Question of the week:My fiancé and I are getting married at the end of the summer and have been discussing how we'll combine our finances. My parents have always told me that I should keep my own bank account after I get married, but we really do want to share everything. What do you think? --Ready to Tie the Knot
Dear Ready,
It's great that you're talking about these issues now. Money in general can be a major source of tension in many marriages, and the way you handle your day-to-day financial affairs as a couple can make a big difference in your happiness over the years.
So is it better to have separate accounts or one joint account? We asked members of the Armchair Millionaire community about how they manage money with their spouses, and were overwhelmed by the number of responses we received. They all tended to fell into three categories:
Share everything. "My husband and I have one household account. We discuss our expenses and saving every month and track all bills together. We agree about our money and respect one another's opinions." --Veena
Keep everything separate. "We own and pay for everything separately, including property, cars and investments. We own nothing jointly. This has worked well for us and we've been together for 27 years." --Debbie in Ohio
Do a little of both. "We have three accounts: Hers, Mine and Joint. We both contribute an equal percentage (averaged based on our salaries) to the joint account for all bills, and we hardly ever disagree about money." --Jason
As you can see, this question has three right answers. Only one will be right for you and your spouse but there's no reason why you can't try each of them before settling on your own.
To set the foundations for marital bliss (at least in money matters) you'll also need to agree on the big issues beyond daily money management--the ones that will impact your entire financial life for years to come. Read through my checklist below to identify the key steps you and your fiancé should consider to start out right.
The Armchair Millionaire Checklist for Happily Combining Finances
Set clear goals together. Agree on the short-term goals that you want to accomplish over the next three years (like paying off debt or saving for a home down payment), as well as long-term goals, like early retirement or a college fund for the kids. It's critical for you both to feel committed to these goals, because they'll guide just about every financial decision you make together.
Get involved. Both of you should be involved in all your household's money matters. That doesn't mean that you need to make every decision jointly, but you should reach a clear understanding of who does what (who manages the checkbook, for example, and who tracks the retirement accounts) and establish ways to keep one another informed.
Decide on beneficiaries. You may want to change the beneficiary of your IRAs, 401(k), annuities and pensions to your new spouse. This can have important tax ramifications, however, so I suggest you consult with an accountant before doing so. Also, if you choose to make your new spouse the beneficiary of your life insurance, be sure to make that change.
Make an estate plan. Even if you you're young, you should both have wills. Nothing else will so effectively ensure that your wishes for your spouse and family are carried out if you were to pass away.
THE BOTTOM LINE: Achieving financial tranquility can be one of the most challenging aspects of marriage. Give yourself the best odds for getting there by mapping out an overall financial plan with spending, saving and investing goals that will work for both of you.
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