Facebook Twitter

Fiscal unity early in marriage pays dividends for young couples

SHARE Fiscal unity early in marriage pays dividends for young couples

Jack Yu, an engineer who works on Web-site design for Eastman Kodak, in Rochester, N.Y., insists he didn't really live like a monk during the 18 months before his wedding last summer.

But judge for yourself: He rented a cheap apartment (utilities included), asked his parents to ship his boyhood furniture from home (with moving expenses paid by his employer) and prepared most of his own meals (including bag lunches).His frugal lifestyle allowed him to pay $1,000 a month on his student loans. By the time he married Cathy Wen, the $16,000 debt was history, and the Yus share a commitment to live debt-free.

Being fiscally in step helps get newlyweds off on the right foot.

"I think it's important that couples at least agree on their perception of money," Charles Parker, a financial planner in Houston, says. "They can conquer any mountain if they're in agreement on the ground rules."

With that in mind, we cover questions young people must answer when setting goals. We also spotlight other issues that vex newlyweds: controlling debt, protecting assets and leaving a legacy.

The Yus agreed right away on two financial priorities: purchasing Jack's 1996 Toyota Camry when the lease expires in January and buying a home in the next year or two.

They have committed a rough budget to paper, "but it's not like we examine and re-examine it," Cathy Yu says. Fundamental to their plan is a 10 percent tithe to their church. That and living expenses come from a joint checking account, which Cathy manages, along with a special money-market account that currently yields 5.55 percent.

"We try to keep as little in checking as possible," says Cathy, also a Kodak designer.

Parker suggests that couples have their paychecks deposited directly into their savings accounts. "Psychologically, it's tougher to withdraw from savings," he says.

Whether you and your spouse combine bank accounts is a personal decision, though only one spouse needs to be in charge of paying the bills, balancing the checkbook and maintaining the family's paper trail.

But both spouses should be accountable for spending within the guidelines they set up. And both should know what's going on, even if it means having regular meetings to talk about money.For newlyweds or engaged couples, Citibank (800-669-2635) offers a free brochure, "To Love, Honor and Budget."

Being fiscally in step might notsound romantic, but it's as vital as the honeymoon to newlyweds' future happiness.

Controlling debt. Starting a new life together with an old credit card might be a mistake for many couples. Cards issued to college students typically carry high interest rates; with a little shopping around you could find a better deal. But it's still a good idea for each spouse to keep a card in his or her own name - especially if one of you has a significant balance. For better or worse, if you add your name to your spouse's account, you become responsible for his or her debts, says Robin Leonard, author of "Money Troubles: Legal Strategies to Cope With Your Debts" (Nolo Press). It's better to open a new, joint account for shared purchases.

Feathering your nest. Most newlyweds will probably want to buy a home. If that goal is only a year or two away, it's best to keep your assets in a money-market fund or a short-term-bond fund. If it's going to be four years or more before you make the move, you can afford to be more aggressive, investing in stocks or stock mutual funds.

But if you're a two-career couple, you're probably also a two-401 couple, and you should continue to fund those retirement accounts as you did before your marriage.

"So often I see money that should go to feathering a couple's retirement nest being used instead to spruce up their new nest" with furnishings, says Dee Lee, a financial planner in Harvard, Mass.

Now that you're a pair, think about your investments in two retirement plans as a whole.

"Couples need to treat their individual portfolios as part of a family portfolio," Lee says.

If your plan offers a better international fund than your spouse's, for instance, you might invest heavily in that choice, knowing that it's balanced by domestic investments in your partner's plan.

Covering your assets. You probably have life insurance through your employers, and that's all you need until you have a child or a mortgage. Just be sure to change the beneficiary so that your spouse gets the proceeds.

If you each have health insurance at work, it may be less expensive to maintain separate plans until you need family coverage for a child. It probably won't pay to carry duplicate family coverage, because one insurance company rarely makes up what another doesn't cover.

And consider a plan with a high deductible and low premiums; you can bank on your youth and good health to hold down routine medical bills, leaving insurance coverage for a true catastrophe.

Just as important for young people is disability insurance. Any coverage you have through your job may not be adequate, and if you buy a supplemental policy yourself, benefits will be tax-free.

Leaving a legacy. "I just spoke with a young woman who became a widow with a small child at age 32," says Dee Lee, a financial planner in Harvard, Mass. "Before they had even met, her husband had named his mother as beneficiary of his 401 account and had never gotten around to changing it. There was nothing we could do."

How you title your assets is critical to how they pass on. But even for newlyweds with no dependents, there's no substitute for a will to guarantee that your property is distributed according to your wishes.

For about $500, you can have a lawyer prepare two wills, along with living wills, health-care proxies and durable powers of attorney, each naming the person you trust most to make financial and medical decisions for you - presumably the person to whom you have just pledged your undying love.