We're "Official." Now What?

Dear Alicia,

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We're getting married soon and are wondering if there are any particular financial steps we should take once we're "official?"

-Ned and Nancy the Newlyweds

Congrats Ned and Nancy! Getting married is an exciting and hectic time. Here are the financial steps you should be taking once you are "official."

Goals

Start by discussing your financial goals now and in the future. Do you want to buy a home, start planning for a baby, or create an emergency fund? Write down your joint and individual goals and when you would like to achieve them. Make sure to decide which goals will be jointly or individually funded.

Credit Check-Up

Review your credit scores together (free from most credit cards) and pull your full reports at annualcreditreport.com. If one of your goals requires you to apply for a loan, it is good to know in advance if either of you needs to work on increasing your credit score.

Balance Sheet

Decide if you will combine or not combine your money. There are many things to consolidate like; checking and savings accounts, credit cards, and investment accounts (ex. brokerage or trust accounts). Start by creating a simple balance sheet, one page showing all assets and liabilities you own. This is a great way to see what each of you has and to review how your situation looks as a whole.

Expense Management

Managing the household bills usually falls on one individual. Regardless, it is essential to make sure someone takes on the specific responsibility of paying joint bills on time. Creating a joint cash flow, showing all income coming in and expenses going out, will help both spouses to visualize how much each of you spends and saves. You will also want to decide what types of expenses you will discuss together before purchasing. Couples often set a dollar limit, like $500, for a large purchase that should be discussed.

Investment Strategy

Also to be considered is whether you will have a joint investment strategy and joint savings strategy or if you are going to save and invest for your own separate goals. Do you both have the same risk tolerance when it comes to stocks? Review your current investment accounts, the holdings (funds invested in), and overall asset allocation (% stock and bonds) to see if you are currently invested similarly.

Taxes

Review your taxes currently and decide how best to manage them after marriage. You may need to change your tax withholdings to "married status" on your W4 at work. Also, determine whether you will file your taxes Married Filing Jointly or Married Filing Separate. You will also need to agree on if you want to prepare your taxes on your own or find a tax preparer.

Insurance

Once married, your spouse most often becomes dependent on a second income to support the lifestyle you build together. Do you know how much life insurance you currently have? Discuss and decide if it is enough. Also, look into who has a better health care plan at work. Most often you can combine your health coverage into one family plan. You may also want to consolidate your Auto, Home/Renters, Umbrella and Earthquake Insurance under one carrier to save with bundled prices. Make sure each spouse is named on all policies as a covered individual. It is also wise to consider insuring your engagement/wedding rings on a separate rider. Your home or renters insurance may have provisions for covering jewelry, but if you have expensive rings, it can be a good idea to get more coverage in case they are lost or stolen.

Estate Planning

Most often Newlyweds don't have estate plans already created. So now is a good time to get them done, especially if you own a house or have kids. Discuss who you want to have your belongings and money if something were to happen to one or both of you. Remember that assets acquired before marriage are separate property, but if commingled with joint funds, it becomes marital property (each state's laws are different, this is related to CA). You will also want to change the beneficiaries of all your retirement accounts and life insurance to your spouse. Lastly, update the titling of your non-retirement assets to both of your names "Joint with Rights of Survivorship" or in the name of your Trust, if created. An estate planning attorney can help you decide the best titling for your assets as well as create your estate plan. Always review these issues with a licensed estate planning attorney, in your state, before taking action.

Once you become "Official," you are now a joint financial team. Set up regularly-scheduled meetings to review your finances and any financial issues you may be having. Commit to communicating actively and openly about any money issues. If you ever get stuck or are too overwhelmed, always get help from a fee-only and fiduciary CERTIFIED FINANCIAL PLANNER™ for any tasks that seem beyond your grasp.

Planning Within Reach serves Newlyweds and helps their clients with financial planning and tax preparation. If you are interested in how we help our clients, see our Newlywed Plan Packageand our Tax Preparation Service.

