|Kiplinger's Personal Finance
Vol 52, Issue 6,
Jun 1, 1998, Page(s) 45-48 (1843 words)
by Rosemary Neff
(reporter: Catherine Siskos)
a Future for Richer, not Poorer
to avoid the financial perils of plighting your troth. By Rosemary Neff
Jack Yu insists he didn’t
really live like a monk during the 18 months before his wedding last
July 4. But judge for yourself: he rented a cheap apartment (utilities
included), asked his parents to ship his boyhood furniture from home
(with moving expenses paid by his employer), and prepared most of his
own meals (including bag lunches).
And the result
was certainly soul-satisfying: His frugal lifestyle allowed him to pay
$1,000 a month on his student loans. By the time he married Cathy Wen,
the $16,000 debt was history. "Without having the loans paid off, it
didn’t make sense to start investing money, or to use it for anything
else but getting rid of that debt," says Jack, an engineer who works on
Web-site design for Eastman Kodak, in Rochester, N.Y.
Now the Yus can
afford a few creature comforts--they’ve moved up to a two-bedroom
apartment in the suburbs and bought some new furniture. But Cathy
shares Jack’s commitment to living debt-free. "You just can’t spend
more than you have," says Cathy, who also works for Kodak making
products easier for customers to use.
Being fiscally in
step helps get newlyweds off on the right foot. "I think it’s important
that couples at least agree on their perception of money," says Charles
Parker, a financial planner in Houston. "They can conquer any mountain
if they’re in agreement on the ground rules."
Finances are a
key element in the pioneer premarital counseling program of the
Marriage and Family Therapy Clinic at Colorado State University.
Couples are asked, for example, to create a budget, both for the
immediate future and for five years into the marriage. "That forces
them to consider whether they’ll be making mortgage payments or
supporting a child," says Christi McGeorge, a therapist at the clinic.
It also helps to
take an inventory of what each of you owns and owes, and to become
familiar with how your spouse-to-be spends money. "When you’re dating
you have a chance to see what’s going on there," says financial planner
Sharon Rich of Belmont, Mass. "Don’t assume that style will change once
you get married."
SETTING YOUR GOALS
The Yus have
decided on at least two major financial goals: purchasing Jack’s 1996
Toyota Camry when the lease expires in January, and buying a home in
the next year or two. "We talk about major expenditures, and usually
we’re thinking the same thing," says Jack.
For Avril and
David Burg, it helped to consult a third party soon after they were
married last June. Financial planner Rich helped the Burgs set their
goals: to buy a home and to have a child in the next few years. David
will graduate this month from the Weatherhead School of Management at
Case Western Reserve University; Avril works as a headhunter for a
placement agency. Now that they’ve decided to stay in Cleveland, where
the cost of living is significantly lower than in New York City, where
they used to live, they think their goals are affordable. "We don’t
know exactly how we’re going to reach every one, but we’ve committed to
living within our means," says David.
The Yus have
actually put a rough budget on paper, "but it’s not like we examine and
reexamine it," says Cathy. Fundamental to their plan is a 10% tithe to
their church. That and living expenses come out of a joint checking
account, which Cathy manages, along with a special money-market account
that currently yields 5.55%. "We try to keep as little in checking as
possible," says Cathy.
suggests that couples have their paychecks deposited directly into
their savings accounts. "Psychologically, it’s tougher to withdraw from
savings," he says. "What results is more cash accumulation." (For
newlyweds or engaged couples, Citibank offers a free brochure, To Love, Honor and Budget; call 800-669-2635.)
Whether you and
your spouse combine bank accounts is a personal decision. The Burgs,
for instance, set up a joint household account, but Avril keeps a
savings account in her name. It’s important for her to control money of
her own because she’s working while David is in school. "He wants me to
be more conservative, and he’s right, but I’ve never had to think of a
’we’ before," says Avril.
"Some people need
to keep all their money separate," says Rich, "and some just throw it
all in one pot." Either way, she says, "I tell them that’s okay."
Only one spouse
needs to be in charge of paying the bills, balancing the checkbook, and
maintaining the family’s paper trail. Cathy Yu took on that role
because she didn’t have an outside job for the first nine months of her
But both spouses
should be accountable for spending within the guidelines they set up.
And both should know what’s going on, even if it means having regular
meetings to talk about money.
IT’S STILL A GOOD IDEA for each spouse to
keep a credit card in his or her own name--especially if one of you has
a significant balance.
