Getting Married
Congratulations! You’re planning to get married or you recently did. Welcome to the world of merged finances—where spouses may have joint debts and household expenses, bills and investment decisions, and income tax returns. They also may have value conflicts. The key to financial harmony: planning and communication. The checklist on on the left will get you started.

Plan Your Wedding
 

Your wedding is a special day. Don’t let it get too special.

Ready for your first financial decision as a couple? Planning your wedding and reception. Your goal: have the wedding of your dreams without crippling yourselves financially.

Reduce the cost of getting married by taking aim at what is generally the largest expense—the reception. Consider holding it at a less-expensive location or in the late fall instead of the summer. The timing of a wedding reception and honeymoon can have a big impact on the costs.

Use “The Rule of Three” to compare at least three providers of every wedding product or service (gown, gifts for the wedding party, photographer, reception hall, honeymoon). Attend bridal shows to efficiently shop around.

Try not to put wedding expenses on a credit card unless you plan to repay the balance quickly. Otherwise, you’ll be paying for your wedding for decades.

For example, if you incur $10,000 in expenses and make 2 percent (of the outstanding balance) minimum payments on an 18 percent credit card, it will take more than 50 years to repay this debt and cost more than $28,000 in interest charges.

 

© 2005 National Endowment for Financial Education

Prepare Financially
 

His, hers, or ours?

Getting married is exciting, but it brings many challenges, including merging your finances. Planning carefully and communicating clearly are important, because the financial decisions you make now will have a big impact on your future.

Financial Planning

Your financial goals may include both saving for retirement and saving for a specific purpose. Some investments can be long-term. Others perhaps need to be more liquid. For example, newly married couples may want to save aggressively for a home. If both work, one strategy might be to live off of one salary and save the other.

Joint income could put a household into a higher tax bracket, which places greater emphasis on means of deferring taxes on this income. There are a number of Individual Retirement Account (IRA) options. Depending on a household’s adjusted gross income, these contributions may be tax deductible. IRA earnings grow tax-deferred until proceeds are drawn out later in life. However, with the exception of an IRA to fund a child’s college education, there is a hefty penalty for IRA withdrawals before age 59 ½.

How To Prepare Financially For A First Marriage

For the young, newly married couple, the areas of financial concern that will need to be addressed are: (1) life insurance, (2) form of property ownership, and (3) money management.

Life Insurance
When it comes to insurance needs, the basic rule is that you need enough coverage to sustain your family’s present income level should you die. If you are the only breadwinner, or if you plan on starting a family soon, then you will need to purchase life insurance. 

Property Ownership 
If you intend to own a residence or other property, or if you and your spouse already own property together, you will need to consider the best way for you to hold that property. Will the property be held solely by one spouse? By both spouses jointly? Because of the complex legal implications of the various forms of property ownership, you should seek legal advice about this issue.

Money Management 
It is important to consider carefully how your day-to-day finances will be handled. The new couple should discuss financial goals, resolve differences, and establish a budget and/or saving and investment plan. Will you have joint bank accounts, separate accounts, or both? How much do you want to spend on vacations? On monthly food bills? Entertainment? Gifts? What are your long-term financial goals? Do you have a financial plan, even an informal one?

If you don't have a financial plan, now is the time to prepare one. Even if you do have a plan, your changed marital status suggests that you review it.

How To Prepare Financially For Re-Marriage

When considering remarriage, it is important to plan for the following:

Whether property acquired before the marriage will be held jointly; How to provide for children from a previous marriage; and Whether a prenuptial agreement is necessary to accomplish goals related to either of these issues.

If either spouse has significant assets, it will be necessary to consult an attorney.

As for the estate planning aspects of providing for children from a previous marriage, trusts and/or life insurance are the vehicles most often used.

Tip:  Be sure to update your will before you remarry to ensure that your assets will be divided among your heirs after your death in the manner and proportions you desire.

