Yahoo Finance 5 Financial Steps Newlyweds Should Consider
Getting married is a momentous decision, one with the potential to change your life forever. But marriage can also significantly alter your financial trajectory. When you say "I do," many parts of your finances become inextricably intertwined with your spouse's. From taxes to retirement accounts, newlyweds are faced with many serious financial decisions. Here are a few steps newlyweds should consider to help ease the transition to a life of financial marriage.
[See: 7 Signs Your Romantic Partner Is Financially Unstable.]
1. Assess your tax situation. One of the biggest financial questions newlyweds face is the issue of whether to file taxes jointly or separately. Conventional wisdom says that filing jointly is most beneficial -- and in many cases, that's true. But like everything tax-related, there are many factors to consider. For example, by filing a joint tax return, both spouses will be held liable for the taxes, interests and penalties that arise from the joint return -- even if they later divorce. Even if one spouse earned all the income or claimed the wrong deductions, both can be held liable. The best course of action is to do your homework, or better yet, consult with a financial professional to determine which filing option is best for you.
2. Review retirement accounts. Many of us already know that getting married means updating our retirement accounts, generally to include our new spouse as a primary beneficiary. But marriage also impacts your household's contribution limits, based on income thresholds updated yearly by the Internal Revenue Service, or IRS. Now is the time to determine whether your household income will limit how much each (or both) of you can contribute to retirement accounts. If your household is limited in its ability to contribute to 401(k) or IRA plans, consider contributing to the account of whichever spouse enjoys the higher employer match. Again, this is a situation where consulting with a financial professional can prevent your household from potentially missing out on thousands of dollars.
[Read: For Richer or Poorer: How 5 People Co-Manage Money With a Significant Other.]
3. Consider your insurance needs. Marriage is a time when we suddenly become financially responsible for somebody other than ourselves. That's why ensuring you have adequate insurance coverage is now so critical. If you've recently moved into a new home or apartment together, it's clearly time to ensure you have adequate home or renters insurance, including adequate riders for any specialty items you own such as art or jewelry. You may also want to look at additional coverage based on severe weather threats for your area. Ditto applies for vehicles you share: Update your insurance to ensure adequate coverage for both spouses. Don't forget that life and health insurance policies should be updated, too.
4. Set a budget and resolve to talk money. If you don't yet have a household budget, this is an opportune time to create one. Shared finances mean shared responsibility, which can create strain on a marriage if not handled properly. That's why creating a shared budget that takes into account your household's financial priorities can help ease the transition into married life. It's also helpful to set aside a regular time to review your shared finances. Whether it's done weekly or yearly, this is a time to allow both parties a voice in major money decisions and ensures couples stay on the same page financially.
[See: 9 Scary Things Consumers Do With Their Money.]
5. Decide what's joint and what's separate. Couples differ widely on their money philosophies -- some choose to conjoin their finances entirely while others opt for more financial independence, such as keeping separate checking accounts. While there is no one-size-fits-all solution to the problem, it is worthwhile to arrive at an agreement about what's shared. One common approach is to mostly join finances, except small pools of spending money each spouse keeps separate for his or her own discretionary purchases. At the other end of the spectrum, some couples opt to keep all accounts entirely separate and each contribute from these individual accounts to the household finances. Each approach has its merits, depending on your needs. The key takeaway is simply that couples should discuss their preferred solution and agree on it early in the marriage.
Having an understanding of how marriage transforms your finances can help many couples avoid common pitfalls during their early years. It can also help ensure a more prosperous and stable financial footing long into the future.
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