Sargent & Lundy Savings Investment Plan

TYING THE FINANCIAL KNOT

The following excerpts are from an article in the Summer 1998 "Stages" magazine, published by Fidelity Investments. The opinions expressed by the author, Malgorzata Glinska, may or may not reflect those of the SIP Committee.
June is a month when love-struck couples flock to the altar. As they will soon discover, exchanging wedding vows is not only a romantic decision - it's a financial one as well. Unfortunately, many brides and grooms are clueless about joint finances. "Before the wedding, couples are often reluctant to discuss anything so unromantic as financial matters," says Carol Ann Wilson, a certified financial planner.

According to a 1995 Roper Starch survey of 1,117 adults, conflicts about money top the list of subjects American couples fight about. In a recent Citibank survey, 57% of divorced couples cited financial disputes as a primary reason they couldn't get along. Another 10% said it was the main reason they divorced. Therefore, if you don't learn how to communicate about money and how to manage it effectively, it will become a constant source of conflict and may eventually wreck your marriage.

To help legions of summer brides and grooms make a smoother transition to a financial life together, here are some expert-recommended pointers:

Engage in full disclosure. Ideally, money issues should be resolved well in advance of the wedding day, and couples should talk frankly about any assets and debts they bring into the marriage. According to Wilson, it is essential to let your spouse-to-be know about outstanding student loans and credit card debt. "It can be easily dealt with when you are up-front about it, but when it comes as a shock later, it can be very destructive to the relationship," she says.

Set aside time to talk about money. Even if couples wait until after they tie the knot, effective communication is crucial. "Generally, people tend to pick poor times and places to talk about money," says William Francis Devine, Jr., a Palo Alto, Calif.-based attorney and the author of "Women, Men and Money."

According to Wilson, "You really need to set an appointment, let's say Thursday evening from 7 p.m. to 9 p.m., to sit down and discuss what kind of assets you have, how you spend your money, and what your financial goals are."

Decide on a checking account strategy. Most financial planners recommend establishing a joint checking account that both partners contribute to and use to pay fixed expenses. "One effective way to operate a joint account," says Wilson, "is to have each partner contribute in proportion to his or her income." Some couples then opt to maintain separate checking accounts into which the surplus of each partner's income is directed. According to Wilson, a personal account allows each spouse to keep some money separate so that neither feels completely confined by the other's ideas on spending money.

Establish a monthly budget. "People hate budgets," notes Wilson, "but I think they are necessary, especially for the first year of marriage when couples are learning what their spending patterns are." Moreover, setting a budget will provide newlyweds with an awareness of their possibilities for purchases, savings, and investments. According to Stewart H. Welch, III, CFP, the founder of The Welch Group, a wealth management consulting firm based in Birmingham, Ala., part of the process involves determining what your nondiscretionary or fixed expenses are (such as rent, utilities, a certain level of groceries). What's left over is the discretionary income, which you can then apply towards your priorities (like a new car or saving for a down payment for a home). At the end of each month, you need to compare your actual expenses to your budgeted expenses. Some adjustments will probably be necessary, but your expenses should never exceed your income. "Most people don't realize that it usually takes from one to two years to become master budgeters," says Welch, "so they get discouraged."

Plan for emergencies. "One of the highest priorities of a newlywed couple is to establish an emergency fund," says Welch, "so that when the unexpected happens, they don't have to scramble and create debt." Experts recommend that your financial cushion equal three to six months of your actual cash expenditure, and that you start putting between 2% and 5% of your take-home pay into a savings or money-market account until you reach your target amount.

Beware of plastic. Since it's impossible to avoid debt completely, it's critical to know how to control it. Susan Wright, an independent health-care programs consultant, and her husband, an engineer at Pioneer Electronics, learned it the hard way. "When we first got married, we wanted to buy living room furniture and a bedroom set, and since each of us had an established credit history, banks were actually mailing us credit cards," says Susan. The couple quickly racked up a significant amount, and it took them three years to pay it off. Now the Wrights don't finance anything except their mortgage and a vehicle. "We made up our minds a long time ago that if we can't pay cash for common-use items, we don't buy them," says Susan.

Make a will. "This is especially important if you have children from a previous marriage," says Wilson, "or if you plan to have children in your current marriage." Depending on where you live, the state could decide what happens to your assets if no will exists at the time of death.

You might consider a prenuptial agreement. As laws and lifestyles are changing, premarital agreements are becoming more popular. "business owners, professionals in partnership with others, people having children from prior marriages, and people having or expecting an inheritance should be considering at least the advisability of having a premarital agreement," says Minneapolis-based attorney Edward L. Winer.

Review your insurance needs and merge plans. By putting both cars on the same insurance plan, you may save abut 15% to 20%, according to the Insurance Information Institute. If your spouse's medical insurance plan is better, join it. Since the odds of becoming disabled are far greater than premature death, Welch recommends obtaining disability income insurance, especially if you haven't accumulated any assets and your spouse doesn't have enough income to pay for family expenses.

Update your beneficiaries. When Judith H. Heltzel, a CFP at capital Financial Planners, in Salem, Ore., works with clients who change their marital status, she makes sure that they check the beneficiaries of their retirement plans and life insurance.

Establish individual credit. An excellent credit rating is necessary for a strong financial future, says Wilson. Even if one of the spouses doesn't work outside the home and has no independent income. it's important to request that credit reporting be made in the name of both spouses.

Notify Social Security. "If you are changing your name," says Wilson, "you should notify Social Security to make sure your contributions are credited properly."

Develop an investment plan. A common mistake many couples make is that they fail to plan for their future until they are in their 30s or 40s. "People need some encouragement to start saving, but usually after they see their money building up, putting away a part of their income becomes a habit," says Heltzel. Welch stresses the importance of recognizing where money power really is. "Some workplace savings plans have a matching contribution from the employer, so it's important to get into that matching program at the earliest opportunity, says Welch, "even if you have debts to pay off."

Review your taxes. Generally, filing a joint tax return results in more favorable tax treatment. But even if they're filing jointly, the tax bill can still come as a bit of a shock to many newlyweds. The tax law leaves many two-income married couples paying more in combined taxes than they used to when they were single. "Therefore, it's a good idea for a couple to do some rough tax calculations and adjust their withholding, if necessary," says Wilson.

This page updated on 6/8/98

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