for RICHER or Poorer?
DECTRICK AND PAULA JENKINS TIED the knot just 29 months ago, but the newly-weds are already planning how they can spend their golden years comfortably. The couple--he's 28, she's 29--hope to retire by the time they're 50 with a net worth of at least $1 million. By acquiring real estate, investing in stocks, and aggressively eliminating debt, they plan to make their dreams a reality.
To reach their goals, the pair is taking action now. They handle the household budget together, splitting their paychecks to cover recurring bills and accumulate savings. However, Dectrick, a quality engineer at Pre-Finish Metals in Elk Grove Village, Illinois, is in charge of eliminating debt and vacation expenses, while Paula, a business analyst for Hewitt Associates in Lincolnshire, Illinois, focuses on building nest eggs for investment and retirement purposes.
"It's important for us to put together a plan now, because the earlier you begin, the better off you are long term," says Dectrick. "Plus, there are numerous goals that we want to achieve, and motivation, not procrastination, will be needed to achieve them."
If you truly want your married life to be for richer not poorer, take your finances as seriously as you take your vows. Iris D. Atkinson-Kirkland, a financial management consultant and debt management expert in Hempstead, New York says that for young married couples, saving for retirement requires discipline and a solid investment strategy. Creating a financial plan before marriage or shortly thereafter can help couples discover the differences as well as the similarities, in each other's approach to money management. If one spouse is a spontaneous spender and the other a savvy saver, a discussion of each other's financial goals and expectations should take place. If both are spenders, a careful evaluation of spending habits should be noted and corrections made, because such habits could quickly bankrupt or break up a marriage. If both are savers, the couple should discuss which investments will be made in order to make their money grow. Atkinson-Kirkland stresses that these matters be dealt with quickly in order to avoid money problems later.
To stay on track, the Jenkinses are using a model suggested by their financial advisor. Freddye Smith, a certified financial planner at the financial services firm of Waddell & geed in Chicago, suggested the couple employ "the $50 rule" when using credit cards: if a purchase costs more than $50 walk away and consider if it is really needed. Smith also advised them to pay off their $22,000 student-loan debt. They own two cars (one is paid for), and have no plans to make more than one car payment.
"This model will free up money for other items, reduce our debt, and increase our net worth," says Dectrick.
On the asset side, the newlyweds invest in 401(k)'s; they both have company stock and profit-sharing plans, and they've both opened their own personal brokerage accounts. They've even started an investment club. With a household income of $95,000, they plan to continue investing aggressively and strive to cut their $14,000 credit card debt in half during the next year. The plan has worked so well that they just purchased a new home in Bound Lake Beach, Illinois.
GO TO COUNSELING
Though it might not sound very romantic, experts encourage young couples to consult a financial planner before marriage to devise a comprehensive plan. Much like a marriage counselor, a financial planner can help couples talk through investment fears and aspirations on the way to building a strong fiscal foundation for their marriage.
"Most married couples will plan their wedding with greater care than they plan their first year of financial interdependence," says Keith R. Davenport, a certified financial planner and associate director of the TIAA-CREF Institute, a New York-based pension system and financial services firm that manages about $275 billion in assets for individual investors in the field of education and the general public. "Newly married people face new challenges. Not only must each spouse manage his or her own expenses but anticipate and plan for the expenses of the partner. Taking advice from experts will help couples manage income as a team and get help from an objective perspective."
SHARE INFORMATION OPENLY AND HONESTLY
Gathering information is a key step to building a successful financial foundation. The union of two financial lives can be difficult. "Like a successful corporate merger, the marriage of finances must be done with openness and an agreement on how the new joint entity will operate," says Davenport. He suggests couples ask difficult but necessary questions: Does my future spouse have a bad credit record or has he or she ever filed for bankruptcy? How much credit card debt will each of us bring to the marriage? What debts will become joint obligations or continue to be paid separately? Whether it's student loans, credit cards, or car payments, he suggests that couples develop a joint strategy to pay off any high-interest balances.
"Don't keep secrets concerning debts, savings, or investment assets; that's a bad idea," he says. "Communication, honesty, open-mindedness, and understanding are the key to any relationship, and when money is involved, these ground rules take on an even greater purpose."
"One of the biggest challenges couples will face is restraint," says Atkinson-Kirkland. "They will have to learn self-control, self-discipline, and be able to resist buying things they want versus need. To accomplish that, they must be willing to work together and prioritize to determine those things."
For Anderson and Lisa Bynam, working with a planner helped the pair develop a strategy to meet their short-term and long-term financial goals. The Houston couple began working with a financial planner 12 months ago, 14 months into their marriage. They view their vows as an "economic partnership." Anderson, 37, is an investment banker, while Lisa, 32, is an insurance claims specialist.
