Checklist: 8 Things That You Should Know About Your Finances as a Couple
By: Source: AARP Bulletin Today Date Posted: 2002-06-25 07:38:00-04:00
Consider this reality check: "All marriages end in two ways—through death or divorce."
That's the message from Ginita Wall, veteran financial advisor and co-founder of the Women's Institute for Financial Education (WIFE). The point is, at one time or another, both partners in a marriage must know what's happening with "the books."
If something happens to you or your spouse—or worse, both of you at once—how are things going to get paid? How will investments be managed? What assets should be kept or sold? Is all documentation in one place? Can other people find it, if necessary?
"Do contingency planning at least once a year," says Wall. "Sit down. Talk about your finances. This kind of planning allows you to create a financial road map not only for yourselves—but also your heirs. You make it clear: 'This is what we intend.' "
You and your spouse should be able to answer these 8 questions about your finances:
1. What is your cash flow?
The answer may not make you feel very comfortable, but that's exactly why it's important to do the math. The story for most couples at most stages of life is that more money is going out than coming in—but, until you recognize that, it's hard to rein in expenses. Things usually get even tighter for people later in life, especially as their incomes become more "fixed."
2. How is your credit history?
Understanding your credit history is important, because it affects your ability to get loans or new sources of credit. Regular checkups on your credit also can reveal identity fraud.
The three primary credit-reporting agencies are:
- Equifax: (800) 685-1111; http://www.equifax.com
- Experian (formerly TRW): (888) 397-3742; http://www.experian.com
- TransUnion: (800) 916-8800; http://www.transunion.com
Remember, you can check your credit history at any time—and financial advisors say to do so on a regular basis. If there is something inaccurate on your report, under the Fair Credit Reporting Act, you have the right to dispute it and have it corrected.
3. How much debt do you have?
Assess how much you owe to creditors. Remember, your loved ones get saddled with your debt when you die. Are you leaving them a nice nest egg—or a big financial headache? If it's the latter, it's time to "stop the bleeding" and think about ways to reduce your debt—especially credit card debt, says Marin Retirement Advisors' Dave Shore.
"I don't believe that it's ever too late for a change in [financial] behavior and attitude management," he says. "Embrace reinvention and improvement of your finances."
4. What future expenses do you face?
Make a "want vs. need" list and "prioritize individual and combined needs and wants, including discretionary spending, such as vacations and luxury items," suggest financial advisors with Capital One Financial Group. Combined with an understanding of your cash flow and other financial indicators, you'll be able to determine which expenses you really can undertake.
"People are living a lot longer these days and have more active retirement years than their parents probably ever did," says Matthew Fannin, an American Express financial advisor based in San Rafael, Calif.
5. Whose name is on what?
Do a status check on all assets that require a beneficiary, such as life insurance policies, pensions and other retirement plans. Are the beneficiaries listed on these documents still the same people you want to receive benefits?
Don't forget to review wills and trusts, too. Are you still satisfied with your original choice of the executor of your estate or the manager of your trust? Is it an ex-spouse? An attorney you don't do business with anymore? A person who has died? And do you have another person who can take over in case something happens to both you and the person you named as your executor?
This is all especially important if you have remarried and want to provide for your new spouse and family. There is often little recourse for those who are not identified as beneficiaries.
6. Have you and your spouse established power-of-attorney documents?
Couples should "establish powers of attorney for healthcare and finance," advises Fannin. For couples that aren't married, this can be a way to ensure that other family members can't push them out if one partner dies or becomes incapacitated.
7. Who are your financial advisors?
Trusted advisors who are familiar with your finances can steer you through even the most difficult times.
Don't have any financial advisors? Now's the time—regardless of your financial situation. "There's always room for improvement," says Fannin. "Even those who say they don't have any money—and may have a negative net worth—can still work to change their situation."
WIFE's Ginita Wall suggests—that for an initial meeting—couples seek out financial advisors that offer fee-based consultations, because those who operate on commissions typically make selling financial products a priority, which may "cloud" the advising process.
Many big companies such as American Express offer fee-based consultation and are required to give several hours of this type of advice before trying to sell specific financial products to their clients, Fannin adds.
8. Do you have a safe deposit box?
If not, where do you keep your important financial and legal documents such as life insurance policies and wills? Finding these critical documents quickly can make difficult times a bit easier.
Make sure that others—an attorney, children or grandchildren—know the location of your legal documents.
Nobody can access a safe deposit box without 1) a key, and 2) permission from the owner(s). The latter usually takes the form of a person's name being included on a safe deposit box agreement, which is kept with a bank and/or attorney, or as designated in a will.
Note: Keeping original copies of power-of-attorney documents at home is a good idea, because crises don't always strike when the bank is open, according to most financial advisors.
Jane Irene Kelly is a freelance journalist based in Mill Valley, Calif.
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