© CPA SiteSolutions

Review Your Insurance
 

Getting married means you have more to protect. Time to review your insurance.

You and your spouse have probably talked about your future together: a home, children, career, and other goals you would like to achieve. But you don’t want an unforeseen event to weaken your family’s finances. Make time now to identify—and fill—the gaps in your insurance program.

Auto Insurance

Young single people tend to pay higher rates for insurance. Good news, when two people get married, they probably qualify for a discount. Couples may well bring two cars into the relationship and two insurance companies. Review existing coverage and see which company offers the best combination of price and service.

Your driving ability may not be all you have to worry about. At some point, couples may need to participate in a family decision in helping parents or in-laws decide when they should stop driving. Driving ability is not strictly a matter of age. There are middle-aged drivers who are terrible and there are older drivers who are highly skilled and perfectly safe. Yet, as a group, older drivers, particularly after the age of 70, are involved in more serious accidents. Because of their age, they are increasingly vulnerable to serious injury. Many seniors themselves decide as they get older to limit their driving to daylight and roads they are familiar with. And while many states require more frequent vision and, if necessary, driving tests later in life, it often falls to the children to help parents decide when it is no longer safe to get behind the wheel.

Homeowners / Renters Insurance

When buying a home, the insured value of the house will be less than the market value. Don’t be alarmed, because there is no need to insure the land the house rests on. The insured value needs to be sufficient to repair or replace the home if there is a major disaster. Over time, be sure that the coverage keeps pace with additions or major improvements that increase the value of the home – and the cost of repairing it. Set the deductible on the policy – the amount the homeowner is responsible for before insurance is triggered – as high as your financial circumstances allow. The higher the deductible, the less the coverage will cost. A higher deductible can also mean fewer claims, another important factor in the cost of coverage.

Ironically, homeowners or renters insurance questions frequently begin when couples buy engagement and wedding rings – things of actual as well as symbolic value – or accumulate expensive household items. A standard homeowner policy includes a limit (usually a fixed percentage of the broader coverage) on personal possessions, so an endorsement or floater may be needed to cover high value items. Merging two households presents a good opportunity to do a home inventory. This helps couples understand what their insurance coverage needs are – and provides have a record of what to claim if a real disaster strikes.

When arranging homeowners insurance, one important decision involves replacement cost versus actual cash value coverage. Replacement cost is what it suggests. It pays the dollar amount needed to replace a damaged item with one of similar kind and quality. Actual cash value covers the amount needed to replace the item, minus depreciation.

Life Insurance

Becoming a couple means sharing responsibility with and for someone else. Both spouses may work, building a lifestyle that depends on two incomes. There will be loans and other debts to pay off. At this stage, it makes sense to protect what you have. Life insurance is a traditional way of ensuring that the surviving spouse is taken care of in the event of a tragedy.

The primary purpose for life insurance is to provide a spouse, children or other beneficiary with resources in the event of the premature death of the other spouse. There are two basic types of life insurance:

  • Term insurance provides a simple death benefit for a fixed period of time. There are several different types of term insurance – renewable, convertible, level, decreasing and increasing term coverage. The premium may stay the same for many years. However, when the stated term expires, the premium can go up; and
  • Cash value insurance, as the name implies, provides permanent protection as long as you pay the premium. The premium does not increase over time. The younger a person is when buying the policy, the lower the premium will be for the life of the policy. But because premiums remain level, cash value coverage tends to be more expensive than term insurance. There are different types of cash value or permanent insurance as well – whole life, universal life, variable life and variable universal life insurance.

Health Insurance

Most people who work full-time get health insurance through their employer. Along with bringing two lives together, if both spouses work, the marriage also brings two health insurance plans. These health plans frequently include dependents.

Medical inflation is rising dramatically today and employers are increasing the amount they expect workers to pay as they cope with health care costs. In certain cases, they may not cover a family member who has another health care plan. If you have a choice, families with two working spouses should compare coverage, co-pays and costs and choose the best mix that offers the best coverage for the least amount of money.

