Setting the Foundation for a Joint Financial Future
Brennan McCarthy, CFP®
Marriage is THE single most important financial decision any adult will ever make in their life. As you embark on this journey together, it is crucial to have open and honest discussions about your finances and establish a solid foundation for a joint financial future. Here are some key financial considerations to keep in mind when getting married:
1. Communication is Key:
This is the most important piece of marriage irrespective of the financial aspect. Before tying the knot, sit down with your partner and have an open and honest conversation about your financial history, including debts, assets, and financial goals. Discuss your spending habits, financial expectations, and how you envision managing your finances as a couple. This will help identify potential areas of alignment or any disparities that need to be addressed.
2. Create a Joint Budget:
Developing a joint budget is essential for managing your household finances together. Detail your combined income, expenses, and savings goals. Be transparent about how you will divide responsibilities and make financial decisions. This will help establish a clear understanding of your financial priorities and ensure that both partners are actively involved in the decision-making process.
3. Address Debt:
If either partner carries significant debt, whether it be student loans, credit card debts, or personal loans, it is essential to address these obligations openly. Discuss how you plan to manage and repay these debts as a couple while considering the impact on your joint financial goals. This may involve prioritizing debt repayment, exploring consolidation options, or seeking professional advice if the debt burden is substantial.
This is another area where open communication is key. For example, if one spouse is averse to debt where the other spouse isn’t, one person will need to be flexible to accommodate for the other.
4. Financial Goals and Planning:
Discuss and align your short-term and long-term financial goals as a couple. This may include saving for a home, starting a family, investment plans, or retirement goals. Establishing clear objectives will help guide your financial decisions, prioritize savings, and ensure that both partners are actively working towards achieving these goals.
5. Joint or Separate Bank Accounts:
Decide whether you will have joint or separate bank accounts, or a combination of both. I encourage my newly married clients to merge things together into a single, joint account; however, there are reasons why this isn’t always the best option immediately. Joint accounts often promote transparency and facilitate joint financial management, while separate accounts can allow for individual financial independence. Consider discussing financial responsibilities and determining how much discretionary spending each partner will have.
6. Insurance Needs:
Review your existing insurance coverage and assess if any adjustments are needed. This includes health insurance, life insurance, disability insurance, and other policies. Consider whether joint coverage is more cost-effective or if maintaining separate policies makes more sense. Ensure that both partners are adequately protected and evaluate any beneficiaries or named beneficiaries on existing policies.
7. Update Legal and Estate Planning Documents:
Marriage often necessitates updating legal documents such as wills, power of attorney, and beneficiary designations. Consult with an attorney to ensure your estate planning documents reflect your current wishes and protect both partners in case of unforeseen events.
8. Seek Professional Guidance:
If you find it challenging to navigate the complexities of merging your finances or have differing financial philosophies, consider seeking guidance from a financial advisor or marriage counselor specializing in financial matters. They can provide personalized advice, mediate discussions, and help you devise a financial plan that works for both partners.
Remember, open and honest communication about money matters is crucial in a marriage. By establishing a strong financial foundation together and keeping the lines of communication open, you can navigate challenges and work towards shared financial goals, fostering not only a loving relationship but also a secure and prosperous financial future.