About 37% of Millennials believe their financial health is poor, according to a report from Business Insider. Throw another person into the mix — as is the case with a wedding — and the situation only becomes more complicated.
When two people commit to a long-term partnership, they both need to organize their finances to improve their overall financial health. Otherwise, they may struggle to navigate the major life transitions that accompany getting married.
According to Jeffra Trumpower, senior creative director at WeddingWire, there were 845,000 weddings set to happen between March and May. Because of the coronavirus pandemic, the CDC has recommended canceling events with more than 50 people. You may have to postpone your wedding — and you’re not alone. To assist couples scrambling to change wedding plans, The Knot started a 24/7 hotline that already has seen more than 100 calls, 3,000 Instagram comments, and hundreds of DMs in one night.
It’s not all bad news, though. A postponement does give you more time to have important money discussions with your future spouse.
I tell my Millennial and Gen Z clients to use major life milestones as benchmarks. After all, the best time to change your financial life is when everything else is in flux. Decisions must be made during these pivotal moments, and those choices will affect your wealth for decades. If you’re going through one of these life transitions — or perhaps one is on the horizon — be sure to consider these crucial questions:
What’s your current money situation?
One survey found that 78% of married couples manage their finances jointly, but another 16% don’t share facts about their finances. No matter how much information or financial responsibility you elect to share, it’s essential to be on the same page as your partner — especially during uncertain times such as these. It’s common for one (or both) parties to come into a marriage with debt (thanks, student loans), so establish mutual transparency and an understanding of your respective payment schedules.
I suggest planning “money dates” before you get married and every few months once you’ve tied the knot. During these outings, you should review your finances and discuss plans. Talk about future considerations, such as how you’d deal with changes in income and whether you have active or passive investing styles.
Open, honest, and ongoing conversations about what you both prefer to spend money on — like traveling or buying a new car every few years — provide a great way to keep your fortunes secure. For example, my husband and I have agreed on a set amount of money that either of us can spend every month without judgment.
Do you want to buy a house?
Homeownership may be the American dream, but it doesn’t always make sense financially or logistically — and that’s never been more apparent. I recently worked with a married couple that wanted to save for a near-future home purchase. I strongly encouraged them to rethink that desire because they live in New York, where real estate is outrageously expensive, and only planned to stay in the area for a few more years.
If you do decide to buy a house, you’ll want to put 20% down to avoid private mortgage insurance, have savings on hand to cover renovations and repairs (new water heaters aren’t cheap — trust me, my husband and I recently bought one!), and be able to afford the taxes and insurance on top of the mortgage. On average, real estate taxes are about 1.18% of a home’s value; insurance is about $1,200 per year. If you don’t have those funds now, keep saving to buy a house later.
Do you want to have kids?
When kids come into the picture, you’ll realize someone else is depending on you — which only adds pressure to organize your finances! You’ll want to weigh factors you’ve probably never considered before, such as life insurance. I recommend getting term life insurance rather than whole life; while you’re at it, make sure the payouts are enough to preserve your family’s lifestyle.
I also strongly advise clients to start saving for their children’s college expenses as soon as possible. One great way to do so is to open up a 529 education savings plan, which has some tax benefits if used for qualified education expenses. Most people open accounts when their kids are 7 years old, but it’s never too early to organize finances toward education. This is especially true if you want to send your kids to a private school (those uniforms aren’t cheap).
What happens when ‘in sickness’ becomes a reality?
Health is at the forefront of a lot of people’s minds, and you may have to change your finances if health concerns affect you or your partner. In addition to incurring major costs, health issues can compromise your ability to earn income. No matter the nature of an illness, I advise my clients to create a document outlining their finances in detail for their partner’s reference.
This is particularly important if one spouse primarily has handled the finances. I recently had a couple come to see me because the wife developed some health issues, and the husband had never taken care of the family’s finances. The goal is to avoid dealing with financial uncertainty and grief at the same time.
If you and your partner haven’t asked yourselves how to organize your finances, it’s time to get started. The real key is asking these questions repeatedly. Before every significant change in your life, always consider your finances in context. A few smart adjustments could be the difference between success and struggle.
Disclaimer: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.