Bringing two lives together to form one family unit is an exciting time. The joining of things, beliefs and money create an atmosphere of opportunity but as well as stress. Couples usually have broad future thinking discussions but what is left off the agenda is how to commingle the money in the most convenient and opportunistic manner and how you will financially operate as a family.
Discussion No. 1 is how much to save. We recommend a fixed percentage of household income and make sure it goes in the most advantageous place. For instance, all 401k plans are not created equal. One plan may have a better match, more investment options, less fees or allow for the Roth option. You need to examine the options and then make the best selection. Remember you are married! The money can work together.
Discussion No. 2 pertains to risk and volatility in the market. Oftentimes one spouse may be more open to investment volatility than the other. Indeed, more often than not, one spouse takes care of long-term planning and the other does the day-to-day budgeting. We recommend that you are both fully aware and involved in both, but it is OK to delegate tasks to one another. If you live in two extremes — one wants the money in the mattress and the other micro cap stocks from third world countries — then meet in the middle with a balanced approach.
Discussion No. 3 focuses on building your family’s financial dashboard. The sooner you can do this the better off you will be. Remember, money and especially debt tend to lead to more marital problems than any other single culprit. Deal with the finances early by setting up parameters.
A financial dashboard is similar to the one on your car. You look at important data to make sure the car is operating safe and sound. You look at speed and gas and multiple other indicators. Your financial dashboard has three big dials. What percentage of your income you are saving, what is your current debt to income ratio and how much money do you have left over (discretionary income) at the end of the month. If you can keep these three in check you will be better prepared for the occasional bump in the road. If you set targets on these three issues as a family you will eliminate future discussions that may not express the love you currently share for one another.
For couples a little further along in life it can be especially challenging to combine the resources and many times there are even separate checking accounts. This requires open and honest communication and strategy going forward. It is true that each individual has their own credit score and your debts don’t impact your spouses score, but that doesn’t mean household debt doesn’t create other distractions and issues. How much you spend on cars, vacations and leisure are common battle grounds when assets, income and attitudes aren’t fully understood.
Joseph “Big Joe” Clark, whose column is published Saturdays, is a certified financial planner. He can be reached at email@example.com or 640-1524.