You’ve discussed china patterns and seating charts, but have you talked about money? It’s one of the most important aspects of planning your future together. An increasing number of engaged couples are seeking advice from a financial planner to tackle their money issues.
His, Hers, Ours
Sharing your life together is one thing, but sharing your paycheck is quite another.
“Sometimes it’s hard for people to let go of what they perceive to be just their money,” says Bill Dragolas, a financial advisor for American Express Financial in Willoughby.
An in-depth discussion about money and expenses is as important as scheduling your honeymoon destination — though admittedly not as fun. Dragolas encourages his clients to carefully assess what they earn and spend and to set goals.
“On occasion, couples have more money than they need to accomplish their goals,” he points out.
As a single, you’ve designed your own system for saving money, paying bills and investing. Do you carefully note due dates and deposits on a special calendar, or repeatedly forget to jot down ATM withdrawals in your checkbook?
“Money is a very personal thing, and if you have one person who is a saver and the other a spendthrift, you’re in a lot of trouble,” says Vicki Kline, owner of Kline Financial Group in Kent.
Kline encourages newly engaged couples to have open communication right from the start.
“A lot of couples think that it [money issues] will work out by itself,” she says. “You need to know each other’s feelings about money.”
Developing a Plan
So who has the better plan? You’ve made up your mind to combine incomes, but your betrothed is set on maintaining separate accounts.
“It can work fine either way as long as it is comfortable and clear who is paying for what,” says Eileen Burkhart, owner of Eileen M. Burkhart & Co., LLC in Cleveland Heights. “It’s okay to take time to merge money if the couple wants to do that. The goal is to be fair and productive.”
There’s no need to rush into decisions about money management as long as the issue is addressed and you agree.
“I have some couples who itemize what each person pays for,” says Dragolas. “We figure out a happy medium.”
Home Sweet Home
For most couples, their first joint investment is buying a home.
“Two people … now have one electric bill, one gas bill,” says Dragolas. What is saved in living expenses is perfect for investing in an interest-bearing account.
“I encourage couples to save for a home,” says Kline. “Maybe not for a dream home, because you can always trade up with real estate.”
“Real estate is good debt, it’s appreciating and growing,” adds Dragolas.
The mortgage on a “starter home” can be lower than your rent, with the bonus of building equity. Kline suggests that couples attempt to live on one income for a period of time; the extra salary equals money toward your nest egg.
Paying off Debt
Learning to manage money starts in childhood. Did you spend your allowance as soon as you received it or save money to buy something special?
“We all learn growing up how important it is to be educated in our respective fields, but nobody teaches people how to manage money along the way,” says Burkhart.
College students are bombarded with credit card offers which can be a challenging first lesson in fiscal responsibility.
The struggle to pay school loans and credit cards may be an uncomfortable discussion. However, being forthright regarding your debt is a vital step in resolving potential relationship problems.
“There has to be respect that you hear each other out and a third party can help you do that,” says Kline. “Credit card debt is the worst of all. You can call and negotiate with credit cards companies.”
Many people attack one debt at a time, using every dollar above living expenses to pay down the debt.
“That’s not a good idea,” says Dragolas. “They pay it down and that takes years. Then they start on the next goal and leave retirement for last. In five years, you’re debt free, but you’ve lost five years of compound interest.”
A financial planner can show you how to comfortably pay off debt and plan for the future.
“We always want clients to have adequate cash reserves,” says Burkhart. “The goal is to avoid credit card debt when going through transitional periods.”
“We always want clients to have adequate cash reserves,” says Burkhart. “The goal is to avoid credit card debt when going through transitional periods.”
Baby Makes Three
“A child changes your life forever,” says Kline.
Will one parent stay at home? What is the cost of food, clothing, day care and health insurance? You might find you are exchanging disposable income for disposable diapers.
“That’s the way it is in the first two years of starting a family,” says Burkhart. “It’s normal to have less cash flow.”
Burkhart doesn’t recommend turning to credit cards to cover the gap. She advises to avoid or minimize credit card debt when children enter the picture. She also suggests looking into life insurance.
“Within a year of having kids, when you’re young and healthy, life insurance is important,” she says.
Burkhart recommends a minimum of $750,000 in life insurance if you’re planning to raise children.
“At least have term insurance, 10 to 12 times your annual income,” she says.
Retirement
The best time to think about retirement is right now — when you’re lying on the beach during your honeymoon, keep in mind that this is where you want to be 25 years from now. The earlier you start focusing on life after your career, the more time you have to build compound interest on your savings.
The best time to think about retirement is right now — when you’re lying on the beach during your honeymoon, keep in mind that this is where you want to be 25 years from now. The earlier you start focusing on life after your career, the more time you have to build compound interest on your savings.
“We all have to learn how to live on less than what we earn to save for retirement,” says Burkhart.
One of the most convenient places to start is with your employer’s 401(k)plan.
“Maximize contributions to [a] 401(k) at the beginning,” says Burkhart. “Don’t put off contributing to pay down student loans. After [a] 401(k), I recommend Roth Individual Retirement Accounts.”
With preparation, you can reach retirement age without making dramatic lifestyle changes that diminish your quality of life.
— Gina Jacocks
