Financially Speaking - Money Talks: A Must for Couples
Spring is one of the greatest times of the year, especially when you are young and in love, when hope springs eternal. Young love can be one of the happiest times in your life, as well as your family’s. A young couple has been dating and finally gets engaged. Now, the fun starts. The perfect wedding takes a lot of planning. After all is said and done, and the last dance is over, the happy couple embarks on their honeymoon.
Bob Dylan wrote “Wedding Song” 50 years ago, and the opening lyrics are timeless: “I love you more than ever, more than time and more than love, I love you more than money and more than the stars above … ”
You know the rest. The couple lives happily ever after … or do they?
There are many things to consider before you get married. Can you guess where I’m going with this? Money! When we meet with young couples to do a financial plan, they are so in love, except it seems when it comes to their money. It amazes me that they each keep their own savings and checking accounts. I tend to wonder if they are planning a slush fund in case the marriage doesn’t work out. Watch out, it may become a self-fulfilling prophecy. When I got married almost 41 years ago, we had no money, so for us, it was easy to combine assets and have a joint account. Today perhaps divorced parents are counseling young newlyweds to have separate accounts from experience. Whatever the reason may be, it’s important to talk money when planning to get married or committing to a long-term relationship.
We tend to choose the love of our life based on shared values. Marriage.com lists 11 core relationship values every couple must have. I found it odd that finance was toward the end of the list at No. 10, with only religion behind it. All couples believe that they will live happily ever after, but it is no secret that money is something that couples have been fighting about for thousands of years. To avoid problems in the future, make sure you and your partner are on the same page.
Commonwealth Financial Network recently provided information we are sharing with our clients in an article titled “6 Money Conversations to Have in a Long-Term Relationship.” It’s helpful for young couples, both engaged and married, and includes key questions to ask each other that will help ensure financial goals are aligned and avoid fighting over money. I’m not a marriage counselor but have certainly worked with enough married couples over the years.
What do each of you bring to the table?
This is a great place to start. Be honest about your debt such as student loans, credit card debt, medical expenses, and other financial obligations. Share the value of any assets, investments, and what you earn. This will be your reality check. It will help you plan for your future and show if you need a budget in the beginning. Discuss your mutual goals such as owning a home, paying off debt, starting a family, and saving for retirement.
Lying to your partner about money or hiding debt or investment accounts is often referred to as financial infidelity. This is a terrible way to start your life together and may cause trouble in your relationship and could possibly lead to divorce.
What are your credit scores?
Eventually you will want to buy a car or house. Sharing your credit scores early will let you know if you are in good standing as a couple or if you have work to do to improve your credit score. A higher credit score may help you get a better interest rate to finance these purchases. When talking about buying a home, this could save you thousands of dollars. Sit down and request each of your credit reports from Equifax, Experian, or TransUnion. You are entitled to one free credit report annually.
Will you split expenses?
This is one I feel strongly about. If you are getting married or are married (for the first time) then I believe your expenses and income should be held jointly. If this is your second or third marriage, then that changes everything and you may want to do things differently. If you inherit money, you should always keep it separate. This was the intent of the person who left you the money, and it will never be part of your marital property.
What is your risk tolerance?
Opposites, more often than not, attract. Chances are that one of you will be a risk taker, and the other will be more conservative. Many times, when we meet with young couples, the amount of risk they take is very similar to their parents’ risk tolerance. You need to agree with one another when it comes to investing as a couple. If you are older or perhaps already have a nest egg, then you may want to discuss a prenuptial agreement. Signing a prenuptial agreement is often tied to protecting one’s assets in case of a separation, but it also can protect one partner from another’s debt. Having a conversation early in your relationship may help prevent future problems.
Will you have children?
If so, they cost money. According to the Brookings Institution, the average cost of raising a child born in 2015 through age 17 is $310,000. Remember, that cost doesn’t include a college education, which could easily add another $200,000 or more depending on if you value a private or state college education. Childcare is another major cost you need to discuss. Perhaps one of you wants to stay at home initially when the kids are young. Then you will be living on one income, which also impacts your cash flow and ability to achieve hopes and dreams. Adoption, in vitro fertilization, surrogacy, or egg freezing and storage can be expensive, should you have to go through any of those processes to have children. Be open with one another, so there are no surprises.
What are your plans for retirement?
Once you have these important conversations, you may want to dream about your later years and retirement. If you are in your 20s and 30s, it may seem like a million years from where you are now, but retirement will be here before you know it. Are you on the same page? You need to start planning as early as possible. The earlier you start, the greater chance you will achieve success. If your employer offers a retirement plan – 401(k), 403(b), etc. – decide to start contributing now. Many times, your employer will offer a matching contribution. Don’t leave the free money on the table, and enroll now to start contributing whatever you can.
Discuss your dreams with each other. Maybe you want to have a vacation house at the shore or take lavish vacations. At what age do you want to retire? Dream big! How much money will you need for your dreams to become a reality? Although you can find financial calculators online, you may be better off meeting with a fee-based financial adviser and completing a financial plan to help get you on track.
Although discussing finances and goals is not romantic, it will help to put your relationship on a solid financial foundation. This is critical to achieving a long-lasting marriage.
If you have any questions or need additional information, please feel free to reach out to me.
Whew, now that you have had the financial conversation, relax and look forward to the start of summer, which is right around the corner.
Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc. He also offers securities through Commonwealth Financial Network, member FINRA/SIPC. Advisory services offered through Planning Directions, and fixed insurance products and services offered by Common Cents Planning, are separate and unrelated to Commonwealth. Fred may be contacted at 800-647-0762, by e-mail at fdunbar@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342. He’s always happy to meet with you “down the shore” at 6606 Central Avenue N. Sea Isle City, NJ, 08243.
This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal. Past performance is no guarantee of future results.