Disability Insurance

Should a sickness or illness prevent one spouse from earning an income in his or her occupation, couples can face severe economic impact. Many employers offer an option of disability coverage. Typically, disability insurance is designed to replace anywhere from 45-60% of gross income. If the employee pays for disability coverage, insurance proceeds are tax-free. However, if the company pays for the coverage, this is viewed as a benefit and it is taxable.

© Insurance Information Institute

Establish a Budget

Where does your money go? Answering this question is the key to financial success as a married couple.

Do you ever wonder where your money goes each month? Does it seem like you're never able to get ahead? As a newly married couple, it’s important to establish a budget to help you track expenses and stay on track toward your goals.

Examine your financial goals.

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child's college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.

Identify your current monthly income and expenses.

To develop a budget that is appropriate for your lifestyle, you'll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You'll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you're not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

Evaluate your budget.

Once you've added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you're on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you'll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don't worry! All it will take is some determination and a little self-discipline, and you'll eventually get it right.

Monitor your budget.

You'll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don't have to keep track of every penny that you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed car transmission).

Stay on track.

Here are some tips to help you stay on track:

  • Involve the entire family: Agree on a budget up front and meet regularly to check your progress.
  • Stay disciplined: Try to make budgeting a part of your daily routine.
  • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays).
  • Find a budgeting system that fits your needs (e.g., budgeting software).
  • Distinguish between expenses that are "wants" (e.g., designer shoes) and expenses that are "needs" (e.g., groceries).
  • Build rewards into your budget (e.g., eat out every other week).
  • Avoid using credit cards to pay for everyday expenses: It may seem like you're spending less, but your credit card debt will continue to increase.

Build a Financial Safety Net
 

Financial job one for married couples: build an emergency cash reserve.

In times of crisis, you don't want to be shaking pennies out of a piggy bank. Having a financial safety net in place can ensure you're protected if a financial emergency strikes.

Determine how much is enough.

Most financial professionals suggest that you have three to six months' worth of living expenses in your cash reserve. The actual amount, however, should be based on your particular circumstances. Do you have a mortgage? Do you have short-term and long-term disability protection? Are you paying for your child's orthodontics? Are you making car payments? Other factors you need to consider include your job security, health, and income. The bottom line: Without an emergency fund, a period of crisis (e.g., unemployment, disability) could be financially devastating.

Build your cash reserve.

If you haven't established a cash reserve, or if the one you have is inadequate, you can take several steps to eliminate the shortfall:

  • Save aggressively: If available, use payroll deduction at work; budget your savings as part of regular household expenses.
  • Reduce your discretionary spending (e.g., eating out, movies, lottery tickets).
  • Use current or liquid assets (those that are cash or are convertible to cash within a year).
  • Use earnings from other investments (e.g., CDs, stocks, mutual funds).
  • Check out other resources (e.g., do you have a cash value insurance policy that you can borrow from?).

A final note: Your credit line can be a secondary source of funds in a time of crisis. Borrowed money, however, has to be paid back (often at high interest rates). As a result, you shouldn't consider lenders as a primary source for your cash reserve.

Keep your cash reserve accessible.

You'll want to make sure that your cash reserve is readily available when you need it. However, an FDIC-insured, low-interest savings account isn't your only option. There are several excellent alternatives, each with unique advantages. For example, money market accounts and short-term CDs typically offer higher interest rates than savings accounts, with little (if any) increased risk.

It's important to note that certain fixed-term investment vehicles (i.e., those that pledge to return your principal plus interest on a given date), such as CDs and Treasury securities, impose a significant penalty for early withdrawals. So, if you're going to use fixed-term investments as part of your cash reserve, you'll want to be sure to ladder (stagger) their maturity dates over a short period of time (e.g., two to five months). This will ensure the availability of funds, without penalty, to meet sudden financial needs.

Review your cash reserve periodically.

