You’ve tied the knot and committed to spending the rest of your life with another person, through sickness and in health. Now that the festivities have subsided, it’s time to start working on combining your life with your partner’s. There are a lot of things to consider, especially when combining finances.
Here’s our six-step recommendation for newlyweds:
1. Talk about your dreams and financial goals
You don’t have to wait until you’re married for this step. Talk about your respective financial history and goals for the future. Do you want to have children? Own a home? Retire at a certain age? Having this conversation is a great way to find out if you are on the same page. If you aren’t, that’s fine, too. Finding middle ground between your aspirations and your partner’s is a first step.
2. Determine your joint net worth
This step can be one of the most important. Take a look at all of your assets and add up your collective debt. To determine your net worth, subtract total debt from total assets.
3. Review and update your insurance policies
Now that you know your collective debt, plan for what would happen should the unthinkable occur – how your partner would pay off the debt without your income, and vice versa. That’s where life insurance comes in. It helps you make sure that loved ones are financially protected no matter what life has in store. Many young couples opt for a term life policy because it offers a flexible duration and coverage amounts, and costs less than whole life policies. If you already have a life insurance policy, you’ll want to reevaluate your coverage amount and update the beneficiaries.
4. Set short-term and long-term financial goals
It’s good to create three separate funds for putting money away:
- Emergencies – Put aside enough money to cover at least three to six months’ worth of fixed expenses and other necessities.
- Short-term goals – This fund is for any purchase you’d like to make within the next one to five years, such as a down payment on a home.
- Long-term goals – Put money away regularly for the future, such as for your children’s education and your retirement years.
5. Create a household budget
Particularly when combining finances with someone, it’s wise to get on the same page concerning spending. Developing a household budget can help keep spending under control and help you and your partner to have a realistic view of your joint finances.
6. Keep the line of communication open and clear
Family financial planning is an ongoing process. As your economic situation changes, it’s important for you and your partner to continually update the plan and discuss the important elements. We never know what life may have in store.