CONTROLLING DEBT. Given the Yus’ marathon
debt-reduction program, it’s not surprising that they’ve been loath to
take on any more IOUs. They use two separate credit cards that they got
when they were single but pay their balances in full each month. The
only time they came close to their credit limit was when they
intentionally charged wedding expenses on Jack’s US Airways Dividend
Miles Visa to earn free airline tickets.
Starting a new
life together with an old credit card might be a mistake for many young
couples. Cards issued to college students typically carry high interest
rates; with a little shopping around you could find a better deal (see
"Yields & Rates," on page 76). It’s still a good idea for each
spouse to keep a card in his or her own name--especially if one of you
has a significant balance. For better or worse, if you add your name to
your spouse’s account, you become responsible for his or her debts,
says Robin Leonard, a Berkeley, Cal., lawyer and author of Money Troubles: Legal
Strategies to Cope With Your Debts (Nolo Press). It’s better
to open a new, joint account for shared purchases.
FEATHERING YOUR NESTS. Like the Yus and the Burgs,
most newlyweds will probably want to buy a home. If that goal is only a
year or two away, it’s best to keep your assets where you can get your
hands on them quickly, such as in a money-market fund or a
short-term-bond fund. If it’s going to be four years or more before you
make the move, you have other investment options (see "Best Funds for
Your Goals," March).
But if you’re a
two-career couple, you’re probably also a two-401(k) couple, and you
should continue to fund those accounts as you did before your marriage.
"So often I see money that should go to feathering a couple’s
retirement nest being used instead to spruce up their new nest" with
furnishings, says Dee Lee, a financial planner in Harvard, Mass.
Now that you’re a
pair, think about your investments in two retirement plans as a whole.
"Couples need to treat their individual portfolios as part of a family
portfolio," suggests Lee. If your plan has a better international fund
than your spouse’s, for instance, you might invest heavily in that
choice, knowing that it’s balanced by domestic investments in your
DESPITE the so-called marriage tax penalty,
most couples are better off filing their tax return jointly, rather
BRACING FOR TAXES. Even if you were married
for only part of the year, you’ll file your income taxes as married.
Despite the so-called marriage tax penalty, which could force you to
pay more tax together than the two of you paid singly, most couples are
better off filing jointly rather than separately (tax software such as Kiplinger’s TaxCut or Intuit’s TurboTax makes it easy to compare
the alternatives for yourself).
To avoid a nasty
shock next April, adjust your withholding (ask your employer for a new
W-4 form). If each of you has been claiming one exemption, for example,
one or both of you might reduce that to zero.
COVERING YOUR ASSETS. You probably also have life
insurance through your employers, and that’s all you need until you
have a child or a mortgage. Just be sure to change the beneficiary so
that your spouse gets the proceeds.
If you each have
health insurance coverage at work, it may be less expensive to maintain
separate plans until you need family coverage for a child. But your
decision should be based not only on premiums but also on the type of
plan. For example, if one of you has access only to an HMO and the
other has a fee-for-service option, you’ll need to decide which style
of health care you prefer. It probably won’t pay to carry duplicate
family coverage because insurance companies coordinate benefits; rarely
will one make up what the other doesn’t cover.
If you have a
choice at work, or if you are shopping for a policy on your own,
consider one with a high deductible and low premiums; you can bank on
your youth and good health to hold down routine medical bills and leave
insurance coverage for a true catastrophe.
David Burg is
probably typical of most newlyweds when he admits that he "hadn’t given
much consideration" to disability insurance--something that planners
say is just as important as health insurance. Any coverage you have
through your job may not be adequate, and if you buy a supplemental
policy yourself, benefits will be tax-free.
LEAVING A LEGACY. When you’re starting a new
life, you’re not inclined to worry about what would happen if it were
cut short. "I just spoke with a young woman who became a widow with a
small child at age 32," says Lee. "Before they had even met, her
husband had named his mother as beneficiary of his 401(k) account, and
had never gotten around to changing it. There was nothing we could do."
How you title
your assets is critical to how they pass on, says Kathleen Stepp, a
financial planner in Overland Park, Kan., who developed the Citibank
brochure. But even for newlyweds with no dependents, there’s no
substitute for a will to guarantee that your property is distributed
according to your wishes.
For about $500,
you can have a lawyer prepare two wills, along with living wills,
health care proxies and durable powers of attorney, each naming the
person you trust most to make financial and medical decisions for
you--presumably the person to whom you have just pledged your undying