Congratulations, on your upcoming marriage! Along with making wedding plans, there are many considerations to discuss with your soon-to-be spouse; one of the most important is financial planning. In fact, a 2016 study found that 31% of married participants reported arguing over finances at least once a month. The most common points of disagreement: major purchases, decisions about finance and children, a partner’s spending habits, and important investment decisions. Before you walk down the aisle, have an open and honest conversation with your spouse about your joint finances. Discuss current outstanding debt, retirement goals, and financial aspirations. Having these conversations upfront will help your marriage start on a clear path for financial success. To begin the discussion, consider these four financial topics:
1. Existing debts and loans. Take the time to fully understand each other’s current financial state. This includes reviewing common debt issues like student loans, car loans, credit card debt, or mortgage payments. When you get married pre-existing debt will stay in the debt holder’s name but it may significantly affect how both of you allocate your resources. In an ideal world, both people would head into a marriage with as little debt as possible. As couples continue to get married later in life, however, the reality is most newlyweds will enter into their union with pre-existing debt. Discuss the best way to work together to eliminate the debt. Additionally, consider future loans. Do you hope to apply for a mortgage in the next 5 years? If so, both of your credit scores will be used to assess eligibility. Work to pay your debts down and on time to improve your credit rating. Doing so will help you qualify for a mortgage at a competitive interest rate.
2. Budgets and financial planning. Next, discuss budgeting and financial planning. It’s important to lay out spending habits in the beginning to avoid frustrations. Typical problems arise when one person’s personal spending habits are more conservative than the others. One person might strive for frugality while the other is more of a spendthrift. Without discussing these issues upfront, newly weds can find themselves constantly arguing over spending. To start the budget process, sit down and establish spending limits in each category. How much money each month should be spent on groceries? Gas? Rent? Entertainment? Work together to find common ground and a workable budget for both people involved.
3. Retirement goals. Along with budgeting your expenses, you need to budget your savings as well. A general guideline is the 20/50/30 rule. This rule states that 20% of your income should be put towards savings and investments, 50% should be spent on necessities like rent and food, and 30% of your income should go towards discretionary spending. It can be tempting for young newlyweds to put off saving for retirement but the cost of doing so can be significant. The earlier you begin saving for retirement, the more compound interest can work for you. For an in depth example of the power of compound interest, check out our article on How to Save Your First Million. At TrueNorth Wealth we specialize in having the expertise to advise clients on the best tools to maximize wealth and retirement savings. From creating life insurance plans, to utilizing tax break strategies, to investing in bonds and mutual funds, our financial advisors can create a personalized investment strategy for your situation.
4. Tax implications. There are many financial benefits to getting married, one of them is the ability to file your taxes as either married filing jointly (MFJ) or married filing separately (MFS). Typically couples opt to file as MFJ because of the associated tax deductions and credits, like increased standard deductions, available under this filing. This increase can lead to significant savings for married couples with disparate incomes. Married couples are also entitled to give cash and property to one another without paying gift taxes. This can lead to substantial benefits in estate planning. Additionally, married couples who sell a property are granted $500,000 in tax-free profit, as opposed to the $250,000 limit for a single person. Again, this increase can be significant in terms of tax savings. These are just a few of the tax implications for married couples. For more information on tax changes associated with your upcoming marriage, contact your TrueNorth Wealth advisor.
TrueNorth Wealth is a financial and wealth management firm specializing in personalized financial planning to individuals and businesses. For a free financial consultation, contact us today.