June 2016

5 Money Moves to Make Before You Get Married

Author: Kent Thune

It’s wise to get the financial house in order before sharing the virtual house. And considering that money problems are among the top reasons for divorce, it’s crucial that young couples tie the knot as tight as possible with some key money moves.

In the early stages of a love relationship, financial matters aren’t exactly a natural fit into a conversation. In fact, being in love can be an obstacle to discussing money. Nothing kills a romantic evening like talking to your fiancé about wills, life insurance, budgeting, credit cards or retirement savings. But if you want your marriage to last, you’ll find time to talk about money with your significant other. Even better, you’ll implement most or all of these five money moves before you get married.

1. Talk to a financial planner. The primary areas of financial planning, including budgeting, investments, taxation, retirement, insurance, and estate planning, are not taught in most schools. So while many couples are fully capable of managing their own household finances, there may be just as many who have some serious knowledge gaps in money matters. A good financial planner can guide you in the right direction and become a combination of teacher and counselor. Look for an advisor with experience and with credentials, such as a Certified Financial Planner™.

2. Pay down that debt! When the honeymoon is over, both literally and figuratively, you don’t want to have any financial burdens or economic challenges weighing on your young love, other than the ones that are almost certain to come along at some point or another. Appliances will break down, cars will need repairs and replacement, homes will need maintenance, and unexpected money mishaps will visit you soon enough. But if you have large credit card balances or big medical bills dragging you down, resentment and frustration are just a few collateral problems that can come along with the debt. Paying down the debt as aggressively as possible prior to tying the knot or soon thereafter may be one of the smartest money moves you can make. And if the debt is too much to delete before your big wedding day, be sure your future spouse is fully aware of the financial challenges that currently exist, hopefully before the wedding plans are in motion. The phrase “financial surprise” doesn’t often mean something positive, and you don’t want to learn this the hard way! Don’t begin a marriage with any secrets.

3. Start saving. It’s never too early to begin saving for long-term goals such as retirement. The sooner you start, the more time your investments have to grow and benefit from the power of compounding interest. Also, because of the time value of money, early savers won’t likely need to play catch up later in life when saving larger sums on a regular basis can be difficult, especially after children and college expenses come rolling in. Consider this example of two couples: One couple starts saving $5,000 per year at age 25 and continues with the same savings rate until they are 35, when they stop saving. In total, they save $50,000. The other couple starts saving $5,000 at age 35 and stop at age 65. That’s a total of $150,000 savings for them. Assuming a 7% rate of return, which one ends up with the most at age 65? Because of getting their early start, and thanks to the power or compounding interest, the first couple wins with $602,070. That’s after just 10 years of saving! The second couple ends up with $540,741 although they saved for 30 years.

4. Create wills. When you say, “Until death do us part,” you don’t imagine that time can come sooner rather than later. And saying your “I do’s” at a wedding is the ceremonial aspect of marriage. But unless you’ve been married before, you might not realize that couples are legally married once they’ve obtained what most people refer to as a marriage license. Entering into a marriage contract changes the legal status of both parties and gives the husband and wife new rights and obligations. One of these rights, in most states, is becoming the legal beneficiary of each other’s assets in the event of death. However, it’s still important to create wills, which will put in writing what and where your assets are and how you want them distributed. You don’t want to leave important decisions about your financial and personal matters to a probate court.

5. Get Life Insurance. Once you’ve combined financial assets and resources, life insurance becomes more important, especially if there are financial obligations, such as a mortgage, that can become burdens should one of you die sooner than expected. There are many different types of life insurance, but most people will do best with term life. Just as the name sounds, you pay monthly premiums for a certain number of years (the term) for a certain benefit. The premium remains fixed for the term, which will generally come in periods of 10, 20 or 30 years. The amount of the benefit is the part that will vary the most from person to person, but it primarily depends upon the need for replacing lost income. Insurance professionals might recommend 10 times the annual income. For example, a person with a $50,000 annual salary may need to buy a $500,000 insurance policy on their life.

Above all, remember that money isn’t everything. It is the flawed thinking that more money produces more happiness. When you get married, your first priority is your spouse, and your top goal should be to help the other one be the best they can be—to help them be as true to their own nature as possible. But when money is made the priority, it has the effect of turning people into something other than who they are. And that’s where problems other than financial can begin.

Remember: Life is not about making money; money is about making a life.

Kent Thune, CFP®, is a money manager and the owner of a Hilton Head Island investment advisory firm, Atlantic Capital Investments. He is also a freelance writer and is currently working on a book to be published later in 2016. You can follow his musings on mind, money and mastery of life at TheFinancialPhilosopher.com or on Twitter @ThinkersQuill.

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