Family Life and Finances

Combining finances after marriage

Getting married results in major life changes from top to bottom—and your significant other may not necessarily be your financial soul mate. However, finding a way to blend your financial habits is an important facet of the marriage relationship.

Marriage involves incorporating another person into your life in financial and legal ways. If you choose to take your spouse’s last name, you will need to notify the Social Security Administration and make changes to other identifying documents including your driver’s license or passport. And be sure to notify credit card companies of your name and any address change.

If you choose to make property and accounts jointly owned, you’ll need to notify your financial institutions and insurance companies to have them change account titles. And don’t forget to notify your employer to help you make any changes to the benefits you receive.

Review your beneficiary designations on life insurance policies, accidental death & dismemberment policies and retirement accounts and decide whether you want to name your new spouse as beneficiary. If your spouse will be driving your car, you’ll want to add him or her as an additional driver on your policy. Estate planning documents such as wills and trusts should be reviewed too, to ensure that they reflect your intentions as a married couple.

Be aware that alimony and support payments are affected. Alimony payments often cease when a receiving spouse remarries. The amount of payments can also change for a spouse with custody who is receiving child support. If you have been receiving Social Security benefits based on a prior marriage, these likely will end so you may need to adjust your budget.

Your tax filing status may change, as well.

Facing financial concerns and working together to deal with them will help get your marriage started on the right track financially. Establish financial goals for your new family, create a realistic budget and pay into an emergency fund for a rainy day. Try your best to be financially fit and make time to review and plan for the future.

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Funding higher education

There are many different approaches to consider when saving for education expenses. Paying for college or even for a private secondary school can be challenging for even the most financially savvy families. It is important to know your options for saving and the benefits and downsides of each. 

Creating a college fund that is centered on the stock market has the greatest potential for growth, but also carries the greatest potential for loss. A popular option, the Section 529 Plan, allows you to make contributions on your children’s behalf, much like you would to your own retirement account. These 529 Plans are normally centered on a target date and provide a variety of options to get you to your goal. Like any investment account, make sure you are aware of any fees associated with the account, because over time, these fees can impact your bottom line. It is always prudent to consult with your financial professional to decide how much risk you tolerate, while still making progress toward your target date.    

Personal savings accounts have an advantage because there is virtually no risk of losing money in the short term. However, this comes at the cost of dramatically reducing the overall return of your college fund, and may not even keep up with inflation. There are federally insured tax advantaged education accounts such as the Coverdell ESA, that can offer a higher return but these accounts also have contribution limits and specific withdrawal criteria that must be met to avoid tax penalties.

The best strategy for long term success is a blend of different savings and investments that offers a solid return with minimal risk. It is a marathon not a sprint, so be aware of changes in both the financial marketplace and your personal life. Make a thorough review annually to stay on track.

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Planning for college

Planning for your child’s education expenses may be your family’s first long term savings goal, but it certainly won’t be the last. Always consider all of your options. From the time you make the first savings deposit to selecting a college and choosing a course of study, the choices you and your child make can have a financial impact for years to come.

It is never too early to begin to save. Starting to save for education while your children are still small will give your savings more time to grow. How much will it cost? If you assume that the average annual inflation rate for the cost of college is five percent, in 17 years, tuition and fees at a four-year private college will be roughly $116,175 per year, and tuition and fees at a four-year public college will be roughly $59,125 per year.

The college years start to feel much closer once your children are in elementary or middle school, so if you haven’t started saving yet, the time to start is now. If your savings aren’t on track to meet your goal, it’s important to make adjustments to your budget and spending habits to increase your savings. The amount you save for today can make a big difference in the amount you will have accumulated over the next several years.

Always look carefully at the different financial aid offerings that become available when your child approaches college. Even though interest on student loans can be deferred, it must still be repaid, and this may leave your child saddled with debt for many years beyond graduation. To minimize the necessity of student loans, always apply for as many scholarships and grants as possible. And when it comes to student loans, don’t accept the full amount you are awarded if it is not needed for your educational expenses.

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Starting a family

When making the decision to start a family, there are a lot of things to think about.  While it is important to make preparations such as painting the nursery and stocking up on diapers, it is even more important to get the family finances in order. The cost to raise a child to age 17 is estimated to be more than $250,000—and that doesn’t even include college expenses! If you can start by saving a small amount from each paycheck, it will grow almost as fast as your new child.

Establishing and sticking to a household budget will help you prepare. Figuring out your anticipated future income and expenses ahead of time can give you an idea of how much you may need to cut back. It is important not to wait until the last minute, since every penny saved before the new arrival will make it easier to adjust when the time comes. Also, if you have large mortgages and car payments or significant credit card debt, you will need to make some changes to your spending habits sooner rather than later.

Check with your health insurance provider so you will know in advance if there will be any out-of-pocket expenses you should budget for. It can be beneficial to consult a tax professional, since you will soon be having a new “dependent” in the home. This is also a good time to review your life insurance coverage and decide if it should be increased.  Finally, you may need to update your estate plan to be certain that your little one is taken care of in a worst-case situation.

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Suddenly single

Sometimes, life doesn’t quite work out how you intended. If your marriage has ended and you are single again, make sure all your financial arrangements reflect your new status. You likely want to remove your former spouse from your bank accounts and credit cards. Make a comprehensive review of all of your accounts, insurance policies, and estate documents to be sure that your former spouse has been removed as a beneficiary. It is also an important time to consult a financial advisor to adjust your investment strategy and retirement goals to reflect your new status.

If you and your former spouse share joint ownership on loans, consider refinancing. Removing joint responsibility on loans will help eliminate the risk of future irresponsible credit use by your former spouse showing up on your credit report. You may also want to look into refinancing or selling a home if the mortgage is in both names.

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