases and goals may have to be foregone. But also suppose the partner making the purchase decided to work a second job to be able to afford it. That decision affects everyone because the person now has less time to spend with the family and could also neglect his/her share of household duties (with the other person picking up the slack).
The rules should be clear. Perhaps set a dollar value over which all purchases require a discussion before committing. Possible expensive purchases should form part of the family goals (or dropped because it is not a priority) and properly budgeted for. And be sure to discuss the non-financial impact of big purchases.
Life has a way of throwing you curveballs that invariably require money, for example, one spouse gets laid-off, disability, an ailing parent etc. Having an Emergency Fund will allow you be to be prepared to handle those events with as little financial distress as possible. We cover this concept in detail in the article Build an Emergency Fund.
Loss of income, untimely death, or sudden incapacitating illness are all events that could arise unexpectedly and potentially destabilize a household financially because one spouse is required to support the family single-handedly. This is of particular concern in situations where the family is essentially dependent on one partner who earns the greater income; if the income is reduced, the family would be unable to meet its expenses.
Insurance is one method to protect against any resultant financial burden. Options could include:
In the unfortunate event of one spouse dying, the surviving spouse could use the proceeds from life insurance as a source of replacement income, a means to repay debt, or provide a fund to meet future obligations such as paying for children’s education.
Disability insurance could provide a source of financial relief if one spouse becomes disabled, or otherwise incapacitated, and unable to work.
Critical illness and Medical
The cost of medical care is high and is likely to continue to increase over time. Critical illness and medical coverage could help to partially defray associated costs of an expensive medical problem.
It is a reasonable bet that most persons do not seriously think of, or plan for, retirement when they are single. Yes, they may have some funds being directed into a company pension or perhaps a deferred annuity, but this is usually an action taken in isolation and not necessarily as part of a larger plan.
Sharing your life together as a couple, however, puts that seemingly distant event into a different perspective. You have entered into a different phase, where you are no longer living for yourself, and this significant change requires a re-look at several aspects of finances, including planning for retirement.
The reality is, retirement is a certainty, and it is never too early to start setting aside funds for your future together. If you are a relatively young couple, you have the opportunity to take greater risks with your money that could lead to greater returns, which could reduce the level of continuous savings you need.
A will is an important legal document that carries out your wishes regarding your estate upon death. Simply put, if you die without a will (referred to as intestate), decisions about your estate will be made by a court instead of you. Having a formally prepared will, therefore, is a way of ensuring that your estate is protected from unnecessary expenses (e.g. legal and probate fees) or lawsuits from disenchanted heirs who feel that they should have received a different share of the estate.
A will is especially important if there could be potential claims on your estate other than from your current spouse and spouse’s children (e.g. children from a previous marriage).
After marriage each of you should review existing investments, life insurance policies, retirement plans (e.g. annuities), bank accounts, etc to update your named beneficiaries (or add a joint holder). In the event of a spouse’ death, having this up-to-date will make it easier to access the assets and eliminate the legal process.
Power of attorney/Health Care Proxy
By giving your spouse a power of attorney, he/she will be able to make decisions about your assets and finances on your behalf, in the event of severe illness or disability.
In addition, you could consider assigning your spouse your health care proxy, also known as durable power of attorney for health care. This requires carefully considering what medical procedures you would or would not like, including life extending measures, should you become incapacitated.
Having children is one of the joys of life; it is an incomparable experience. But as you could imagine, there are several financial considerations around children, too many in fact to address in this article, but here are two examples. As a couple you may have to decide whether one spouse will stay at home as the full time homemaker and caregiver to your children, while the other works full time. This approach has several benefits but requires careful planning. Secondly, if you wish to partially or wholly assist your children with paying for university education, saving for this “obligation” should begin as soon as possible.
One spouse might “take charge” of the family finances, usually because of a better understanding of money or just more time to focus on it. While this is normal, both couples must recognize family finances is a shared responsibility and it requires active participation from both persons.
Couples should do their best to avoid a situation where one spouse has greater knowledge or familiarity than the other. The less familiar spouse faces significant stress if the other becomes ill or unavailable – or worse – the couple is going through a divorce.
Getting married is one of the major life events that we believe should trigger the need to consult a financial advisor. There is just so much going on, with numerous financial decisions to make or consider, that it is easy to be overwhelmed or make decisions that you later regret or have to reverse. Obtaining professional objective guidance could bring invaluable peace of mind.
Married couples often face financial challenges for one or more of the reasons described above, and to compound the issue, money worries do not usually bring couples closer together – it drives them apart. We hope this article helps you be aware and avoid some of the more common problems you might face.
If you believe a financial advisor could add value, consider a Financial Heath Check from CariDollarsAndSense. We’d love the opportunity to assist you.
If you have thoughts or experiences to share, we’d love to hear from you in the comments area below!