The lives of Mark Polk and Barbara Wilbur changed forever April 15. That’s when the couple marched out of church as husband and wife.
However, getting married is a financial, as well as an emotional, commitment.
That’s why Polk and Wilbur, along with making wedding and honeymoon plans, made plans for their financial future, something that doesn’t happen nearly enough, says Sissy Osteen, director of Consumer Credit Counseling in Columbia, S.C.
Osteen is surprised by the number of people who will spend thousands of dollars on a wedding, but won’t spend a dime trying to figure out how to manage money. Money, or typically the lack of it, is blamed for 65 percent of divorces, Osteen says.
“That’s always been one of the Achilles’ heels of the first year of young marriages,” says Jack C. Harmon, a financial planner in Atlanta.
Polk and Wilbur have been talking about money throughout their six-year courtship. “They feel like they are in pretty good shape (financially),” says Jean Ballentine, a Prudential Securities vice president who is working with Polk and Wilbur.
The couple has some specific financial goals they want to achieve during the next several years, including saving for the down payment on a home and building cash reserves to weather living on one income when they decide to have a child.
Ballentine says that while the couple has set long-term goals, the marriage means a number of issues will be commanding their attention in the next several months.
With April 15 as an anniversary, Polk and Wilbur won’t find it hard to remember gifts to themselves or the IRS.
The couple will face the so-called marriage penalty because their joint income will put part of their earnings into the 28 percent tax bracket.
Couples planning marriage, Ballentine said, “should go ahead early in the year and do an estimate of what their tax liability is and plan for it.”
To do that, take a look at the individual income tax forms filed for 1994. Add taxable income from the two returns and see what the federal tax liability would be for a married couple filing a joint return after taking standard and individual deductions.
If the estimate shows a shortfall, go ahead and change your filing status at work. You also may ask your employer to withhold more from each check to cover the higher taxes that you’ll owe next year.
Filling out a W-4 to change your filing status will probably take you to your payroll or human resources office at work.
Plan to spend some time there filling out a raft of forms, particularly if you or your spouse are changing addresses. (Make sure you file address change forms with the postal service as well.)
This process may be the first time you see the black-and-white responsibilities of being married. Depending on what type of benefits you have at work, you could be asked to add your spouse to your health insurance, change the beneficiary on your life insurance policy and add your spouse to your retirement savings plan documents.
Generally, it is cheaper to have both spouses on one employer-sponsored health insurance plan. But such a merger can be wrenching. That’s particularly true if changing plans means switching physicians or losing coverage for some type of medical condition.
Auto insurance policies should be consolidated under one policy, financial advisers say.
Experts say getting started on a retirement plan early is one of the best things newlyweds can do for themselves.
Wilbur and Polk “have a big benefit in both being eligible to participate in a 401(k) plan,” says Ballentine.
Such plans with matching employer contributions are widely viewed as the best way to grow money for retirement for three reasons:
– They offer an automatic return, 50 percent in the case of a 50-cent match for the dollar contributed.
– They typically are payroll deductions that create savings discipline by taking money out of your pay before you have a chance to spend it.
– Since money invested in a 401(k) can be hard to tap, the math of interest compounding can do its work.
But retirement savings isn’t the only game newlyweds should play. They also need to set up savings to cover at least three month’s pay in case they lose a job, are unable to work or have an emergency, such as an expensive car repair, Harmon says.
What Polk and Wilbur want most to do with their non-retirement savings is to sock away a down payment toward a house, Polk said. They’ve set a goal of moving into their own home by 2000.
“We both know what we want, and we both know we won’t get it overnight,” Wilbur says.
That realization is sorely missing among many young couples today, financial advisers say.
“It is too easy to purchase things because we want them, instead of because we need them,” says Gerry Ward of Ward Financial Advisors Ltd. in Columbia.
Many couples return from honeymoons and “think they’ve got to furnish every room in the house to the T” and turn to credit cards, Harmon says.
As a result, many young couples, particularly those bringing large consumer credit balances to the marriage, start out in the hole.
Ward has seen couples in their 20s who owe up to $20,000 on credit cards charging 18 percent interest. “In reality, these couples have already spent their next six to eight months’ salaries,” Ward says.
Financial advisers say clearing and keeping the consumer credit slate clean should be the top goal for young couples.
Managing a merged household’s finances should be a shared responsibility, Ward says. That shared responsibility includes setting up some type of household budget to manage cash flow better.
Financial advisers say that budgeting is a key ingredient to understanding how money moves into and out of the household. “A budget doesn’t have to control your life, but you need it to be part of input for the decision process,” Harmon says.
Meanwhile, a single checking account, the simplest approach to paying bills and managing money, doesn’t suit most two-career couples. Most advisers suggest that couples set up a household account to cover regular expenses, such as rent and groceries. The couple each should put a proportional share of their income into that account, Harmon says.
Working spouses should also have their own checking accounts, “which bodes well for each one’s individual rights,” Harmon says.
