Have you and your fiance discussed your soon-to-be joint financial logistics– including salaries, benefits, credit scores, bank accounts, bill paying, savings, and retirement? It’s ok if you have not, but this article is meant to help you understand how financial planning for your family can never start too soon! Financial planning for engaged couples can never start soon enough.
There are so many things crossing the minds of each individual after becoming first engaged. I understand; I’ve been there, it can be hard to focus. The bride and groom-to-be spend so much time thinking about the big day itself, like picking out wedding colors and looking at venues together, that unfortunately, finances can take a back seat.
I get it; the wedding day is a big fun day that you’ll remember forever. But it’s never too early to start thinking about building your financial foundation for the future. The floral arrangements, music selection, and hors d’oeuvre are important, but they are fleeting and only experienced for a few hours. Planning for your financial future lasts a lifetime.
Financial Planning for Engaged Couples: Life Comes at You Fast
Life events happen fast, and there’s so much to consider, especially when combining two incomes into one and working towards big life goals.
Being hired for your first jobs, having the first child, financial aid calculations, retirement planning, filling out retirement paperwork, understanding social security options, Medicare choices, and all the while trying to leave a legacy behind.
Oh, and don’t forget to buy a house, care for elderly parents, and settle parent’s estate for life events. Jeez! I know it can be overwhelming, but it all doesn’t have to be, with the right guidance by your sides.
When planning for a wedding, most couples do not consider hiring a family financial planner. This is a rather unfortunate mistake considering that discussing finances is one of the most important conversations you could have with your spouse-to-be.
You know you will need an advisor for one or more of the major life choices I listed above, so why not jump in early and make sure you are prepared before you are overwhelmed?
If not, that’s okay. Whether you are newly engaged or already married, it is never too late to start planning for a better financial future together!
Financial Planning for Engaged Couples – Two Incomes Become One
I’ve put together an “engagement financial timeline” for you both to begin understanding how you and your future spouse should be best preparing your finances before and after you walk down the aisle together.
This is the ideal time to start the conversation regarding your current financial situation and how your finances will work together once married.
One of the biggest transitions for married couples is understanding how money can work differently from when single.
An example of this:
The husband-to-be is working part-time while in graduate school earning $15,000. As a minor, he inherited $20k of stocks from his grandparents, now worth $45k.
The wife-to-be is a pharmacist, earning $255,000, and has a 401(k) previous employer.
This year while still single, the wife’s top marginal federal tax bracket would be 35%
The husband’s top marginal federal tax bracket would be 12%.
Capital gains are taxed at 0% for the first $40k of income.
Combined, they will file “married filing jointly.” Income up to $329,850 is in the 24% bracket, and income between $80,801 and $501,600k would be in the 15% Capital gains bracket.
If the husband sells the stocks this year, before the capital gains tax jumps from 0% to 15%, he could save $4k+ in future taxes and also be eligible to invest $6k into a Roth IRA for tax-free growth.
If the wife waits until next year to convert $100,000 of her IRA to a Roth, she will save 11% in taxes.
This $15k in tax savings between these two strategies might not pay for the wedding, but it will be a great start to understanding a couple of pieces of a financial puzzle.
The Timeline – One Year Before Your Wedding
- Discuss your financial goals
- There’s no one correct way to have this conversation, but most couples would agree that you should both be comfortable. Check out this article by Refinery29 on setting the stage and discussing your financial goals with your significant other.
- Discuss what both see for your future together
- Children
- Buying a home
- Traveling
- Any other major financial priorities
- Understand each other’s debt situation. Be open and honest with each other. Be sure to address:
- Student loans
- Car loans
- Credit card debt
- Craft a preliminary budget.
- Discuss your respective employer retirement plan contributions
- Create an emergency fund
Six Months Before Your Wedding
- Choose a designated bill payer.
- Establish spending limits.
- Discuss what you both consider to be big expenses and set a minimum threshold for discussing big expenses.
- Discuss and compare your employers’ health plans.
- Decide if you’ll keep separate or joint bank accounts.
Three Months After Your Wedding
- Revisit your initial budget.
- You and your spouse may need to make some adjustments as, at this point, you should be more aware of your spending habits and what is realistic for your financial goals.
- Update beneficiary designations.
- Go over your wills or trust and review your assets, such as investment accounts.
- Update information on your accounts.
- If you have changed your last name or address, do not forget to notify your financial institution! At this juncture, it’s a great opportunity to set up your “Automated Financial Hub.” Click the link to learn more about the six easy steps to begin building a financial foundation.
One Year After Your Wedding
- Speak with an advisor before tax time rolls around.
- Being a newly married couple may affect your taxes– (usually in a positive way!) Be sure to have all of the proper documentation in order so that you and your spouse stay ahead of the game.
As a fee-only financial advisor, I wrote this blog as a starting point to initiate your understanding of your financial situation as a newly engaged couple. With a little foresight and some structured guiding advice, you can face marriage’s life events and responsibilities with confidence.
If you found this article helpful, please read my recent article on what a middle-class income salary means today.
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
