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5 Questions Newlyweds Should Be Able to Answer About Their Finances

Joe O'Boyle

When you were single, you were afforded the luxury of your own spending habits, saving and investing on your own terms. Managing your individual finances was all about you. When you fell in love and got married, your personal finances and investments transitioned from "my money" to "our money." You entered into a financial partnership where each of you is accountable for your combined financial success.

As you start your new life together, here are five questions you should be able to answer about your finances.

What is your current financial situation? Start with where your finances are today. Very few newlywed couples are aware of their combined net worth and understand their household balance sheet. It's important to evaluate your assets such as bank accounts, taxable investments, business interests, real estate and retirement accounts. You will also want to address your liabilities, such as credit cards, student loans, personal or family loans, taxes owed, automobile debt and mortgage[s]. Do your assets outweigh your liabilities?

Have you conducted a monthly cash flow analysis? By preparing a detailed cash flow analysis that goes back 12 months, you can create a realistic budget based on your historical spending behavior. Then repeat the process for the past three months after getting married to see how they compare. You can divide your expenses into two groups: fixed and flexible. Your fixed expenses are the recurring monthly costs, such as your rent or mortgage, utilities, insurance, car payment etc. Your flexible expenses are typically where you can make immediate spending cuts and begin to increase your savings and add to your investments. These expenses often include entertainment, travel and restaurants. Plan together to ensure you are saving consistently each month and that your combined monthly expenses are less than your take home income.

Will you maintain individual accounts, joint accounts or both? Next up, logistics and paperwork. When amending your documents and account registrations to reflect a potential name change and updating your beneficiary forms, the question then becomes, how will you hold your assets? One strategy is to keep your individual bank accounts for personal spending, but automatically funnel the majority of your respective paychecks into a joint bank account for household bills. One newlywed couple we work with says, "We direct 90 percent of our pay into a joint account to cover all our bills and savings plans for our future. This way, we keep 10 percent for ourselves in individual accounts to spend how we want." This strategy allows them to maintain personal autonomy, while also being able to "buy a gift for each other as a surprise."

What are your financial goals? During my first financial planning meeting with a newlywed couple, I ask each of them to independently rank, in order of priority, the three financial goals that are most important to them. Goals often include the purchase of a first home, saving for your children's college education, paying down debt, building an emergency fund, starting a business, saving for vacation and retirement. While it's common for spouses to differ on their individual financial goals, it's important to have a candid conversation about each of your objectives and share your "why." Communicating your reasons for your financial priorities is the first step in transforming your individual objectives into your financial goals as a couple. As one couple puts it, "we want to be sure that we're rowing in the same direction."

Have you created your combined investment policy statement and prepared a written financial plan? After defining your goals, you will want your investment portfolio to align with achieving them. You should understand your risk tolerance and investment time horizon both individually and as a couple. For newlyweds, it is surprisingly common for one spouse to bring an aggressive investment portfolio to the marriage, while the other spouse may have a conservative portfolio. Do you know how much investment risk you are taking as a couple, and why? We advise our clients by creating a formal, written investment policy statement. Your investment policy statement outlines your specific strategies and investment disciplines. It may include your liquidity requirements, asset allocation as well as establishing guidelines for monitoring the progress of your portfolio. Having a written investment policy can be a helpful deterrent to making knee-jerk, emotional financial decisions. Your updated investment policy statement should be incorporated into your overall financial plan.



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