For couples learning how to manage their money together, here are some tips, as well as common mistakes to watch out for
As a follow up to yesterday’s story about love and money, here are some tips for couples to think about when managing money together, and some common mistakes to watch out for, from Irvin Schorsch III, founder and president of Pennsylvania Capital Management, which has about $620 million under management.
Create a Common Vision: Couples cannot plan for the future if they can’t decide on what their future will hold. Will both spouses work? How many children does a couple anticipate on having? Does either spouse wish to go back to school for an advanced degree? What do they envision retirement to look like? The sooner those questions are answered, the better off the couple will be.
Delegate: Once a financial “game plan” is put into place, it’s important to to determine which spouse will handle the variety of financial responsibilities within a household. Tasks/projects should be given to the spouse who is best suited to them, so that each spouse feels they’re contributing effectively.
Maximize All Contributions: Does one spouse receive a handsome employer match to any 401(k) contributions? If so, it’s important to maximize that contribution, even if it means living on one spouse’s income for a period of time. The sacrifice will be well worth it, especially if it helps build a large nest egg earlier in life.
Create Guidelines Before Loaning Money: Helping family or friends financially is clearly a generous act, but it can create confusion and even stress if the guidelines are not carefully set up ahead of time. Discuss how much money can be loaned to any third parties, and be aware that loans to siblings and other family members can in fact affect inheritance.
Schedule Periodic Reviews: Try to meet with your spouse to review any spreadsheets or other financial documents that will provide a snapshot of the state of financial health within the family. This can also be useful when it comes to the repayment of loans!
Common Mistakes Couples Make:
Starting Too Late: Couples that get a late start with retirement planning must save significantly more money to make up for lost time. By starting to save and invest early, couples will find themselves in a much better position to handle all of life’s financial emergencies, such as private school and college tuition expenses, medical costs, buying a second home, etc.
Enabling “Boomerang Kids”: Parents should not put their own financial future in jeopardy by constantly loaning money to grown children. Only loan money to family and friends when you can truly afford it -- meaning you can afford to possibly never have the money paid back. Offer a “helping hand” and document the loan to build a strong dialogue with the borrower, even if the loan is ultimately forgiven.
Beware the Savings Trap: A majority of life’s great expenses come during middle age: college tuition, buying a second home, etc. While of course it’s important to pay for expenses as they arise, one must never forget that a retirement portfolio is SACRED. You will need this money to live on later, so do not skimp on building it... or overdrawing it once you’re living on a fixed income.
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