Your personal and financial circumstances change often--a new child comes along, an aging parent becomes more dependent, or a larger home brings increased expenses. Because your cash reserve is the first line of protection against financial devastation, you should review it annually to make sure that it fits your current needs.

© 2003 Forefield. Inc.

Manage Your Credit
 

Credit can be helpful for newlyweds. Just don’t overdo it.

It's hard to imagine functioning in today's society without access to credit. However, be careful not to fall victim to the pitfalls of overusing credit. A bad credit record can hold your marriage back.

It's hard to imagine functioning in today's society without access to credit. However, be careful not to fall victim to the pitfalls of overusing credit. A bad credit record can hold your marriage back.

Revolving credit can make it hard for you to pay off debt.

Credit cards allow you to spend money you don't currently have, and to repay what you've spent over time instead of all at once. When you use a card, the balance you owe increases, and your remaining available credit decreases. As you make your payments to reduce your outstanding balance, your available credit once again increases. Thus, your credit revolves around for you to use again.

Since you can spend more than you currently have, you can easily spend more than you can afford. As your balance increases, your minimum monthly payments also increase, and soon you'll find yourself in over your head--especially if interest rates and a variety of fees are high.

Interest and fees can add to the cost.

Credit card debt generally carries a high interest rate. Your minimum monthly payment--a percentage (often as low as 2 to 4 percent) of the total balance due--may cover little more than the monthly interest charge. Consequently, your minimum payment may only minimally decrease what you already owe. If possible, increase your monthly payment above the minimum required. The higher you can make the payment, the faster you will pay off the debt.

When opening a new account, always check to see how the finance charge is calculated. Here are some of the methods used:

 

  • Adjusted balance method: Balance due at the beginning of the billing cycle less any payments made during the cycle; excludes new purchases made during the cycle.
  • Previous balance method: Balance due at the beginning of the billing cycle.
  • Average daily balance method: Total of the balances due each day in the billing cycle divided by the number of days in the cycle; payments made are subtracted as posted to determine daily balances; new purchases may or may not be added in.
  • Two-cycle average daily balance method: Same as the average daily balance method, but over two consecutive billing cycles.

The amount of your finance charge can vary widely from method to method. Because finance charges result in higher interest charges, creditors favor either of the last two methods mentioned above.

In an effort to attract your business, many lenders offer very low introductory rates--3.9 percent annually or less. However, these rates generally last no more than three to six months and increase to the current market rate thereafter. Moreover, the introductory rates may apply only to balances you transfer from other cards. They may not apply to new purchases and rarely if ever to cash advances. Finally, if your monthly payment is late, the interest rate may be automatically raised to the current market rate--and sometimes beyond.

If you have two different interest rates on one account (e.g., a lower rate for purchases, a higher one for cash advances), the creditor will post the payments toward the lower interest rate balance, not the higher. To avoid this, use two different cards if possible--one for purchases you will pay off when the bill comes (thus incurring no interest charge) and the second, lower-rate card if you have to carry a balance.

You may also incur a wide variety of fees. Creditors may charge you an annual fee to maintain the account. These fees can range from $25 to $50 or more each year. They may also charge fees to transfer balances from other cards. Generally, these processing fees equal 2 to 4 percent of the amount you transfer. Many banks levy a similar surcharge on transactions involving conversions from foreign currencies. If you're late with your monthly payment, you may be charged a late payment fee that can be as much as $39 each month you're overdue. If your account balance rises above your approved credit limit, you will be assessed a monthly overlimit fee until you bring the total balance due under the limit you're allowed.

When these fees add up, you may find that making your minimum monthly payment won't bring your balances down. In fact, your balance will increase if your monthly payment isn't greater than the accumulated interest and fees due, since these unpaid charges become a part of the principal you owe. Moreover, your account may then be considered past due and reported as such to the credit bureaus.

If you surf your debt, beware the wake.