How to Set Your Perfect Wedding Budget

The national average cost of a wedding is $33,391 (excluding the honeymoon), and in LA the average price is $44,142.

(Source: theknot.com)

Planning a wedding is a rabbit hole of expenses that can quickly spiral, often leaving other financial goals by the wayside. If you don't set a clear path for how your wedding budget fits into your entire financial picture, it is easy to establish a larger wedding budget than your future life can afford. There is a perfect budget for everyone, but you have to determine what it is for you. Here is what to think about when setting your wedding budget.

Who is Paying

What is the total amount of monetary support you can count on receiving from others? Resources could include: * Parents * Family or Friends * Crowdfunding

Once you know how much help you will have from others, decide how much you want to spend yourself. Let these numbers guide your budget, don't start with how much you "want" to spend and realize your bank account and help from others doesn't cover it. "Bride and groom national average pay 41.1% of the budget and 10% of the 13,000 respondents paid for their entire wedding themselves." (Source: theknot.com)

Use a resource such as the knot.com wedding budget tool which gives the average percentage cost of each budget category. Set a realistic budget when you decide how much are you going to spend and stick to it.

Don't Forget to Factor In Future Goals

The most significant mistake we see when couples plan for their big day is they forget about their other financial goals. Make sure your budget doesn't overlook that there are other, equally important, things to spend your money on in the short and long term. * House purchase * Savings Goals, such as Retirement * Car purchase * Other Trips or Vacations

Having a long-term plan in place, like our Newlywed Financial Plan, for all your financial goals helps you prioritize your expenses and shows how overspending on a goal will affect your ability to reach the others. Are you willing to sacrifice an annual vacation for the next five years to pay off your wedding? Or, delay a house purchase for three years to have a larger wedding budget?

Where to Splurge

What details are deemed significant and essential will be different for everyone and will determine where you should splurge. Write out a list of what is most important to you and your fiancé and dedicate more of your budget to splurging on those categories. This is where I would spend extra:

A Wedding Planner or Day-of Coordinator A wedding planner is someone who can control all the small details, organization, and makes sure everything runs smoothly. A wedding planner for the whole event will be costly, but you can also go with just a day of coordinator. A day-of coordinator will oversee all the activities of the wedding day from the vendors to the keeping the schedule on time. Investing in someone who will make sure all your memories of the day are positive is worth the expense for me.

Video and Photos Memories last a lifetime, but having them in visuals makes it convenient to pass down generations and keep the day easy to relive at any time. Don't go cheap here and end up with bad photos you don't want to look at. Videos and pictures that you will keep forever and that tell the story of the day should be ones you love. Spending the extra money on a good photographer and videographer for a lifelong keepsake is worth it.

Where to Cut

In-Season Wedding "In general, wedding season months begin in late spring and continue through early fall and are therefore the most expensive, with weddings peaking in June and September. Winter, on the other hand, is often much cheaper—unless it’s December, when you’ll find yourself competing with company holiday parties and other non-wedding events for those much-desired dates." (Source: brides.com) If you live in an area like San Diego, having an off-season wedding is doable because the weather isn't very volatile. Get quotes for off-season vs. in-season weddings at the venues you visit to see the difference in prices.

A Saturday Wedding "Having your wedding on a Friday or Sunday (as well as on any other midweek day) can make a big difference for your budget." (Source: theknot.com) Just remember you do not need to have your wedding on a Saturday, instead make sure your key attendees, like parents, grandparents, and the wedding party are all available on the day you choose if it is a weekday. As for the rest of your guests, they will understand, and if they can't come, that helps the next strategy.

Reducing the Guest List The guest list often can turn into a whose-who of family friends and extended family and can be one of the hardest places to cut because you don't want to hurt anyone's feelings. Set strict guidelines on the lineage of family members and the number of friends for the bride, groom, and parents to invite, for example, each set of parents can invite 10 friends. For further managing the guest list consider an adult's only party, condensing plus-ones, or using an A and B list strategy.

