Important things to consider when combining your finances
After you get married, there’s more that you have to worry about than which kitchen appliances you’d like to keep and which you’d like to give away. When you combine households, you combine finances too, and this isn’t limited to your savings and checking.
As a married couple, you join together in debt, but how you join together is dependent on where you live. If you reside in a community property state, all of your debt is shared equally. Essentially, this means that if the two of you split up, each of you is responsible for half of it.
If you live in a common law state, the debt belongs to the person who accrued it. The only case in which you really share the responsibility is if you buy property together, such as a house or a piece of furniture, which can be considered a necessity for the family. Either way, you need to be careful with your credit. To find out more about how debt is divided, contact a tax advisor or legal counsel.
You want to preserve the person with the better credit ratings’ history if at all possible. If one of you is not responsible enough to repay debts on time for whatever reason, you may wish to keep that person’s name off of your loans. If that’s not possible because you need the dual income to be eligible for the loan, use automatic payments so you don’t have to worry about missing one.
Another thing to think about is whether or not you want to combine your insurance coverage. If you merge to a single insurance plan under one of your employers, it’s likely you can pay a lower rate. Many employers offer a family plan, which can be ideal if you hope to have children in the near future. This could save you hundreds of dollars a year.
If, instead, you decide to each keep your own existing health plan, which is perfectly okay, you can still claim one another on each other’s plans and receive what is called double coverage. With double coverage, your primary insurance (the one you’re your employer) covers most of your expenses, but your secondary insurance (your spouse’s plan) can pay some of the leftover charges; for example, possibly your copay. If you opt for double coverage, keep in mind that some doctors do not accept it as a form of payment. Also, it may not be worth the extra money you’ll have to pay in premiums.
Another way you can potentially save money is by combining your car insurance. Most companies offer some kind of multiple vehicle discount. Getting married sometimes makes you eligible for policies that you wouldn’t have been able to get before even if you were living in the same household.
Filing Your Taxes
There are two ways to file taxes when you’re married, either married filing jointly or married filing separately. It’s smart to file jointly if one spouse makes significantly more money than the other one. When you combine the income of both, you could end up in a lower tax bracket since the brackets are higher for married people than they are for singletons.
When you file separately, it’s essentially the same as both of you filing as if you were single. You may want to go with married filing separately if one spouse has a lot of deductions – enough that they are considerably more than what the standard deduction would be. This sometimes happens if one spouse has a significant amount of medical expenses. If this is the case, you could get more money back come April 15th or pay less in during the year by adjusting your withholding accordingly. It’s also a good idea to file separately if one of you is having some trouble with the IRS. That way the spouse that is in good standing is not responsible for the other’s mistakes. To find out more about your tax options, talk to your tax advisor or visit irs.gov.
Now that you’re married, it’s time for the more fiscally responsible spouse to start holding the other one accountable. If you want to have a financially healthy marriage, the time to start doing so is today.
This post is from our On Your Way site for young adults. Visit the site for more articles and video to increase your financial literacy!
Knowing where your money is going is the first step in setting up a budget. Most people have only a vague idea of how their money is spent. Sure, you know roughly how much you pay for the big things – mortgage, car, utilities, etc. But do you really know how much you spend on the rest?
Up until recently, the most precise way to keep track of your money was through the use of financial management software like Quicken or Microsoft Money. These programs have long had the ability to accept downloads from your online banking providers and allow you to easily categorize all of your income and expenses.
The new generation of financial management products are available online. Destinations Credit Union now offers MoneyDesktop as part of its online banking platform. MoneyDesktop allows you to “aggregate” or collect information from all of your accounts at various financial institutions and investment houses. Other programs, such as Mint.com, can do the same type of thing. One drawback with Mint is that they don’t affiliate with all financial institutions – especially smaller banks and credit unions.
Once you set up your accounts in the programs, you can easily categorize your spending and set up a budget. There are tools to help you prioritize and pay down your debt faster. You can even get notifications when you go over your budget.
Set a goal for yourself to get started on accounting for your spending and setting up a budget. Be specific about your goal – “I will log on to MoneyDesktop and set up my accounts by next week.” or “I will have my budget in place by the end of next month.”
