Eight things to do before you say I do
You may also want to consider filing your taxes jointly (if this is an option for you). If you don't, you'll lose some major tax benefits.
Studies have shown that women are less confident than men when it comes to investing, as 25% of women, vs. 42% of men say they are confident that their investments are allocated properly, and 64% of women vs. 84% of men say they have a general knowledge of stocks, bonds and mutual funds. Investors with lower confidence levels tend to invest over-conservatively out of fear of losing their principal – so it’s important that if you don’t feel confident in your financial know-how, you seek out the advice you need to help you get started.1
As you prepare for your walk down the aisle, here are a few steps you can take to help you and your partner lead a financially healthy lifestyle.
1. Start talking (and keep talking).
Before you enter into a spousal agreement, talk about salaries, savings and debts.
Research has shown that women remain significantly behind men with respect to basic money management skills. A recent study showed that only 63% of women, compared with 80% of men, have a handle on their cash flow. That same study found that fewer women than men regularly pay off their credit card balances in full (49% vs. 65%), or have an emergency fund to pay bills if they lose their jobs (46% vs. 61%).i
Most financial planners advise couples to routinely discuss financial priorities and spending habits. Create a budget to help you get started and decide how you’re going to share expenses, establish an emergency fund and save for retirement, among other long-term goals. Prioritize your spending choices; decide who will pay the bills and handle investments and make it a point to check in with each other regularly – maybe once a month – to see if you have to make adjustments.
Your financial well-being – just like your relationship – is a partnership, so both parties should play a role in the decision-making process. If you haven’t been involved before, now is the time to get started.
2. Make sure you see eye-to-eye about financial goals.
It’s important to sit down and decide what your financial goals are, how and when you hope to achieve them. Set them according to what you want in the short term (within a year), intermediate term (one to five years) and long term (more than five years). You can then put money away according to the schedule you’ve developed.
Thinking of having children? They come at a cost! Will you want to enroll them in public or private school? Tuition can be a significant and long-term financial commitment.
What if you want to be a stay-at-home mom (or continue to be one?) That’s great news for you and your children, but it too comes at a cost. Can you achieve your long-term financial goals with only one income?
Now is the time to discuss these types of situations with your husband or partner, so you can start planning for whatever path you choose.
3. Decide how you’ll combine your savings and assets.
There’s no one right way to combine your accounts; it simply depends on your situation and what makes you comfortable. You can organize your finances several different ways:
Pool everything together: One person pays the bills from a joint account. If this is your first marriage, it is possible you both have more debt than savings, and assets are not yet in the picture. Since you are starting from scratch, it may make sense to combine everything.
Keep everything separate and assign each person specific bills to pay: For example, one person might pay the mortgage, and then the other pays the utilities and groceries. Then you both pay down your own student loans, buy your own gas, clothes, and pay credit card bills.
Three accounts. You each have your own accounts for your bills and expenses, but you contribute a percentage into one household account to pay for shared items, such as your mortgage and utilities. For example, say you make $40,000 a year and your spouse makes $60,000. You pay 40% of the household bills, and your spouse pays 60%.
Every relationship is different. Based on how you decide to organize your accounts, you may still choose to keep a separate sum of money that is yours only. In the event of an emergency, or if you and your partner decide to part ways, you could find yourself needing extra savings to pay for items you previously split (such as rent and other monthly bills).
Also, be sure you understand state laws governing “marital assets” as many states do not provide for truly separate marital assets in the absence of a prenuptial agreement.
4. Start saving and investing early.
Saving even a little bit can make a world of difference. But, it can be tough to save when much of your income is going toward paying credit card bills (both yours and perhaps that of your spouse or partner), student loans and other monthly expenses.
Learning how to manage the debt you have while still being able to save for things like retirement and other long-term goals is a critical part of your overall financial health. While saving may seem difficult, it is important you at least consider taking a set percentage out of your paycheck each month and depositing it into a retirement account.
If you do that first, you’ll likely never miss those extra dollars. On a positive note, that money will make more money, and your savings will grow. One good way to set aside money is through your employer’s retirement savings plan, such as a 401(k) or 403(b), if it’s offered.
A little can go a long way. If you’re unsure about how to get started, contact your human resources representative or speak with a financial advisor, and he or she can help you determine which retirement plans may be best suited for your current savings plan and budget.
You may also want to consider the use of online tools (like those offered at Hello Wallet, which offers both advice and savings calculators over the Internet). These resources can be instrumental in not only helping you reach your goals, but sticking to your plan and making adjustments along the way to account for life’s milestones (such as buying a home or paying for a college education).
5. Realize that rainy days do happen.
An emergency savings account is a critical part of anyone’s financial health – whether you are single or in a relationship. You may have to tap into it in cases such as unemployment, medical expenses – even a leaky roof. As best as you can, put away at least six months’ worth of living expenses.
The best place to keep a rainy-day fund is in an account where your money will be safe and liquid (easy to get to quickly), like a money market account at a bank. If and when you withdraw money from your rainy-day fund, try to restore the balance quickly so you'll have enough cash available for later use if needed.
6. Protect each other.
Purchasing life insurance can enable you and your spouse to weather any financial hardship in the case of a spouse’s death. Life insurance provides a tax-free lump sum to your survivors in the event of your death. While your employer may offer a specific rate for life insurance, it is also recommended that both you and your spouse or partner each own at least 10 times your annual salaries in protection (in addition to whatever amount your employer may be offering). However, the appropriate amount of insurance for you depends on your needs and personal circumstances.
7. Decide if you need a prenup.
If you’re coming into a marriage where neither of you has any serious money, debt or assets, there might not be any reason to get a prenuptial agreement. But if one of you has a lot of money or major debts, stands to inherit a fortune or has children from previous marriages, it might be worth it. You’ll both need to consult lawyers if you decide to get one.
8. Talk to someone who knows.
Finances are not easy to understand – and you shouldn’t be embarrassed to ask for help. An experienced, certified financial advisor can help you and your spouse feel more comfortable in planning your future together. She or he can help you navigate the various savings and investment accounts available to you.
It's important to choose an advisor who is either a Registered Representative (RR) working for a brokerage company licensed by the Securities and Exchange Commission or a Registered Investment Advisor (RIA). An RIA must adhere to a fiduciary standard of care, meaning he or she is required by law to look out for your best interests and is legally held to a higher standard of care than a brokerage representative.
The advisor you choose may also be accredited by one or more of the standard professional organizations. The most common credentials are Personal Financial Specialist (PFS), Certified Financial Planner™ (CFP®), Chartered Financial Consultant® (ChFC®), Chartered Financial Analyst® (CFA®) and Master of Science in Financial Services (MSFS).
Make sure that you know which services you’ll be getting and how much it will cost. Financial planners typically fall into three categories based on fee structure, so it will be important to choose the one that you are most comfortable with.
The road ahead
While this list of tips is by no means comprehensive, following and revisiting it regularly can help you and your spouse achieve your financial goals. Staying active in your household finances is of utmost importance for both parties involved.
It’s never too late to improve your financial health. By partnering with your spouse or partner,
you will be one step closer to finding peace of mind when it comes to your financial well-being. And - you can get back to planning your upcoming nuptials!
Need more information?
Visit tiaa-cref.org for broader Financial Education, including a variety of resources to help you improve your financial well-being.
i Financial Finesse, 2011, Gender Gap in Financial Literacy
While it is not our purpose or intent to provide specific investment advice or financial planning services, the above information may be helpful in understanding financial issues relating to marriage. We urge you to seek advice based on your own particular circumstances from a financial advisor.
The tax information contained herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.
Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., distribute securities products.