To ensure a successful financial future together, two-income couples must talk about their financial goals, their individual and joint roles in marital finances, and how the family’s financial duties will be divided. Here, we address longer term financial planning.
• Anticipate substantial financial gains. Will either partner gain interest from a trust, a cash inheritance, or a family business? If so, should the income from this asset become joint or remain individual?
• Evaluate and manage risk. Cover your assets before taking a greater risk. Never proceed to the next “level” of risk before your current gains are protected. This is the basic principle behind risk management.
• Evaluate health insurance options by comparing employer subsidized plans, individual plans, and supplemental plans. Is it better for both partners to keep existing plans or for one to become a dependent on the other’s plan? Reassess plans when children enter the picture.
• Assess auto, homeowners’, and umbrella liability coverage. Do you have specific assets that need to be scheduled separately?
• Consider your need for mortgage insurance by discussing what would happen to the surviving spouse should the other die suddenly. Could the survivor afford to stay in the house? Would losing the house jeopardize children’s education and wellbeing?• Set saving and funding goals. Determine your individual and family goals for retirement, education, major purchases, etc. Specific goals might include a house down payment, college tuition, vacations, or funding for expensive hobbies or interests. How much must be saved and invested today, at what rate of return, and for how long to achieve these goals?
• Develop an investment plan. Draw up a disciplined savings plan. Begin early the habit of saving and investing at least 10 percent of your combined net income. Make your savings contribution the first and highest priority—not the occasional leftover. Financial planners call this “paying yourself first,” and it’s the cornerstone of a sound investment strategy. Whatever you invest in, know what to expect in risk, value fluctuation, appreciation rate, return on investment, liquidity, etc. The asset class you agree to invest in could be more significant than the specific purchase decision made within that class. For example, the decision to invest in stocks, bonds, or cash could be a more serious, risk-determining decision than the choice of which stock you buy. Both partners should know and accept the pitfalls and pay-offs of the specific investment strategy they choose. That’s why investment wants, needs, and limits should be discussed openly before making any investments.
• Seek professional counsel. Take this step anywhere in the process when you begin to feel uncomfortable or under-prepared. Today, couples in virtually all income categories can find a financial professional appropriate to their resources, knowledge level, and comfort level. Start your search by asking yourself the following questions: is your portfolio large enough to be cost-effectively monitored by a full-time manager? Do you and/or your spouse have the time and interest to research some or all of your own investments? Do you already know someone who has the expertise you need? Brokers, financial planners, insurance salespersons, bank trust departments, independent management firms, and mutual fund managers are happy to advise and help. It’s then your responsibility to select the most cost-effective way to get the products and services you need.
• Communicate regularly. Communication is the single most important means of sustaining a healthy, harmonious, two-income marriage. Hold monthly or quarterly financial discussions to review your status. Applaud one another’s accomplishments in meeting goals. Identify problem areas. tpw