The Dress Going wedding dress shopping and having the perfect dress is one of the quintessential parts of a wedding but it can also be very costly. Today there are many low-cost online brands adding wedding dress lines for fractions of the cost of traditional wedding dress designers. You also have the option to rent a wedding dress or buy one that is used. If you do choose to buy your dress, you can sell it to another bride to recoup some of the money, if you are okay with letting it go. My mom's wedding dress is still in a box under her bed, making selling it seem like a better option these days.

Unusual Venues An unusual venue can be a great place to cut costs. Golf courses and reception halls do make it easy as they usually have everything on site and do many weddings a month, but a family member's backyard or a park can provide comfort and a fun atmosphere with a little more planning but at a fraction of the cost.

Bartering with Friends for Services Do you have a friend who is a great photographer or owns a flower shop? Utilize the resources around you to shop for great deals or ask to trade their service for something you know how to do. Offer a couple of hours of help building furniture or free childcare for friends or family who could provide some of your wedding needs at low or reduced costs.

For more ideas on where to cut and splurge, I found this article to be a great resource.

Read All the Fine Print

Make sure to read all contracts and vendor agreements thoroughly before signing. I had a friend who signed her wedding venue contract without thoroughly reading all of the fine print. The venue is stunning, she loved it, and they had the date she wanted, so she signed without thinking about all the details. Later when looking at catering and rentals providers, she found out that in the contract there is a clause that everything must be ordered through a small list of approved vendors. She was left with no room to negotiate or find lower cost options because the vendors on the list knew they were her only option. Make sure to look for other details in the contracts such as cancellation policies and fees or grace periods for canceling because of extreme circumstances.

Take a step back and look at the day as a whole. It is one day of your life. Keep this in mind when all the details start adding up to real dollars. Ask yourself, what small details will never be remembered? Most importantly, don't drain your savings accounts on one day. When deciding on a wedding budget, don't just think about how much you "want" to spend on this day, but how that dollar amount will affect your ability to reach your other goals like buying a home, saving for a new car or contributing to retirement savings. Set yourself up to have a spectacular wedding and also the financial ability to meet your other near-term goals by setting the perfect budget for you.

You can add a newlywed financial plan to your registry, read how here.

Visual Source: theknot.com

A Newlywed's Guide to Updating Insurance

A lot of things change when you get married, including your insurance options.

Making sure your insurance is adequate once you are married is an important step to take. You have the option of buying new, combining, and/or discontinuing policies you will no longer need. Here are the insurance coverages we recommend you review or consider purchasing once married.

Life Insurance

After you say "I Do", you might need to increase your life insurance coverage. The bills you would leave your spouse with include, debt payments, and the cost of funeral/final expenses if you were to pass away. Make sure you have enough insurance coverage to at least pay these minimum costs. You might also consider additional coverage if your spouse will need extra money to manage the lifestyle you have now built together, or to allow them to take time off from work after this traumatic event. Compare the cost of insurance with your employer versus getting a term life insurance policy through a broker.

Disability Insurance

If you were to become disabled from a change in health or an accident, would you be able to survive off a single income? The answer for our clients, who mostly live in expensive cities, is definitely not. Disability insurance typically covers 50-70% of your monthly salary. It is a necessary insurance to have when you start building a lifestyle off of two incomes. Look into your employer's disability coverage and purchase increases up to the limit if it makes sense and is affordable. Start your evaluation with the spouse who makes the most money as this would hurt the greatest if they are unable to work.

Health Insurance

Once married, you can apply for joint coverage as a family under one of your health insurance plans. Compare the costs of a family plan with both of your employers versus insurance as an individual. Other things to consider are; who has the better coverage, do you both like your doctors/plans, and which employer covers more insurance costs. Weigh your options and decide on the best deal.

Auto Insurance

The coverage for you autos will likely remain the same but you do want to make sure your spouse is added as a second driver of your vehicle if you will be sharing cars. While you are logged in or talking with your broker, this is a good time to confirm that you and your spouse have adequate liability and property damage coverage.

