Money may not be the most romantic topic of conversation for couples sampling wedding cake and planning honeymoon adventures, but the way a couple approaches it can be a strong predictor of a marriage’s long-term success. Several studies have actually found that money is a top cause of stress in relationships.
But finances don’t have to cause friction for you and your soon-to-be spouse. A survey conducted by MONEY Magazine found that individuals who trust their partner with finances reported feeling more secure and having fewer arguments. Learning how to talk about money before you get married can be key to developing that financial confidence in your own relationship.
How do I talk about money before getting married, you ask? As you prepare to tie the knot, consider these five money questions to ask before marriage:
1. Do we understand our debt, assets and expenses?
One helpful way to talk about money before marriage is to sit down as a couple and take inventory of all the debt and assets you’re each bringing into your long-term commitment. This includes everything from student loans and mortgages to savings and retirement accounts. You may also want to get into the nitty gritty of your salaries and monthly expenses. Putting all of the details into a spreadsheet or an app that helps you manage your money can allow you to see your full financial picture.
While using this exercise as a way to talk about money before marriage may feel like a lot of work, it will come in handy when it’s time to make financial decisions, such as deciding what percentage of your joint income should go toward building an emergency fund, saving for retirement and paying down debt, explains financial expert Ginita Wall, co-founder of the nonprofit Women’s Institute for Financial Education.
“If one person in the relationship is maxing out her 401(k) contributions but eventually learns her husband is putting nothing toward retirement, it could become an issue,” she says. “An open dialogue that ensures that there will be no surprises about money, or any other topics for that matter, is important for a great relationship.”
2. Will we have joint or separate bank accounts?
Another way to talk about money before marriage is to consider whether you want to combine bank accounts, keep them separate or do a combination of both. The decision depends on each person’s preferences and the needs of the couple.
Dr. Bonnie Eaker Weil, a relationship therapist based in New York City, believes that having one joint account, but also guilt-free separate accounts for spending, can be helpful for many couples.
Keeping a joint account, she says, can provide a clear window into a family’s complete financial situation so the couple can make financial decisions accordingly. “This demonstrates that the couple is working together toward long-term financial goals,” she says.
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The guilt-free separate accounts, on the other hand, give both individuals “freedom to make small purchases as needed,” Weil adds.
As you’re addressing this money question to ask before marriage, know that in some cases, couples could benefit from keeping their investments separate.
“If two people have wildly different investment styles,” Wall says, “they just might decide to invest their money in their own ways.”
3. How has money impacted our upbringing?
When deciding how to talk about money before you get married, consider having an open discussion about how your parents handled moneyâincluding what you think they did well and what they could have done betterâand how this has influenced your financial expectations and goals, Weil says. This is a valuable, but often overlooked, component of how to talk about money before you get married.
In many cases, an adult’s upbringing shapes his or her financial goals.
“If you grew up vacationing at the shore, chances are you might aspire to own a shore house as an adult,” Weil says. “This can become problematic if your spouse would much rather have a mountain house. Talk about where your goals originate from and then work toward making compromises.”
Individuals who trust their partner with finances reported feeling more secure and having fewer arguments.
4. How could our financial dynamic shift over time?
Your financial situation today may be significantly different from your financial situation tomorrow. While it’s impossible to predict exactly what the future holds for your finances and lifestyle, there are ways to talk about money before marriage to lay the groundwork for decisions you may ultimately face. If you plan to have children, for example, you may want to discuss how career and financial priorities may shift. Will both spouses maintain their working arrangements? Will someone pick up more work or scale back?
Weil says other money questions to ask before marriage that could impact your long-term financial plans include:
Will you save for your children’s college education?
Do you plan to take care of aging parents?
How will you respond to family members who ask for financial support?
What measures do you want to put in place for disability and life insurance?
If there are children from a previous relationship, who will be responsible for their college or wedding expenses?
While the answers to these types of questions are personal and will vary from couple to couple, Weil says the most important rule is ensuring couples address them early on so there’s a clear understanding of how to handle each situation when it arises.
5. When will we sit down to regularly talk finances?
While determining how to talk about money before you get married is an important milestone, ongoing communication is necessary. Weil believes it’s constructive to have a weekly money dialogue, while other experts, like Wall, say sitting down for a casual money meeting once a month is a good rule of thumb.
Choose a meeting frequency that works for you and stay committed to your schedule. This signals to your partner that your finances are important and that you’re willing to set aside the time to talk about joint objectives, Wall says.
When it’s time to meet, run through any financial concerns that may have popped up since your last conversation, as well as any financial goals or factors that could have an impact on financial planning for young families.
When differences arise during these talks, Weil suggests trying to walk in the other person’s shoes to understand his or her perspective. Being mindful and polite, as well as listening, are among the best ways to talk about money before marriage and beyond.
“An open dialogue that ensures that there will be no surprises about money, or any other topics for that matter, is important for a great relationship.”
Why talk money before saying ‘I do’
Money can carry a lot of emotions, and Wall says that a lot of financial arguments aren’t actually about money.
“It’s often about equality, being respected, being listened to or being loved,” she says.
If the same types of arguments seem to resurface, it could indicate underlying issues about power and cooperation that couples should handle together, Wall explains.
While every marriage is bound to have some financial conflict now and then, starting a partnership off with these money questions to ask before marriage could help you get off on the right foot. Learning how to talk about money before you get married can also help align your financial hopes and dreams for your happily ever after.
The post 5 Money Questions to Ask Before Marriage appeared first on Discover Bank – Banking Topics Blog.
You just learned of the passing of a loved one. During this stressful and emotionally taxing time, you also find out that you’re receiving an inheritance. While you’re grateful for the unexpected windfall, knowing what to do with an inheritance can bring its own share of stress.