You may periodically transfer your balance from one introductory offer to the next. This is known as surfing. Done successfully, surfing lets you avoid the higher interest charges that your debt would incur when the original card offer expires. By the time the interest rate on the original card increases, you've surfed over to a new offer at another low rate.

Although surfing helps keep your interest charges to a minimum, it's not without pitfalls. You may be offered a low rate only on balance transfers; if new purchases and cash advances are billed at a higher interest rate, these charges could offset the savings you would otherwise enjoy. Moreover, as creditors move to counteract the surfing trend, many stipulate that if you transfer balances to another card within a certain time after opening your account, you'll be retroactively charged a higher rate of interest on the amount you transfer. Thus, surfing before this time period is up eliminates the savings.

Finally, if you transfer balances to a new card, close the original account as soon as you've paid it off. Write the creditor a letter (keep a copy for your records) asking it to inform the credit bureaus that the account was closed at your request. This prevents new potential creditors from denying you credit when they see too many open lines of credit, and it also deters anyone else from fraudulently using an inactive account.

Protect yourself against credit fraud and identity theft.

Credit fraud (the illegal use of your accounts) and identity theft (opening new credit using information about you) are two of the fastest-growing crimes today. In many cases, you may not know you've been victimized until it's too late. Here are some indicators of these crimes:

  • A creditor informs you that it received an application in your name.
  • You've been approved for or denied credit you didn't apply for.
  • You no longer get your credit card statements in the mail.
  • Your credit card statements include purchases or cash advances you never made.

To minimize the chances of being victimized, take precautions to safeguard your credit account information. Don't carry credit cards you don't use often. Be sure to sign your cards, and never sign a blank charge slip. When you use the card, try to keep it within your sight. Save your receipts, and obtain and destroy any carbons. Don't allow a sales clerk to write your credit card number on a check "for identification." Finally, never give out your account number over the telephone unless you initiated the call and know the organization to be reputable.

© 2003 Forefield, Inc.

Know what to do if You Remarry
 

His, hers, AND ours … again!

Are you getting remarried after a divorce? Get ready for even more complicated financial issues.

When considering remarriage, it is important to plan for the following:

  • Whether property acquired before the marriage will be held jointly.
  • How to provide for children from a previous marriage.
  • Whether a prenuptial agreement is necessary to accomplish goals related to either of these issues.

If either spouse has significant assets, it will be necessary to consult an attorney.

As for the estate planning aspects of providing for children from a previous marriage, trusts and/or life insurance are the vehicles most often used.

© CPA Site Solutions

Consider Your Taxes

Don't forget about Uncle Sam!

You don’t be surprised at tax time. Look into how your tax liability will change following your marriage.

Review your Taxes and Withholding

One of the first things you will want to do is adjust your tax withholding on form W-4 (available from your employers) to reflect your new marital status. Two-paycheck couples may need to have more tax withheld to cover the higher taxes due on their combined income. Instead of claiming one withholding allowance, one or both spouses may want to claim zero or even have an additional amount withheld so they don’t fall short of what they owe. Couples with one earner may experience a “tax bonus” as a result of marriage and can withhold less tax than before. This is because they benefit from the higher dollar amounts on tax brackets for married couples versus singles.

It is a good idea to exchange tax returns with your spouse from the past three-to-five years prior to marriage. This will increase understanding of each other’s finances and assist in future tax planning. A good source of information about the financial habits of a spouse-to-be is his or her checkbook register.

Consider the “married filing separate” filing status option if one spouse has high deductions (business or medical expenses, for example) that would be severely limited by filing jointly. Generally speaking, married filing separate status does not help married couples save on taxes. There are, however, instances when it does. Note that if a husband and wife file separate tax returns, they must use the same method of claiming deductions. For example, if one spouse itemizes, so must the other.

Consult a tax preparer, if needed, and consider calculating taxes both ways—married filing jointly and married filing separately—if one spouse has particularly high deductions, to see which method produces the lowest tax bill.

 

© 2005 National Endowment for Financial Education. All rights reserved.