Homeowners or Renters Insurance

If you are just moving into one of your residences or getting a new place together, cancel the policy associated with the old residence. Make sure your new policy has enough "contents replacement" coverage for both of your personal belongings and has both your names listed as policy owners/insured.

Umbrella Insurance

Umbrella insurance is used as an additional liability protection on top of the liability coverages in your property and casualty insurance (ex. home and auto). This coverage is often used in a personal liability event like a lawsuit. It includes coverages for things like libel, slander, vandalism, and invasion of privacy. If your net worth together is more than the liability limit on your home/auto insurance ($300K-$500K, most often) it can be a good idea to get umbrella coverage to protect your additional assets.

Combining Policies Under One Provider

Lastly, combining your insurance coverage under one roof is usually the best way to keep your costs low, as most providers offer bundling discounts. It will also make sure you don't have gaps in coverage and that your limits on insurance all match. If you and your spouse have separate insurance companies, discuss which company you like best and get a quote.

Get the Gift of a Financial Plan

Are you interested in a financial plan but not sure if it is in your budget? Ask for a Financial Plan as a gift. Here is why, when, and how to get it.

4 Reasons Why

1. It is a great investment - The ROI (return on investment) for a financial plan can be huge. Setting up a plan for the future can be life-changing. 2. Even your stingy relatives would want to contribute to this gift for you - People will be surprised by your desire for this educational gift and think it is an honorable and worthy cause to support. 3. You can use what you learn not just for you, but everyone you know - In turn, you can help the people who helped you pay for it! 4. Most importantly, you can set yourself up for financial success - By laying out a strategic plan on paper, you are more likely to reach your goals. With the help of a professional, you will reduce the number of mistakes you might have made along the way.

4 Occasions When

1. College or high school graduation 🎓- Graduating from school is a milestone that also comes with large responsibilities. Whether it is taking out student loans to pay for college or learning how to manage your first real paycheck and work benefits, young professionals and students in debt benefit from learning about their finances early on. Family or friends will wish they had the opportunity to have this education when they went through the milestone themselves. 2. Wedding 👰– Getting married comes with many new financial responsibilities most don’t even realize, like combining health and property insurance to name just a few. Money can be a strain on a relationship if money values are not discussed early on. Get a 3rd party opinion and have the discussion with a professional to take the emotion out of it. By having a plan in place from the beginning of a marriage, it keeps both spouses on the same page. This is very important when two people are now sharing the responsibility of paying and saving for a joint life. 3. Baby shower 🍼 - Getting ready to bring a small bundle of joy into the world? Now is the time for a financial plan. All of your friends and family who have already had children would agree. Instead of toys and clothes for your baby, that they will grow out of in what seems like 5 seconds, ask for a donation to a financial plan instead. Learn about the costs of this bundle of joy and how it is going to change the rest of your financial life. 4. Buying your first house 🏠 – Buying a home is usually the largest purchase any one person could make. This purchase also comes with many ongoing and one-time expenses most people don’t want to think about. A financial plan before buying a home can help you determine how much house you can really afford. Also, what your cash flow would look like and how it affects your other goals when things like roof replacements or leaks happen. Throw a “Welcome Home” or “Bye Apartment” party. Instead of people bringing art, wine, or kitchen supplies ask for cash instead to purchase a financial plan.

4 Ways How

1. Go fund me or another crowdfunding site - Start a page and plead your case for why you want, or deserve, a financial plan. Share this on social media and spread the word. You don’t just have to get money from family and friends. Society can be generous if you are passionate about what you are asking for. 2. Wedding registry website – Nowadays on most wedding registry websites they let you add a “cash goal.” This option is most often used for honeymoon flights and hotels, but you can use it for a financial plan instead. All you have to do is describe what you want, a financial plan, and write out the dollar amount you need to pay for it. Your wedding attendees can decide how much they want to contribute to your gift and make the transaction online. It couldn't be easier.

