By Pamela Yip
RISMEDIA, Sept. 9, 2008-(MCT)-There are very few life occurrences that don’t have some sort of connection to money. Almost every stage and event in your personal life will require you to reassess your financial situation.
“Financial planning is essentially an exercise in planning your future, so when something changes with your current situation that will lead to a change in your future, it’s time to review your financial plan,” said Lance Alston, certified financial planner and president at JWA Financial Group Inc. in Dallas.
In all life events, whether they’re expected or unexpected, try not to make emotional decisions when it comes to finances.
“Most of us will face some life transition involving money during our lives,” said Viktor Szucs, a certified financial planner at Quest Capital Management in Dallas. “Many of these transitions involve an abundance of emotions, which generally impede the rational decision-making process. This may lead to poor decisions that could have lasting impact on your life.”
- When you say ‘I do,’ vow to have a financial plan. When you marry, you’re merging your financial life with that of your spouse. This raises a host of issues, including paying joint debts and household expenses, deciding who pays the bills and who makes investment decisions, and determining whether to file income tax returns jointly or as two separate, married taxpayers.
“The key is to begin implementing your financial plan when you say, ‘I do,’” said Derrick Kinney, senior financial adviser at Ameriprise Financial Services Inc. in Arlington.
Often, a couple brings to the marriage different values and family influences related to money. They also may have different spending habits.
For instance, one might be a saver and the other a spender. You’ll want to discuss how you will reconcile those two very different styles to maintain marital and financial harmony.
Also discuss how you will approach taking on debt and making major purchases.
And don’t forget to resolve bread-and-butter issues, such as whether you should have separate bank accounts with one joint account for common household expenses, or whether you should have just one joint account.
“Know your roles,” Kinney said. “Quickly identify which partner will be responsible for paying the bills and who is responsible for the long-range investing strategy. It could be the same person. Both of you should be in the know, but someone needs to be in charge.”
If you’re in a second marriage and both have children from previous marriages, there are additional issues that so-called “blended” families face.
For one thing, after you’ve accumulated assets together, how will those assets be divided among the children you have together and the kids from your previous marriage?
If there’s child support and alimony involved from a previous marriage, you need to discuss how this will affect the blended family.
In any marriage, you should determine whether you have the same financial goals.
“Sit down together and dream a little about how early you want to retire,” Kinney said. “Think about what you want to do, where you want to go, what you want to be. This will be a great motivator to start saving now.”
- Kids may bring unexpected costs, insurance needs. The saying, “Having a baby changes everything” rings ever so loudly as far as parents’ personal finances are concerned.
According to the U.S. Department of Agriculture, a child born last year to middle-income families will cost mom and dad a total of $204,060 by the time he or she reaches age 18.
That includes the cost of providing food, shelter, clothing and other necessities.
Rob Gerwer and his wife, Casey, can relate to that-four times over. They recently had quadruplets.
“It has had a massive impact,” said Gerwer, a mortgage broker and owner of Blue Star Lending in Dallas.
Consider the family’s monthly expenses: $868 for baby formula, $390 for diapers, $72 for baby wipes and $1,100 for baby food.
Plus, “You have four cribs and four times the clothes,” Gerwer said.
A key piece of advice to prospective parents: Make sure you have good health insurance coverage.
“Since I am self-employed, there weren’t any individual policies that would cover maternity for my wife, so that’s why we had to pay the $40,000 out of pocket,” Gerwer said.
To help finance their costs, the couple have created the Gerwer Diaper/Wipes/Formula Fund at their blog: gerwerbabies.blogspot.com
“My advice to people having kids: Make sure you try to think of all angles,” Gerwer said. “Obviously, no one plans for quadruplets, but if you have just one on the way, try to start plugging away a little money here and there. There is always an expense that you didn’t think of that will spring up.”
Besides health insurance, other forms of insurance are just as important. When you have children, life insurance becomes even more essential because you want to ensure that your family has enough money to cover bills and college costs when you die.
Before their babies were born, Gerwer and his wife each had $500,000 of life insurance. They’ve pumped that up to $1.5 million each.
But Gerwer lacks an often overlooked insurance-disability coverage, which would protect his earning power if he’s disabled and unable to earn a living. It’s all the more important because he’s the sole breadwinner.
- Getting divorced? Get familiar with assets, liabilities. Unfortunately, marriages don’t always work out. And when divorce occurs, the financial impact can be devastating.
“The main reason that it is imperative that you reassess your financial plan during divorce is because now the couple will be trying to maintain two households and two lifestyles rather than one,” said Todd R. Amacher, a certified divorce financial analyst at Robertson, Griege & Thoele Financial Advisors in Dallas. “This can be a financial drain for most couples even if both of them are employed.”
Both spouses should be up to date on marital assets and liabilities, tax returns and cash flow.
“The spouse who is less familiar needs to spend the time, preferably with their financial planner, to get up to speed on all the financial pieces of the marriage,” Amacher said. “Knowledge is power.”
You’ll need to figure out how to divide the assets and liabilities. State law may affect this. For instance, in a community-property state, earnings during marriage and property acquired with those earnings are considered community property- but that doesn’t mean a couple’s assets are divided down the middle.
“Many spouses fail to consider the tax impact of dividing certain assets such as the family home, retirement accounts and pensions, or a closely held business,” Amacher said. “If alimony is part of a settlement, there are tax ramifications.”
Sometimes a spouse will take a divorce settlement without evaluating whether it will be enough to support him or her, he said.
“A common mistake is failing to put together a budget for your new lifestyle,” Amacher said. “If you don’t know what it costs to maintain that lifestyle, how can you logically accept a proposed financial settlement?”
If you have children, a key issue is how you resolve custody and child support issues.
Amacher said the spouse receiving child support should take out life insurance on the life of the former partner.
“If the payer spouse dies, the children left behind still need to eat, be clothed and obtain an education,” he said.
Immediately after the divorce, review and redraft your estate-planning documents, retitle certain assets, and update your life insurance and retirement account beneficiary forms.
© 2008, The Dallas Morning News.
Distributed by McClatchy-Tribune Information Services.