June means wedding season for many young couples. Despite their best intentions, some newlyweds make financial mistakes right out of the gate that can lead to marital discord.
Not talking about money, mishandling debt and not keeping both partners in the financial loop are just a few of the mistakes couples make, say financial advisers. But a little preparation and some education can help couples avoid these pitfalls — and make for a happier marriage.
The degree to which newlyweds wish to combine their finances will differ by couple, but honest communication early in the marriage is crucial, says Robert Walsh, a certified financial planner in Red Bank, N.J. "Couples need to lay it all out there."
Ideally, the "money talk" should happen before the wedding, he says. But either way, couples can get the dialogue started by creating a spreadsheet or using tools on websites such as Mint.com to spell out each person's income, expenses, debts and assets.
Once they have full grasp of their current financial situation, couples can create a realistic budget and set short- and long-term financial goals, he says.
Mr. Walsh recommends couples keep a monthly "money date" over breakfast at a local diner to track their financial progress. At a recent breakfast, Mr. Walsh says one couple realized that their goal of saving $50,000 in five years trumped their desire for a new car. While their priorities initially differed, repeatedly talking about their financial goals got the couple focused on long-term planning versus shorter-term "materialistic needs," he says.
Mr. Walsh has seen some couples make the mistake of not approaching their debt as a team, with each person instead focusing on paying off his or her own debts. But if, for example, a wife has $10,000 in credit-card debt with a 17% interest rate and the husband has $50,000 in student loans at 6%, it usually makes financial sense for the couple to focus mostly on the high-interest debt first and then tackle the lower-interest loans, he says.
If each spouse has a 401(k) retirement savings plan, the accounts should be managed as one allocation, not as independent of each other, says Ramsey Bova, a certified financial planner in Lexington, Ky. Doing so allows for less overlap and more diversification. For instance, if the best bond funds are in his 401(k), the couple could buy their bond allocations through his plan and the wife will forgo putting money in the lesser bond funds in her plan. Or, her plan may have the best growth funds, but his doesn't.
Not withholding enough tax from their paychecks is another pitfall for some newlyweds, says Gregg Wind, a Los Angeles-based certified public accountant. To avoid getting hit with a penalty and big tax bill, Mr. Wind says couples might ask their accountant to prepare a "tax projection" to estimate their taxes — regardless of whether they plan to file jointly or separately. It may be necessary to adjust their tax withholding, he says.
Couples should be prepared for some worst-case scenarios as well, advisers say. Too often, the surviving spouse is left searching for documents and scrambling to understand the couple's finances after a spouse dies suddenly, says Anitha Rao, a certified financial planner in Woodstock, Ga. While it's all right for one partner to take the lead in the family's finances, she says, it's "extremely important" that the other person be kept in the loop.
At the very least, Ms. Rao says, the spouse should know the location of the most important documents, such as wills and insurance policies, and the couple's overall financial strategy, including how much more money they need to save for retirement. Ms. Bova reminds many couples to update the beneficiary designation on accounts and make a copy for the couple's files.
"Educating both partners is a priority," says Ms. Rao.
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Originally published June 12, 2011
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