3. Baby registry website – Same idea as with the wedding registry! Add a "cash fund" gift like this:

4. All other holidays - Birthday, Christmas, Hanukkah, Easter, Anniversary, Mothers' or Father’s Day, and a whole bunch of others! Ask people for cash instead of gifts to fund the purchase of a financial plan. There is a year’s worth of gift opportunities to collect the cash needed!

A financial plan is truly a gift that keeps on giving. Learn early and take the knowledge with you and share it with others. You will see this gift is worth so much more than the junk you will get and never remember. This gift will be remembered for a lifetime by you and those who helped gift it to you.

5 Myths About Credit Scores for Newlyweds

My Newlywed clients often ask me about how their credit score changes when they get married. I am sharing some of the typical myths I hear and discussing how your credit score is really affected by getting married or divorced.

Myth 1: We have a joint credit score as a couple.

Credit scores are calculated and given on an individual basis. When you get married, your credit scores do not get merged into one joint score. You will each remain to have individual credit profiles that will fluctuate as you get new credit cards, buy assets and make payments.

Myth 2: When I change my last name, I have to start my credit history over from scratch.

Your credit history is connected to your social security number, which does not change. Don't worry about changing your name, as it will not affect the score you currently have or the history you have built. When you review your credit report (www.annualcreditreport.com) you should see your credit history from before and after you were married. If not, contact the credit bureau and file a report.

Myth 3: When we go to buy a car or home together, it won't matter if my spouse has a bad score, because I have a good one.

When you apply for credit together they will determine the interest rate you jointly qualify for based on both your incomes and credit scores. Now, this might not be in your best interest if you have a higher credit score than your spouse. Sometimes it is best if you can buy a joint asset in only your name if you can get a better deal on monthly interest payments (consult with an attorney or tax professional before doing this to be clear on the implications). Having higher monthly payments over time can affect your ability to save for and purchase a new asset. When going to buy a large asset like a home, you will need to both apply to be owners, since it is much harder to qualify as one person. Having a spouse with a bad credit history could affect tremendously how much you will pay in interest over time, especially on a large asset. So, before you make a big purchase, look at both your credit histories and work on getting your scores up.

Myth 4: When we get married I will add my spouse as a user of my bank and credit cards. They will then close their personal accounts. It will not affect their credit score.

After getting married, it can be a balancing act to determine when to close and open new joint bank and credit card accounts. Credit history accounts for 15% of your credit score, so take it slow when closing and opening new accounts. Try not to close accounts with long histories right away. Slowly close old accounts as you build up history on your new ones. When requesting new credit, also take it slow. It can be a red flag when you are requesting new credit more than once every 6 months.

Myth 5: If we get divorced, I no longer have to pay the debt my ex-spouse incurred while we were married. It will be removed from my credit history.

If the debt is on a joint credit card or a house/car in both of your names, you technically are still a 50% owner of the debt even after a divorce. Even if a judge assigns the debt payments to one spouse in a divorce decree, you can still legally be held responsible by the lender to make sure the debt gets paid. If your ex-spouse does not make their required payments, the lender could make you pay the bill and it can hurt your credit score.

In Summary:

Make sure you are both transparent about your credit history before tying the knot. Continue to monitor and communicate about your own individual credit reports throughout your marriage. Make sure you know how your credit is being used and what it is being used to buy. The goal is for both spouses to have excellent credit (750+), which translates to lower borrowing rates and money saved for your long-term goals. Having a good credit score is one of the easiest ways to save money.

FICO© score breakdown:

The 7 Money Questions you NEED to ask before saying "I Do"

Did you know, "about three in 10 couples disagree on finances at least once a month, most commonly about major purchases or spending habits"?

(from Ameriprise Study study on couples and money 9/2016)

These are my top 7 questions you should discuss with your partner before you say "I Do." These questions will help you get clarity on each of your financial situations and explore how you see your financial future together.

*Pro Tip: Grab a glass of wine and take-out for a relaxed setting.