While the amounts vary greatly, the Federal Reserve Board’s Survey of Consumer Finances reports that an average of roughly 1.7 million households receive an inheritance each year. First words of wisdomâresist the urge to spend it all at once. According to a study funded by the Bureau of Labor Statistics, one-third of people who receive an inheritance spend all of itâand even dip into other savingsâin the first two years.
Not me, you say? Still, you might be asking, “What should I do with my inheritance money?” Follow these four steps to help you make smart decisions with your newfound wealth:
1. Take time to grieve your loss
Deciding what to do with an inheritance can bring with it mixed emotions: a sense of reprieve for this unexpected financial gain and sadness for the loss of a loved one, says Robert Pagliarini, certified financial planner and president of Pacifica Wealth Advisors.
During this time, you might feel confused, upset and overwhelmed. âA large inheritance that pushes you out of your financial comfort zone can create anxiety about how to best manage the money,” Pagliarini says. As an inheritor, Pagliarini adds that you may feel the need to be extra careful with the funds; even though you know it is your money, it could feel borrowed.
The last thing you want to do when deciding what to do with an inheritance is make financial decisions under an emotional haze. Avoid making any drastic moves right away, such as quitting your job or selling your home. Some experts suggest giving yourself a six-month buffer before using any of your inheritance, using the time instead to develop a financial plan. While you are thinking about things to do with an inheritance, you can park any funds in a high-yield savings account or certificate of deposit.
âA large inheritance that pushes you out of your financial comfort zone can create anxiety about how to best manage the money.â
2. Know what you’re inheriting
Before you determine the things to do with an inheritance, you need to know what you’re getting. Certified financial planner and wealth manager Alex Caswell says how you use your inheritance will largely depend on its source. Typically, Caswell says an inheritance will come in the form of assets from one of three places:
Real estate, such as a house or property. As Caswell explains, if you receive assets from real estate, you will transfer them into your name. As the inheritor, you can choose what to do with the assetsâtypically sell, rent or live in them.
A trust account, a legal arrangement through which funds are held by a third party (the trustee) for the benefit of another party (the beneficiary), which may be an individual or a group. The creator of the trust is known as a grantor. âIf someone inherits assets through a trust, the trust documents will stipulate how these assets will be distributed and who ultimately decides how they are to be invested,” Caswell says. In some cases, the assets get distributed outright to you; in other instances, the trust stays intact and you get paid in installments.
A retirement account, such as an IRA, Roth IRA or 401(k). These accounts can be distributed in one lump sum, however, there may be requirements related to the amount of a distribution and the cadence of distributions.
When considering things to do with an inheritance, know that inherited assets can be designated as Transfer on Death (TOD) or beneficiary deeds (in the case of real estate), which means the assets can be transferred to beneficiaries without the often lengthy probate process. An individual may also bequeath cash or valuables, like jewelry or family heirlooms, as well as life insurance or stock certificates.
Caswell says if your inheritance comes in the form of investment assets, such as stocks or mutual funds, you’ll want to think of them as part of your own financial picture. âAll too often, we see individuals end up treating inherited assets as a living extension of their passed relative,” Caswell says. Consider how the investments can be used to support your financial goals when thinking about things to do when you get an inheritance.
An average of roughly 1.7 million households receive an inheritance each year.
3. Plan what to do with your financial gain
Just like doing your household budgeting, it’s important to “assign” your inheritance to specific purposes or goals, says Pacifica Wealth Advisors’ Pagliarini. Depending on your financial situation, the simple concepts of save, spend and give may be a good place to start when deciding on things to do when you get an inheritance:
SAVE:
Bolster your emergency fund: You should have at least three to six months of living expenses saved up to avoid unexpected financial shocks, such as job loss, car repairs or medical expenses. If you don’t and you’re deciding what things to do with an inheritance, consider parking some cash in this bucket.
Save for big goals: Now could be a good time to boost your long-term savings goals and pay it forward. Things to do when you get an inheritance could include putting money toward a child’s college fund or getting your retirement savings on track.
SPEND:
Tackle debt: If you’re evaluating what to do with an inheritance, high-interest debt is something you could consider paying off. Spending on debt repayment can help you save on hefty interest charges.
Reduce or pay off your mortgage: Getting closer to paying off your homeâor paying it off entirelyâcan also save you in interest and significantly lower your monthly expenses. Allocating cash here is a win-win.
Enjoy a little bit of it: It’s okay to use a portion of your inheritance on something you enjoy or find rewarding. Planning a vacation, investing in more education or paying for a big purchase could be good moves.
GIVE:
Donate funds to charity: Thinking about your loved one’s causes or your own can continue legacy goals and provide tax benefits.
When deciding what to do with an inheritance, taxes will need to be considered. “It is extremely important to be aware of all tax ramifications of any decision around inherited assets,” Caswell says. You could be required to pay a capital gains tax if you sell the gift (like property) that was passed down to you, for example. Also, depending on where you live, your inherited money could be taxed. In addition to federal estate taxes, several U.S. states impose an inheritance tax and/or an estate tax.
Since every situation is unique and tax laws can change, when considering things to do with an inheritance, consult a financial advisor or tax professional for guidance.
Make your windfall count
Receiving an inheritance has the potential to change your financial picture for good. When thinking about the things to do when you get an inheritance, be sure to give yourself ample time to grieve and to understand all of your options. Don’t be afraid to lean on the experts to get up to speed on any tax and legal implications you need to consider.
Planning can go a long way toward making the right decisions concerning your newfound wealth. Being responsible with your inheritance not only helps ensure your financial future, but will also honor your loved one’s legacy.
The post 4 Smart Things to Do When You Get an Inheritance appeared first on Discover Bank – Banking Topics Blog.
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