After a popular post about the financial disaster called divorce a little while ago, I thought I would chime in with my thoughts on how to get ahead after tying the knot. The tips below are applicable to not only newlyweds, but any family.
1. Before getting married, open your communications regarding money.
Figure out your spouses spending and saving philosophies along with long term financial goals. Make sure that you’re both on the same page or at least have similar views. In addition, all debts should be laid out on the table. As I’ve written about before, one of the leading causes of divorce in North America is money and financial infidelity.
2. Live below your means.
This doesn’t just apply to newlyweds, but to just about everyone. The only sure-fire way to get ahead financially and build wealth is to live below your means. Building a healthy savings can be used to build a down payment fund, contribute to RRSPs, or build other assets.
3. Plan and set your goals together as a team.
As marriage is serious business, money within the family should be planned as a family. Any debt held by a spouse should be considered as family debt and paid down accordingly. Other goals such as buying a house, retirement and vacations should be planned together as a team.
4. Arrange your affairs in a tax efficient matter.
If you’re at the stage of opening a non-registered account, for tax attribution purposes, the high income spouse should pay all the bills while the lower income spouse invests his/her money. Some may have a problem with having separate bank accounts. A solution for this is to have a common bank account for shared expenses, and separate bank accounts for investing and personal spending.
5. Have regular “financial” family meetings.
This is one of the steps that ensure proper communication about money. Once a month or so (or whatever is convenient), have a family sit down to discuss financial matters, goals, large upcoming expenses and saving strategies.
6. If you have dependents, get disability/life insurance, a will and an estate plan!
Dependents are those who “depend” on the breadwinners income to live. It could be you, your spouse or your young children. Income should be “insured” in the case of long term disability and death. Note that insurance is not a “get rich” benefit, but a lifestyle protection benefit.
For long term disability, I would personally choose a “own occupation” disability insurance rather than a “any” occupation insurance. In the case that you are disabled, this will allow you to collect benefits providing that your injury prevents you from doing your “own” job rather than “any” job. If you’re interested, here is an article detailing disability insurance.
For life insurance, term life should sufficient for most. This will provide fairly economical coverage in the case of the death of the main breadwinner in family. Don’t know how much coverage to get? Check out my calculations for an example of how much term life insurance we needed.
Even though death planning seems far away, you never know what can happen. Check out my article on why you need a will and an estate plan for more details.
7. Read and follow the book “Smart Couples Finish Rich.”
David Bach has some great information on how to plan family financial affairs. If you want a great start in your marriage, read and follow what’s recommended in the book. Make sure to read the ‘Values’ chapter carefully as I feel that it’s among the most important.
What tips do you have for newlyweds?
Note: In respect for Remembrance/Vetarans Day, there will be no post tomorrow (November 11, 2008). See you all on Wednesday!