Planning Your Wedding? Plan Your Financial Commitment Too

You’re getting married. Two shall become one. Although your lives will be combined, have you thought about how you’re going to mix your finances?

Communication is key when it comes to deciding whether your finances will become “his, mine and ours” or simply “ours.” Since money is an emotional issue for many people, the key to success is open and honest discussion about your income, savings and spending habits. This needs to be followed by a firm commitment to adhere to the plan. In addition, what’s right for one couple may not be right for you. You both need to design a strategy that’s best for your partnership and that sets you up for success.

Pool resources.
Certainly, a solid financial strategy needs to be created by the two of you. Chart your goals for the current year and what’s ahead 5, 10 and 20 years down the road. After you create your plan, discuss how your current income and past savings should be combined. Consider opening a joint account that both of you contribute to on a regular basis. Each of you can add the same amount or a percentage of your wages. Pay for shared expenses, such as housing, groceries, water, utilities and more, from these dollars. Consider maintaining your personal accounts for hobbies, clothing and other discretionary spending. This can help you ease into the full combination of your assets down the road. Then again, some couples choose to keep their personal accounts forever. It all comes down to what works for you and your mate.

Pull back on spending.
Newlyweds have a tendency to spend more money because they’re at the start of their adult lives and outside their parents’ homes. Obtaining housing, buying cars, establishing a household and implementing savings accounts are big expenses many couples take on early in their lives. As debt grows, many times there’s little discretionary income left over, which can lead to huge levels of stress. Arguments over purchasing a new pair of shoes or tickets for the big game can happen. Get control over your purchases and commit to following your plan.

And then there’s death.
As newlyweds, the idea of dying is not in your thoughts. But things can happen. Be prepared for you, your spouse and family by having a solid will in place. If you have minor children and both you and partner die, you need to have guardians named to take care of them. In addition, think about assigning your assets to a trust rather than leaving money directly to your children. In your will, you can be very specific about what goes to whom, except for retirement accounts, life insurance and certain other financial accounts.

Who are your beneficiaries?
As a couple, you should also discuss beneficiaries for retirement funds, insurance policies and other accounts. This is incredibly important because beneficiaries listed on the actual accounts override what’s in your will. If you’re married, your spouse will likely be your primary beneficiary. Many retirement plans require you to get written permission to name someone other than your spouse.

If you die, a spousal beneficiary means you have flexibility in how your retirement assets are distributed. Several options exist. One is to leave the money in the plan. If the beneficiary doesn’t need the money right away, this is the easiest tactic. Another is to roll over the balance to an IRA or another retirement plan. This keeps the money in a tax-deferred account in the beneficiary’s name. Another choice is to take the money in cash. If the beneficiary needs the money now for expenses, this is an option. But income taxes will be due, and you lose the future earning potential.
With life insurance, you can name your spouse as the primary beneficiary. However, consider adding a secondary beneficiary and a final beneficiary in case your spouse predeceases you.

Don’t set it and forget it.
Your financial plan isn’t set in stone. It’s a living, breathing strategy, reviewed at least once a year, if not more often. Major life events such as having children, death or divorce demand another look. Unfortunately, if documents aren’t updated, the life insurance payout that you planned to go to your second spouse could actually wind up in the hands of your first spouse.
The details of planning a wedding are daunting, but they should not supersede creating a financial strategy for your new life. Talk through ideas with your spouse, make a commitment to follow your plan, understand your options and call in the help of a certified financial planner who knows the legal guidelines impacting you to get this part of your life on the right footing.

Sources: bankrate.com, elderlawanswers.com, usnews.com, voya.com and wealthfront.com.