By working with Cheryl Creuzot, president of the Financial Strategies Group, the Bynams were able to discover some "very important" financial tools they didn't see before. Now they invest in life and disability insurance, not only to build assets but also for protection in case of death or an unplanned illness. Anderson did not have insurance coverage before their marriage; Lisa did.
The customized plan also helped the couple understand the importance of income allocation and income-to-debt ratio. The Bynams embarked on a strategy of aggressively eliminating debts, which gave them the cash flow they needed to buy a new home and increase their net worth. They sold Lisa's previous home and used the cash to create an emergency fund.
Aggressively using their combined cash flow to eliminate debt also helped the couple eliminate about $10,000 in credit card and other debt shortly after the wedding. "They make decisions together on long-term financial goals such as retirement, but split obligations on monthly bills like basic household expenses," says Creuzot.
Anderson and Lisa maintain joint accounts for such purposes as stock investments, and are beneficiaries on each other's insurance polices. Their goal: Have a net worth of at least $1 million and the option to both be able to retire by the age of 60. Aware that tension over money is among the biggest causes of marital stress, frustration, and divorce, they talked about their finances before getting married, following the lessons learned in their premarital counseling.
"It's very important to talk about it in advance, because all of a sudden, your income is no longer just about one person but about both of you," Anderson says. "Having a plan is helping us reach our pecuniary goals. And if we should decide to have children, I want Lisa to be in a position where she does not have to work."
Davenport recommends that couples regularly reevaluate their insurance policies and employee benefits. "Compare existing policies for life, disability, home owner, and auto insurance," he says. "Eliminate any gaps or overlapping coverage and make appropriate changes and updates to beneficiary designations. Now that both depend on the income of the other, it's recommended that each spouse be named to receive survivor benefits of insurance and retirement benefits. Leaving assets after your death to someone other than your spouse could cause major problems."
BUDGET FOR YOUR FUTURE
In setting up a budget, couples should list assets (i.e., income, investments) and liabilities (i.e., mortgage, credit cards) and decide how household expenses will be paid. Typically, it's suggested that the better money manager handle the finances. Yet, this can be a joint responsibility if couples regularly collaborate to make key decisions, including discussing how credit will be managed. "To get the best results, couples should frankly talk about each other's financial background on things like their spending and saving habits, sources of income, and their previous credit histories," says Davenport.
Couples should also list goals, including how to plan should they decide to have children, buy a home, develop a college fund, start a business, and invest in the stock market or real estate. Davenport suggests taking advantage of company-sponsored 401(k) or 403(b) plans, IRAs, and other retirement vehicles. "The more one saves now, the more the monies will grow through the magic of compounding interest and tax-deferral. The younger the couple, the more they should invest in stocks, which tend to offer the highest returns over the long term," he says.
In terms of handling cash, financial planners recommend that couples decide who will have the primary responsibility for managing money, paying bills, and balancing the checkbook. They suggest couples determine whether having joint accounts, separate accounts, or both works for them. Each relationship is different. An option: Consider a joint account with combined savings and investments and use it to pay all household bills.
Couples might also consider opening separate accounts with "small amounts" of money to remain "financially independent," particularly if they've been single for many years. If both want to handle the money, professionals suggest they divide financial duties. Regardless of the approach, couples should review the budget and checkbooks monthly to monitor progress. And remember that once you have a financial plan, the strategy can be modified at any time with the help of a financial planner.
In fact, a financial planner can help you navigate through budget issues and differences in investment styles. Talking about investment philosophies is important for couples early on, particularly for those with dual incomes and high salaries. Clashing investment styles are typical in marriages, particularly if the husband is an aggressive investor in stocks and mutual funds, while the wife prefers the more conservative certificates of deposit or money markets accounts.
Freddye Smith suggests diversification--having both types of portfolios. She and other experts advise working with a planner who can offer an objective view of which investments to choose. Such an advisor can also talk to couples about how their different investment styles can complement each other and offer less overall investment risk.
SET UP A SAFETY NET
Even if you start planning early, you have to prepare for all eventualities. Financial advisors advocate setting up a safety net. "An emergency fund equal to three to six months of earnings should be a first priority," says Davenport. "Keep this cash in a bank savings account or a money market account, a place where it can be accessed quickly."
But perhaps the best safety net for newlyweds is starting out with a financial planner in your wedding party. That may be the best wedding gift you could ever give yourself and your financial future.
To Do List
discuss your financial goals and expectations and create a plan that you both agree on.
* Use your combined incomes to pay off credit card and student-loan debt faster.
* Buy both life and disability insurance for protection in case of unplanned death, injury, or illness.
* Invest in the stock market and buy real estate.
* Take advantage of company-sponsored 401(k)or 403(b) plans and other retirement options, such as IRA accounts
* Maintain an emergency fund with three to six months of earnings.
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|Title Annotation:||planning your future|
|Date:||Oct 1, 2001|
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