When two become one. It’s a beautiful thing. But it can also become complicated quickly this day and age. The trend in America is for people to get married later in life. It used to be that you graduated high school or college, then rather quickly got married, bought a house, had kids and the rest is history. Life ain’t so simple anymore!
Young people today tend to go to college, then sometimes attend pricey graduate school, and accumulate massive amounts of student loan debt, then find a job that may not have a very high starting salary. Perhaps a short stint living back with mom and dad is in the cards too. All of the sudden, you are in your late 20s as a single broke professional – with a special someone. You turn 30, then finally get hitched.
In Michigan, the average age to get married is 27 years old for females and 29 years old for males. So young folks already have their financial lives established when they tie the knot. Combining finances once married can be a challenge. It’s always a touchy subject, particularly when one spouse is more financially savvy than the other. Also making things more interesting is when a saver is paired-up with a spender – doesn’t that always seem to happen!
There are plusses and minuses to merging your finances once married. For starters, it can help create common goals and a financial bond between you and your spouse. You can discuss what you are spending money on and how much each other makes per year. Often, these topics are just so taboo that they aren’t talked about until after marriage. Combining accounts also creates accountability between husband and wife. When you are more accountable with your spending, you might make more prudent decisions.
There are downsides though. There can be too much dependence & accountability. The couple must ensure they allow for some leeway in spending decisions. I mean, is that $5 latte that big of a deal that it requires a discussion at the dinner table? Probably not. A new car? Well, that’s a different story. Also, with about 40% marriages in America ending in divorce, things can get complicated & ugly in a hurry if you just commingle everything with no plan thereafter.
So you want to go about merging your financial lives the right way. Here are some tips for doing that successfully:
- Have a joint checking account with a “Transfer on Death” feature & close all the old individual checking accounts. Well, that’s just great – we’re going to start off talking about death. The TOD feature just means the account will easily transfer to the surviving spouse. But having a joint checking account helps to track all money coming in and being spent. In the eyes of the law, once married, “your” assets generally become “our” assets anyway.
- Pick the best health insurance plan. If both spouses work, analyze the health insurance plan each of you has. Pick the one that is most optimal using the “You plus spouse” plan option. That can save you a nice chunk of change in many circumstances.
- Keep saving for retirement on your own. Maintain contributions to your 401(k) and Individual Retirement Accounts. Those accounts cannot be commingled.
- Have a monthly financial meeting. One of the biggest drivers of divorce is lack of communication about finances. Having an open forum to talk about money will likely make for a healthier marriage.
- Have a debt plan. Chances are both spouses will have various types of debt. Create a fair plan for paying that down.
- Add the other spouse to existing credit card accounts. Don’t go around applying for a bunch of new credit cards after marriage since that will ding your credit score. Instead, take a few existing cards and simply add an authorized user to each one. It’s easy to do online and won’t hurt anyone’s credit score.
- Work with us at TFC. We had to do it – here’s the shameless plug. It’s important to establish a long-term financial plan between you and your new husband or wife. Chances are you have bigger goals in mind – like buying a house and having kids someday (or maybe you have already accomplished these life goals). You need to write down your goals to ensure you are on the right path to achieving them.
Here’s the point
- Americans are getting married later in life as time goes on, so more often than not, an individual has already established their financial life by the time he or she says “I do”.
- There are more account types and niches of personal finance than ever before, making it challenging for two people to merge their financial lives.
- There are important benefits to consolidating accounts & plans while leaving other accounts up to the individual.
Action items
- Talk with your spouse. Don’t do anything without appropriately communicating it with your husband or wife. Get on the same page about your financial situation. The more clarity and transparency, the better.
- Look to close out old checking & savings accounts and then just have a single TOD checking account. Financial clutter can be worse than physical clutter!
- Keep contributing to your retirement on your own, but talk about how much money you put toward 401(k) and IRA contributions. It’s not ideal when one spouse is contributing the max while the other has no retirement assets.
- Sit down with us at TFC to guide you along the path to achieving your long-term financial goals. Creating a financial plan after tying the knot is an important step to becoming serious about your joint finances.
Featured Image: Photo by 3D Animation Production Company from Pixabay