Couples Financial Planning Tips for Advisors
Unless you’re a finance professional, people rarely talk about finances at a wedding. While conversations about money are often painfully awkward, this conversation is necessary, especially for newlyweds starting their lives together.
Sharing a life with someone means sharing their goals, too — goals that they often need to budget for to realize.
However, marrying two individuals’ personal finances isn’t always as joyous as them saying their vows — and that’s where your skills as a Certified Financial Planner (CFP) come in.
In this article, we’ll give you a high-level overview of what kind of considerations couples often have when they’re about to get married in regard to their financial future. Knowing what concerns they might have as they step into your office will help you navigate the complex conversation that comes with joining two accounts (hopefully) for the rest of their lives.
Financial goals and priorities for couples
As with any consultation, you need to start with their goals. Knowing where your clients want to go will help you map out what kind of milestones they need to hit, budget adjustments, and lifestyle changes they might need to go through.
Here are a few common long-term goals that a married couple might have in mind.
Living debt-free
Being in debt is not a great feeling to have. For couples with peace of mind as a priority, clearing their debt might be one of their main goals. This means paying off all debts, such as student loans, credit cards, and mortgages.
Before you start talking about strategies to reduce their debt, you need to find out how much they owe. This might be a sensitive subject to some, but having an honest conversation about their assets, debts, and liabilities is ideal.
Making difficult conversations easy is one of the core skills of a financial advisor.
But if you need help, you can always use visual cues to move the conversation forward. For example, you can use Target-Map to show how each month’s payment will help them chip away at their debt.
Buying a home
Having a place you can call your own is a big goal for most. Unfortunately, in today’s real estate market, buying a home requires a significant amount of savings and a pre-approved loan on your client’s part.
You can help your clients create and implement a plan to acquire their dream home. This plan should include a budget for the down payment, monthly mortgage payments, and how long it will take them to go from renters to homeowners. You should research the best possible loan options for your clients and create recommendations for the different types of mortgages they can access.
If you’ll be working with this client for a long time, creating a plan is only a small part of your responsibility. You’ll also need to answer any questions they have along the way, debunk common misconceptions, and explain the adjustments they have to make in their lifestyle is also part of your responsibility.
Having children
Bringing a human into the world is a big life event for married couples — and it’s also a costly one.
Before a couple decides to have children, they should discuss how it will affect their financial standing. Are they ready to take on the additional expenses?
You play a critical role in these conversations by providing your clients with the right resources and helping them create a budget to cover the costs of having a child.
Start by giving them a breakdown of the anticipated expenses they’ll need to handle: from pregnancy to childbirth to childcare. In addition, you’ll also need to create a plan to save money for the child’s education and general expenses, with the goal of eventually funding a college education.
Career changes
When you’re flying solo, career changes are your decision to make. However, as a couple, your career affects your partner’s life, too.
While it’s true that taking up a new job or starting a business can be rewarding, it also involves risks.
As their financial advisor, it’s essential to educate your clients on the potential impacts of these decisions. From there, you should create a strategy to help them prepare enough money to cover their overhead expenses.
You should also create a budget that considers the costs of pursuing a new career path — such as tuition fees, supplies, and conferences.
It’s also important that couples talk about how their health insurance policies might change if one of them loses their current employer-sponsored plan after getting married.
Investment hobbies
No matter who’s making the money, couples that have an interest in investing will share the risks and rewards.
You can start by finding out their risk tolerance, recommending investment accounts, and giving them resources to learn more about investing. You can also share different strategies they can use to get their feet wet in the world of investing.
Just like any other hobby, couples with an interest in investing will need to set aside money for it. You should help them create a plan to manage their investment goals while not jeopardizing their other goals.
Retirement
For many couples, retiring comfortably is a top priority. This usually means saving as much as possible and investing in the long term. If your clients want to retire early, they might have to commit to a more rigorous savings plan — which might mean a drastic lifestyle change for both of them.
Your goal here is to find the most balanced savings ratio where they can maximize their savings sustainably. Having an ideal plan is great, but it amounts to nothing if your clients aren’t implementing them.
Beyond retirement planning, some joint financial decisions they might have to make include estate planning, wealth management, and deciding on life insurance.
Starting a financial plan and budget
Now that you and your clients have clarity on what kind of financial goals they have in mind, it’s time to create a plan. It’s your turn to get to work and create a plan that will be realistic for their lifestyle.
A cash flow and a budget are great starting places for most.
You can help your clients assess their total income and expenses, track their day-to-day expenses, and create a budget to follow month-to-month.
With a budget in hand, you can help them boost their savings by assessing their fixed expenses. Analyzing current and potential fixed expenses, such as rent, auto insurance, and utilities, can help them lower their overall expenditures and, consequently, increase their savings.
The most important part of this work is communicating with your clients to make sure they understand the importance of the budgets you recommended. You’ll also need to relay the lifestyle changes they have to make as a trade-off and train them to improve their spending habits.
Should couples combine their finances?
While combining finances isn’t really something someone can decide by going through a checklist, knowing the advantages and disadvantages of this move can help your clients decide.
Pros
Being aware of your partner's spending habits and financial goals will help you build trust and transparency — the two essential components of a marriage.
Merging your finances can help you save more money faster and reach financial goals quicker.
Less administrative work since you can use one account for most household expenses and there’s no need to track 2 accounts.
Cons
Your partner can see where all your money is going and vice versa, which may not sit well with everyone.
While this creates accountability to stay on budget, the lack of privacy might also lead to unnecessary guilt when you’re treating yourself to something.
If one partner has more debt than the other, it might be difficult to even off the debt balance which can cause financial stress for both sides.
Additionally, here are a couple of questions your clients might ask when they’re considering combining their accounts:
"Whose bank should we use for a joint checking account, or should we start fresh with a new bank account?"
"Should we keep a personal checking account for hobby spending?"
"Is there a benefit to primarily using one credit card? Which credit card is right for us?"
"Will we file our taxes separately or jointly?"
"How will we combine physical assets? If there are duplicates, can we sell them to pay down debt?"
When is it better to keep finances separate?
Research shows that couples who merge their finances are less likely to break up. However, there are more than a few scenarios where it’s best to keep your client’s finances separate.
For starters, if one has a bad credit history, this can damage the other partner's credit score. In this case, it might be better to keep finances separate so that their credit history doesn’t impact the other. If one partner has a lot of debt, keeping their finances separate might help in case of a default.
Another instance when it might be better to keep finances separate is if the couple is not married. If the couple is not married, there can be complications with taxes and other financial matters.
Finally, couples with different spending habits or financial goals might find it easier to keep their finances separate. When you have different goals and spending habits, having a joint account might just lead to conflict down the road.
Of course, each couple’s situation is a unique one. When you have a grasp of their goals, financial situation, and spending habits, you’ll be able to create a diagnosis on whether or not they should have a joint account and what the setup should look like.
Asset-Map can help advisors guide couples through financial planning
Marriage is a joyful occasion. Couples seek out a financial advisor to make sure that they have the right start to their new lives and make the process as easy as possible.
Your job as a financial advisor in this case is to help them communicate and create a plan with both of their best interests in mind. It’s a tall order. And it’s not easy to manage two accounts at once, make sure that their financial goals are aligned, and take both parties’ assets and liabilities into account.
Asset-Map can help you tackle any couple’s financial problems and turn their concerns into easily digestible plans.
Schedule a demo today to find out how a visual map helps financial advisors navigate through client conversations, turning it into a collaborative experience for your clients.