What's the best thing to do with the cash people give you at weddings?
ANSWER:
Bank it! Now, many couples say that they'll use the money gifted to them from the wedding for the honeymoon. This is fine, but make sure you have a budget in mind beforehand. If you and your spouse decide that you're going to spend $2,000 on your honeymoon and you end up receiving $3,000 in cash gifts, make sure you put the additional $1,000 into your savings and stick to the original $2,000 budget. Having more of a financial cushion will feel much when you get back than a few extra pina coladas on the beach.
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Should I discuss my financial goals with my partner before we get married?
ANSWER:
Financial issues in marriage are one of the leading causes for conflict and divorce in America. Having open and honest conversations about your finances, financial views and joint plans for the future are essential. From experience with my clients, it's important to sit down with a third party to discuss your views and create a financial plan that’s best for both of you. They say that failing to prepare is preparing to fail. I think that is most apropos for this subject!
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We want to purchase a home in the coming years. What's the best way to start saving and planning for it?
ANSWER:
Sit down and identify an area and type of house that's feasible for you financially. Then, set a time frame and a monthly amount that you can realistically afford to save from your budget. Once that's in place, you should set up a monthly draft from your checking into a high interest savings or money market account. Stay vigilant, revisit the plan every six months to a year and keep your long term goals in sight!
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How much should we be putting away for savings each year out of our incomes?
ANSWER:
Now more than ever is an imperative time to be saving money, but it isn't always the easiest thing to do when you're starting out in a marriage. As a general rule of thumb, saving 10 to 30% is advisable. Each household is different, but I suggest you work to have at least three to six months of emergency reserves in liquid cash savings. This will allow you to plan for unforeseen emergencies or short-term disabilities/career changes.
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I'm the main source of income in our family. What should I do to protect that?
ANSWER:
First, you should check with your employer to see if you currently have short-term and long-term disability coverage. This usually provides a benefit of 60% of your income after being disabled for three to six months, but the benefit is fully taxable, leaving you with about 50% of your actual salary. If you can live off of half of your pay each month, then you're fine. If not, you should look into a supplemental disability insurance plan that can get you closer to 80 to 90% of your monthly pay (these benefits are usually tax free). The supplemental insurance will allow you to cover your monthly expenses and continue to save for your long-term goals (house, retirement, etc.) while you're unable to work.
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We plan on starting a family soon. When should we start planning for our children’s educations?
ANSWER:
Education costs continue to rise each year at an average of 7% nationally as compared to inflation which is at around 4%. This means that the cost of your child’s education is outpacing your paycheck by 3% each year, making it much more difficult for parents to afford the full cost of tuition. I suggest to clients that you begin to prepare as early as possible, especially if you're also planning to send them to private elementary or secondary schools. Some parents are starting to save before the child is even born to get a head start on quality education. There are various vehicles to save for your child’s education (529 plans, Coverdell Savings Accounts, UTMA/UGMA, etc.), but the correct choice is based on each family's individual goals. Consult with a financial planner to see which option best suits your needs.
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We're looking to begin saving for our retirement together. What's a good place to start?
ANSWER:
As a general rule of thumb, if you are young, the Roth IRA is a great place to start saving for your retirement. As of 2008, you can contribute up to $5,000 ($6,000 if you're over 50) per spouse into the account. The real benefit comes in retirement when these funds are all tax free upon withdrawal. Your employer-sponsored plan (401k, 403b or 457 plan) is also a great place to save for retirement, especially if your employer matches your contributions. Never pass up free money! In any retirement account, getting into a well diversified portfolio of domestic and foreign stocks, bonds and cash based on your risk temperament is key for long term investment success.
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Once we're married, I feel that I should have some life insurance on myself. How much is appropriate?
ANSWER:
As a general rule of thumb, if you want to pay off debt there should be enough death benefit to cover it dollar for dollar. If you're looking to replace your income, you should have 10 to 15 times your salary in death benefit as well. There are various factors that need to be taken into consideration to get an accurate amount of coverage for your individual situation. Contact a financial adviser to discuss the amount and types of insurance that will work best for you.
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My fiancee and I both have debt. How should we tackle it now that it's a problem for both of us as a married couple?
ANSWER:
This has increasingly become the norm for many couples as they each enter marriage with student loans or credit card debt. The first step is to have an open and honest discussion about debt with your partner. It's important to acknowledge spending problems or bad habits, prioritize the debt (the higher the interest rate, the higher the priority) and decide on a payment strategy. Both of you must commit to getting debt paid off together and ensure that poor spending habits aren't hindering your progress.
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What's the best way to combine your finances once you're married?
ANSWER:
This really depends on the couple. You need to identify who wants to be the money manager in the relationship. One of you, or both of you? From there, it's typical to create one joint checking and savings account as well as two individual checking accounts for personal spending. This allows you to pay common bills together and still have the privacy to spend your own money as you please. Walking through the process with a professional to create a system that both you and your spouse are comfortable with and that works for your situation is an important first step to combining your financial lives.
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