Should you have his-and-hers checking accounts, a joint account, or both?

A new marriage needs to be built on trust.  You and your spouse need to feel that you can trust each other.  Before you start to have kids, that feeling needs to be reinforced by working together on the family finances, making what was yours and mine into ours.

Particularly when just starting out as a new family, you and your spouse should have a single checking account.  Both paychecks get deposited into that account, and all bills get be paid from that account.  

If you are going to be a family, you and your spouse have to learn to discuss larger purchases, before you buy them.  When bills are being paid jointly through both paychecks, a partner who spends money impulsively or without discussion and mutual agreement is not showing the respect that is part of being married; he or she is irresponsible.  

Irresponsible behavior deserves to be addressed quickly, with a harsh question:  do you want to be in this marriage?  If not, end it now, before things get any more complicated.

Do you want to be married, or don’t you?  Making a habit of being considerate of your spouse is important.  Trust is built or destroyed by your choice (and your spouse’s choice) of spending habits.  That in turn will build the kind of marriage you will have for decades.  What kind of relationship do you want with your spouse?  The financial choices you make beginning from the very first moments of your marriage – and even prior – will affect the attitudes of both of you, for the rest of your life.  Once established, attitudes and behaviors are extremely difficult to change.

“Well, you did it.  Why shouldn’t I?” Retaliation has no part in a good marriage.  Lead by example.  Set the pattern.  Get it right from the very beginning.

401ks

The normal advice for 401k accounts holds true for both of you:  sign up for the maximum for which your employer will provide a match – usually, 6%.  The employer’s match is free money; take it.  

Then, as time goes on, increase that percentage.  Every time either of you get a raise, increase your contribution.  Every time you pay off a loan, increase your contribution.  Your goal – for both of you – is to reach the legal maximum:  15%.  When you retire, you will be glad you did.

IRAs

As soon as possible, you and your spouse should each open separate IRA accounts.  Each of you must decide which is the right approach for your IRA:  a discount broker or a full-service broker.  The fees of a discount broker are lower, but you may prefer the advice of a full-service broker.  Both offer informational services to help you choose your investments.

Every two or three years, move the “vested” money in your 401k into your IRA.  401ks are designed to be conservative; they are designed to be appropriate for people with no experience or good judgement in making investments.  

When you switch jobs, always move your 401k money from your old employer into your IRA.  

Learning how to invest means more money for you and your family.  You and your spouse should each begin your personal stock-investing “career” in your own IRA, building your experience and know-how.  While the amounts will differ, develop a friendly competition focused on the percent increases (or during recessions, decreases) of your two IRA accounts.  That competition will drive you both to be more knowledgeable and become better investors.

Similarly, both of you should open after-tax investment accounts.  Deposits should be made equitably into both accounts.  The money you make in after-tax accounts is subject to taxation, making investment success more difficult – which will help you improve your decision-making.  

After you retire, as you withdraw money from your IRA, transfer it into your after-tax account, and if possible, continue investing there.

Be aware of the IRS regulations on required withdrawals from your IRAs.  Paying penalties is just throwing money away.

Not your first marriage?

People who have both had prior marriages will often have widely disparate financial situations.  

Nevertheless, when you get married, the bills get paid from a common joint checking account.  Both paychecks get deposited in the joint account.  

Did one – or both – of you bring an expensive hobby with you?  Resolve that financial issue before getting married.  Its expenses still get paid by the joint account – as long as the hobbyist can still afford it, or the other spouse agrees to support it.  

Houses – His, Hers, Ours

In an ideal world, both individuals’ current houses are sold, and a new house is purchased together.  It will mean more to each of you than you think.  This is particularly crucial for either of the two who lives in a house from a previous marriage; there will always be reminders, stigmas, and holdovers from that failure.  Start fresh.

If both houses were purchased by the spouses as individuals, the issue gets tougher.  Does it make financial sense to sell both houses?  Can you afford to sell two houses and buy a third?  How much money will be lost in the transactions?  It can get expensive.  Is it worth that?  What does each of you want in a new house?  

Discuss the features you want – make lists of the “must haves” (which must also be affordable), the “would like to haves”, and the “nice to haves”.  Don’t sacrifice your must-haves, and get as many of the like-to-haves as you can afford.

In any case, the house you choose to live in should be registered in both names.

Location, location, location

Prices for houses have been shooting up.  Are houses available in the location you want, with the features you want, in your price range?  

What is your price range?  At most, the top of your price range is 2.5 times your combined salaries.  You may decide it should be less, if one job is not steady, or one of you is close to retirement, or you have other things you want to buy.  

How long a mortgage do you want – 30 years, or 20, or 15?  Pick the length that will assure your house will be paid off before you retire.  Your price range and mortgage length, plus any other debts you both have, dictate what is affordable.  

Family finances are the foundation for a satisfying marriage.  Get the basics right, and the rest will be much easier.  

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