Forty-three percent of people1 don’t know how much their spouse earns, and that’s just one of the financial discussions too many married couples keep to themselves. These financial unknowns can set the stage for marital strife. To ensure you and your better half are on the same page about finances, use these tips to start the conversation.
1. Assess Financial Habits
First, look at how each of you currently spends your money. How much are you spending on the essentials (bills) and extras (entertainment)? You should also review last year’s expenses to get a full picture of where your money is going.
After looking at your current spending habits, discuss your short- and long-term financial goals, such as eliminating debt, saving for a down payment on a home or replacing a vehicle.
Once you have established your objectives, define specific strategies for accomplishing your goals. Do you need to cut back on eating out? Or maybe you need to spend less on your yearly vacation. Whatever you decide, make sure your plan of action is realistic, and fits your and your spouse’s financial situation.
2. Prepare for an Emergency
As one of your goals, talk about creating an emergency fund. Sixty-four percent of people in America2 wouldn’t be able to come up with $1,000 in an emergency. Don’t be part of this percentage. Plan how you will work together to prepare for the unexpected.
Even if paying down debt is a primary goal, plan to set aside some money every month for your emergency fund. After all, if you can pull from this fund, you won’t need to add to your credit bills in case of an emergency. It’s recommended to have three to six months of your monthly expenses saved.
3. Prepare for a Crisis
Review your life insurance needs. Assuming both spouses work, consider purchasing term insurance five to 10 times your combined annual income. You may want to purchase more if you have young children or have substantial debt obligations such as a mortgage. You can buy affordable term insurance for 10, 20 or 30 years. Your Fifth Third advisor can get you quotes from more than 30 different insurance firms.
4. Update Your Last Will and Testaments
Another essential discussion is how you want your assets distributed once you are gone. In other words, it’s time to talk about your Wills. Without this legal document, you could be leaving your spouse and/or children in a bind at your passing. A Will clearly establishes both of your financial wishes.
It’s a good idea to review your Will at least every five years and whenever an important life event happens – like having children or buying a home.
5. Revise Beneficiary Information
Along with your Will, make sure you have named beneficiaries for your retirement accounts. Update these names on the same schedule that you review your Will. Similarly, revise as needed based on life events. For example, if you named your mother as a beneficiary and she has since passed away, make sure to update the information.
A Prosperous Financial Future
Now that you have a basic framework for your financial conversation with your spouse, you should be on your way to a healthy financial future together. But if you need financial guidance to achieve your goals, Fifth Third Bank’s investment professionals are here to help.