This was originally published on Monday, November 2, 2015, in the Pacific Daily News. Click here to subscribe to the PDN.
Q: My husband and I just got married three months ago. We are still trying to consolidate our two households into one. What financial tips do you have for newlyweds?
Congratulations on your new life together! There are a lot of adjustments that are going to take place and one of them is your finances. Finances are never an easy topic to discuss, because it is a very personal topic. While it may not be easy, it is a conversation that needs to be discussed. It is imperative that you and your husband are on the same page with spending and saving money. Be open and honest with each other about your financial situation. The goal is to come to an agreement about how your household finances will be managed.
Gather your important financial documents such as insurance, retirement plans, wills, bank and credit card statements, loans, monthly bills, and any other documents that affect your financial health. Get a copy of your credit scores as well. Knowing what your score is will help you plan your household’s financial goals.
Talk. This is your opportunity to learn about your spouse’s past and present money habits. Discuss how your family talked about money as you were growing up. Were they open about the family finances or was it secretive? Were they big spenders or frugal? Did they fight about money? Most of us learn how we deal with finances from our parents and each one of us deals with money differently.
Also, discuss your current money habits. How much, if any, do you save? Do you live paycheck to paycheck? What do you consider a luxury item?
Goals. Much of what you and your spouse want to achieve will probably revolve around money. Whether it is going on vacation, purchasing a car, going back to school, saving to purchase a house or retiring. Set up financial goals you want to achieve within a year, five years and 10 years.
After deciding what goals you want to achieve, agree on how much to invest. You will need to work together to figure out how much you can afford without stretching your finances too thin. For short-term goals, think about using bonds, certificate deposits (CDs) or a money market fund. Think about using a mix of stock and bonds that provide a higher rate of return based on your risk management. The younger you are, the more likely you can tolerate more risk since it gives you an opportunity to gain more money in case your portfolio loses money. Don’t put all of your money in retirement accounts because there are penalties for early withdrawal.
You may need to consult a financial adviser to help you maximize your investments and savings. It can be difficult to determine how much money will be allocated to achieve your goals. If both of you have investments, ask your adviser to look for areas where there is overlap. You want to be certain that your money is working efficiently. Review your goals yearly to monitor how your goals are being achieved.
Another financial goal is to start an emergency fund. Most experts feel that three months of income is an optimal amount of money to put aside. To help you achieve this goal, use an automatic deduction into your savings account. That way, you don’t have to remember to put money aside or be tempted to spend it.
Joint or individual. Will you have a joint account or separate accounts or maybe a combination of both? This is a personal choice and what works for one couple does not necessarily work for another. Many couples use a joint account to pay household expenses that they share and use individual accounts for their personal use. Individual accounts are best when there are different spending habits. If using a joint account, decide how much each of you will contribute. There is no right or wrong amount but what is sensible in your marriage. A shared account requires spouses to communicate and not keep secrets from each other.
When filing taxes, you may want to visit an accountant and talk about filing joint or individual. There are certain advantages and disadvantages for both. Having a professional evaluate your situation will certainly clear things up.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.