Money Matters
Bryna Bates
Financial management is one of the most challenging issues that a new couple will face. Often times the fate of a relationship weighs heavily upon the couple’s ability – or inability - to manage money successfully. The good news is that once a couple has a good understanding of one another’s debt, spending habits, and financial goals it’s easier to make economically savvy decisions.
Patrick P. Astre, financial expert and author of “This Is Not Your Parents’ Retirement” (Entrepreneur Press), recommends the following guidelines for getting started on a positive financial journey together. These tips will help altar-bound couples ask the right questions and come to logical solutions for a prosperous future.
First, couples should realize the importance of handling financial issues correctly. In other words, it’s important to make sure that both partners agree that managing money properly is a necessary responsibility for the marriage. If each person has a different theory on managing money, it will be a sure recipe for a financial disaster. Now is the time to be open and honest about your feelings and views on money. Share your history and your goals. It will prevent future complications and disagreements.
Once in agreement, couples should ask each other questions like: Which partner is best suited to handle money? A couple may decide that one partner will manage the investments while the other handles the savings account and pays the bills. The responsibilities can vary with each couple. One partner may be completely responsible for the couple’s money, which is fine as long as the other partner cooperates. Or they may equally share responsibilities.
There is a certain amount of give-and-take when it comes to money management, and compatibility also plays a significant role. If she wants that sexy sports car, and he wants the sensible four-door, it’s not the end of the world if they choose the sports car. The important thing is that they realize they must agree on common sense solutions - like building their assets - in the future.
The best way for a couple to handle their money is to merge all accounts and jointly own all investments and savings. This is your life together, so your financial state should reflect that. There may be some reasons for not combining accounts, such as second marriages, pre-nuptial agreements, and/or financial problems like bankruptcies, lawsuits, or tax liens. But in general, for most couples, merging everything and managing it all sensibly is the best method. IRS qualified retirement funds such as IRAs and 401Ks, however, cannot be jointly owned, so each partner should name the other as a beneficiary.
Debts of one (or both) partners entering display irresponsibility. The debt may be a student loan, a medical bill, an honest attempt at starting a business, or helping a relative. On the other hand, the debt may come from maxing out credit cards, spending sprees, or buying expensive gadgets and cars. If the latter is the case, an honest re-assessment is necessary to be sure that this behavior is brought under control. Otherwise, it can spell serious problems for the relationship.
Think about saving money for future children even before thinking about getting pregnant. A top choice is The Coverdell Educational IRA, which holds up to $2,000 per child per year. The advantage of this fund is that it remains under the control of the parents until they are ready to give it to the child (at any age). And if it is used for college, there is no tax. Another option (for the parents) is to change it into a regular IRA for their retirement if they decide not to use the money for their children. And a 529 plan gives a wide variety of investment options and freedom to attend any college.
Buying a home is a sensible choice for new couples who are sure they will live in the area for about 6 to 10 years (depending on the state of the local housing market). “We are at a high point in real estate prices,” says Astre. “And if there is a down turn, a couple may wind up selling the home for less than they paid for it.” Refinancing and spending the equity may also be a problem if the house has to be sold in times of declining prices. That is called being “upside down” and generally will not happen if you hold on to the property for a significant amount of time, and do not constantly re-finance and spend the money.
Lastly, it’s a good idea to buy a financial book or guide. This way you can follow a direct outline of do’s and don’ts for your money matters. Make sure that the advice is practical, easy to read, and that you put it into action. Two books to checkout: “Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner” (Broadway) by David Bach and “For Richer, Not Poorer – The Money Book for Couples” (HCI) by Ruth L. Hayden.