1. What are my annoying spending habits?

Starting right out of the gate with a tough one. Tell your partner if you have issues with the way they spend money. In return, be open to give and receive constructive criticism. This is the time to get out anything that bothers you so you don't go into your marriage with harbored feelings. Try to understand how these habits bother your spouse and decide if it something you can work on or negotiate. Once it's out in the open, agree that these feelings won't be swept under the rug, and that you will have open communication in the future.

2. How did your parents manage their money while you were growing up?

We learn our money languages from our parents. Whether we want to be the exact opposite of them or the same, when you start to think about how you spend money you will see a direct correlation to the way your parents managed theirs. We are all taught different money habits that are subconsciously engrained in us. By telling our partners about our money experiences growing up, it gives them a better understanding of why we do what we do.

3. What is your current financial picture?

Discuss what is going on in each of your financial lives. Do one or both of you have debt of any kind? If so, how much? Will your joint money be paying the debts or will it remain the responsibility of the person who owns it? Log into your bank, credit card, loan, and investment accounts and get familiar with your partners balance sheet.

4. What are your own money goals?

Do you want to retire early? Live in a mansion? Own a yacht? Are you happy living in a studio apartment? Do you see your kids going to public or private school? There are so many what-ifs in the future, but discuss what you want your future to look like. If it includes a luxurious lifestyle and your soon-to-be spouse would be happy living in a cardboard box, you will need to learn how to compromise on what is worth it to spend money on for both of you.

5. Who is the bread winner and are both of you okay with that?

Sometimes when one person makes more than their spouse, it can cause rifts. Discuss any issues there are now and how they can be resolved. When you have kids, would one of you want to stay home with them? What if a spouse decided to go back to school? Would you both be okay supporting the family during periods of uneven income?

6. How are we going to manage our joint finances?

To combine or not to combine, that is the question. There are pluses and minuses for both and one way is not always right. Each spouse should have a say in if they want to combine, or not, and how much. It comes down to a personal choice for each couple. In my own experience I have found creating a joint account where household spending is paid and having separate checking accounts for personal items has worked best. It is called YMO, yours, mine and ours. Discuss what you think would work for you.

7. Prenup.

A prenup is not the most romantic topic, but definitely one that needs to happen before "I Do". A prenuptial agreement can protect any wealth thus far you have accumulated and can draw out what would happen if you were to get divorced. Even though we never hope or think we will get divorced from our spouses, having a document already in place can ease some of the stress and confusion that comes with the end of a marriage.

If you are heading to the altar soon and have not had any discussions about money, now is the time. Before you say "I Do" set up a good line of communication about your own and soon to be joint spending. Strong financial communication leads to less fights about money and an overall happier relationship.

Just married! Should we combine finances?

I asked Cinda Jones, a Certified Divorce Financial Analyst (CDFA) and owner of Divorce Financial Solutions, to help me answer this complicated question.  Please note that these answers are general in nature.  For answers to any specific questions, it is always wise to consult an attorney in your state.   Retirement Assets (401k's, IRA's, 403b's, etc):  Contributions and benefit accrual during marriage are community property and will be divided in the settlement agreement upon divorce.  Even if only one spouse is contributing to a plan during marriage, the other spouse is still entitled to half of the value accumulated during the marriage.

Non-Retirement Assets (Brokerage Accounts, Individual Stocks, etc.):  Cinda recommends keeping these separate and keeping all records.  She says to never throw away mortgage purchase or refi documents, bank statements, investment statements and tax returns.  During a divorce, the burden of proof falls to the person who wants to make a separate claim or ask for reimbursement.  Surprisingly (at least to me in this digital age), she has found it may be impossible to obtain historical records from financial institutions or even the IRS.

Other situations I see fairly frequently: Gifting from parents to help with a house down payment, an inheritance used to help remodel the joint home and rental properties or businesses that were established before marriage.  Cinda cautions that it is very hard to generalize in these situations and the rules may vary by state.  Regardless, even if there is a valid separate property claim, the burden of proof falls on the person making the claim so you need to have supporting documents.