Of course most of us would rather be doing something else (unless you’re one of those accounting types who love their numbers!), but this is important. For more information, read my blog post on Patch.com, “Where Has All My Money Gone?“
Few of us have the luxury of living without any debt these days. While my father-in-law paid cash for his house many years ago, and more recently paid cash for his car, I can’t imagine having the ability to do that.
Some debt can be good. It helps build your credit rating if you are responsible about your borrowing. Your credit score is used by employers, lenders, insurance companies and more. A good credit score goes a long way in helping you throughout your life — lower rates on loans, lower deposits on purchases, lower insurance premiums, etc.
Debt can be considered “good debt” if it helps you achieve your goals (provided your goals are sound in the first place). Borrowing to buy a house is normally good debt (barring the recent real estate “bubble”). Homes generally appreciate over time and you build equity through your mortgage payments. Equity in your home can be used to improve and update it, making the value go up. Eventually, chances are you can sell for more than you paid and get a decent return on your investment. This is a long-term strategy, though, and probably won’t materialize if you buy and sell too quickly.
Debt can also be good if it helps you further your long-term goals in some other way. For example, you may need a car to commute to your job, or you may need to borrow to fund your college education. If the debt will pay off in the long run (such as a higher paying job), then it is good.
Bad debt is when you accumulate debt to live beyond your means. One example of bad debt might be buying a Mercedes when your budget can really only afford a Chevy. Another might be running up credit cards for a new wardrobe when you don’t really need the clothes. Even student loans can be bad debt if you don’t consider the risks/rewards of borrowing: What are the job prospects in your chosen field? Are the salary levels for graduates in your field enough to pay for your loans (you’re probably not going to go to Harvard to be a kindergarten teacher!)?
Too many people rack up bad debt (or maybe a combination of good and bad) until they are drowning in payments. The long-term consequences of this may be that you ruin your credit rating and you’ll pay more in the future (late fees, higher rates, etc.).
If you find yourself getting into too much bad debt or getting into a really ugly financial corner, Destinations Credit Union can help. We offer members unlimited free financial counseling with our partner Accel Member’s Financial Counseling. Don’t wait to start digging out – make your future financial security a top priority.
Though Shakespeare didn’t intend his famous words to be used in an article about personal finance, we’re going to use them for our purposes. When we talk about a stage in the world of finances, we are generally talking about a life stage. Your financial needs are different at different phases of your life, and there are new things to consider as you enter a new one.
Starting a Career
You’re young and smart and have a world of choices ahead of you. Financially, some of the biggest things you’ll be looking at are:
- Learning to budget your starting salary
- Learning to save consistently (pay yourself first)
- Building your credit rating
- Borrowing for a new car
- Starting a retirement account (especially if your employer has a matching program)
- Student loan consolidation
There are a whole new set of financial issues to deal with when you get married. Blending your styles of managing money along with your savings and checking accounts can be daunting. Money disputes continue to be a leading cause of divorce. Before you get married, make sure you talk about some of these issues. Aside from coming to agreement on your spending/saving strategies, there are other needs to consider:
- Setting up joint accounts (all together or yours, mine and ours?)
- Changing insurance
- Buying your first home
- Paying down debt
Though it may seem like a long way off when your child is an infant, you need to start planning for their future right away. You’ll need to make adjustments to your finances to meet all the new expenses.
- Saving for a child’s college tuition
- Adjusting your budget allowing for the additional expense of children (day care or loss of one spouse’s income, clothing, food, diapers, and the list goes on!)
- Do you need more space in your home – creating an addition or buying a larger home?
- Increasing insurance needs
- Estate planning and a will (what will happen to your child if both parents die unexpectedly?)
Once your children are grown and gone, you have to switch back to putting your own financial needs first once again.
- Should you downsize your home?
- Are you on track to have adequate retirement income from your savings?
- How much should you leave in the markets versus keeping more in insured savings?
- How close are you to paying off debt?
There are many other considerations in your personal financial life and stages. It is our hope that these will get you thinking along the lines of how you will transition financially throughout your life.