*Full disclosure – this picture is from my wedding… I got bored of unsplash photos 🤷♂️.
Being a newlywed is such a fun time – you are still reliving your wedding and honeymoon. You are talking about your life plans together. There is a new, exciting momentum that is important to capitalize on.
Marriage has a big impact on your finances and it’s so important to be proactive about it. We’ve all heard the stat thrown around that money is the #1 cause of divorce in this country. Well, now is the time to start building a new, solid financial foundation so that you and your partner are on the same page with regard to money decisions.
There are many ways that marriage affects your money, but I will outline what I view as the five most important.
1) Make talking about money your #1 priority
Why is talking about money important for couples? Dr. Sonya Britt-Lutter who is a Financial Therapist puts it best – “Because if they don’t, they will fail”.
Money is the #1 taboo topic in America – it’s something that we knew was private growing up and we were taught never to talk about it. This is fine… until you are in a relationship. When “your” money becomes “our” money, the realization kicks in that talking about money is really difficult and often leads to tension. It’s no surprise that money is one of the leading causes of divorce in America. Why is that? Well, think about it.
Money is one of the few things that is a pure reflection of our hard work, time and values. The money you earn and save has so many stories and feelings behind it. This I why I think of money as more of an exchange of feelings, as opposed to a math equation.
In addition, we are all hard wired to behave differently around money. Our unique stories, experiences and lessons learned throughout childhood have a massive impact on our behaviors with money. Often times, couples have very different behaviors – that is why I use the Financial DNA tool to help them understand their unique money habits. Rather than saying one person is right or wrong, you need to understand how the other person is hardwired to behave around money and determine what that means for how you communicate.
Couples need to communicate about their shared values and goals for money. It is so crucial that you have a reoccurring, dedicated time to do this – something I spoke to Business Insider about here.
This shouldn’t be a one-time conversation – your values and goals change over time and you need to be constantly reassessing how your money decisions reflect your ever-changing life.
2) Combine bank accounts and credit cards
Assuming you are combining finances (something I highly recommend), take the time to combine your bank accounts and credit cards. If you don’t, tracking your cash flow and expenses will be a nightmare.
This is something that my wife, Kaleigh and I just finished. We each previously had individual checking accounts, savings accounts and credit cards, and (
we 😂) I merged everything to be under both of our names.
I first started with our bank accounts – I opened joint accounts at Ally Bank and transferred some money into those accounts, but left money behind in our individual accounts to cover any automatic payments that we may have missed. After two months, I felt comfortable that we weren’t missing any remaining payments and I transferred the remaining funds and closed the individual accounts.
I also revisited our credit card strategy. We both previously used Chase Sapphire Reserve (one of the best credit cards for travel points), but I decided to close her card (avoid the $450 fee) and add her as an authorized user on my card (only $75/year). I made sure to aggregate all of our credit card reward points to my Chase Sapphire Reserve card so we have everything in one place.
The end result? We went from 7 bank accounts and 2 credit cards to 3 bank accounts and 1 credit card which simplifies everything and helps us better track our spending.
Remember – tracking your spending is not a punishment, but rather provides awareness – awareness if you are using your money in a way that is aligned with your values.
3) Plan for the impact of marriage on your student loans
Marriage may have a dramatic impact on your student loans which often takes people by surprise. When you have federal loans, the most common type of repayment plan is an income-based repayment plan which takes your income, subtracts a state-specified poverty line and then multiplies the remaining amount by a percentage (usually 10%). These are usually the best plans for borrowers because the payments are designed to better fit your income level.
Well, once you marry, assuming you are on an income-based repayment plan and file taxes jointly, your spouse’s income will now be included in your student loan repayment calculation which can dramatically increase your student loan payments. This is why filing taxes separately may make sense if one or both spouses has a large student loan balance. If you file taxes separately, you are able to exclude your spouse’s income from your student loan calculation, unless you are on Revised Pay As You Earn, which counts your spouse’s income regardless of tax filing status. Why does it have to be this complex again…?
If you have private student loans, you need to pay attention to the provisions of the promissory note. Often times, if the borrower of a private student loan passes away, the entire student loan balance is due. This could leave a huge debt behind for the surviving spouse that was never anticipated.
4) Revisit your employee benefit selections
Once you are married, you expand your options for utilizing employee benefits.
Health insurance is the most significant change since you can now choose whose health insurance to utilize. While premiums are important, you should also review which health plan makes you eligible to contribute to a Health Savings Account. A Health Savings Account is one of the most valuable accounts – contributions are tax deductible, earnings grow tax-free and withdrawals are tax-free as long as they are used for qualified medical expenses. Financial planners nerd out for this account because it’s the only account where you get a tax deduction up front and then tax-free growth.
When you are single, your maximum HSA contribution is $3,550, but that amount increases to $7,100 when you are married.
Besides health insurance, you should also revisit your beneficiary designations through your employer. You probably have some type of life insurance and employer sponsored plan (401(k), 403(b), etc.) and you want to be sure that you update your beneficiary designation to your spouse (assuming that’s your intention!).
5) Merge your investment strategies
The ultimate goal is to have one investment strategy for your common shared goals. In other words, each of your accounts are invested as part of an overall strategy that is tailored to your unique goals.
The likelihood is that each of you have various investment accounts – you probably have your current 401(k)s, 401(k)s from past employers, a Roth IRA you opened awhile ago, etc. Similar to having many too bank accounts, it can be really difficult to keep track of all this. Each of these accounts are probably invested in different ways and may not make sense as you view everything holistically.
This is particularly important because it’s not enough to just save money – you need to save in the right ways if you want to experience your money throughout your life and not just in “retirement”. It’s very common for couples never to reevaluate how their accounts are invested and if that strategy still makes sense given their current situation.
As you are going through the process of merging bank accounts, take the time to consolidate all of your investment accounts as well. Nearly every employer-sponsored account can be rolled into IRAs – you just want to be careful not to mix up after-tax and pre-tax money when consolidating.
- If you aren’t working with a financial planner to facilitate your communication about money, put a regular, reoccurring event on your calendars every month and honor that commitment. Try to make talking about money fun – get out of the house, have a drink and make sure your mental energy is not drained during this time. Knowing that you have a dedicated time to talk about money will help mitigate any points of tension that arise during the month.
- Talk to each other about what money was like growing up and how that has shaped your views of money. It’s so important to understand this about each other – just like how everyone talks about prior relationships, you should also talk about your prior money experiences!
- The likelihood is that one spouse will take the lead with these money decisions. You just want to be sure that the other spouse isn’t kept in the dark about everything.
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