Thursday, August 25, 2011

Step 97 - Plan your Financial Situation Together

(1 Week to 2 Weeks before the Wedding)
The wedding is a special and exciting time for a couple as they spend much time planning and preparing for the big day, but they often put on the back burner having a serious discussion about their financial situation until sometime after their wedding day and honeymoon. Often Couples often go into a marriage with school loans, auto loans, furniture loans, mortgages, and high credit card balances bringing into their marriage, money woes that end up as a surprise to the other partner.

Couples often don't want to bring up negatives, they feel it may jeopardize the marriage. It turns out it is better for the marriage to have the financial conversation before the wedding than after. It allows you together to start anew your financial life together the right way. After marriage, any personal debt becomes "our debt" and in many cases if the financial situation is a surprise to the other partner, often this creates a mistrust of money matters between the couple right at the beginning of the marriage and creates stress when they are trying to get the marriage off to a good start.

According to researchers, the things that most often leads to couples to split are money matters, issues on sex, chore responsibilities, devoting time to friends especially with the opposite sex, and problems with in-laws. There are many things you want to talk about before getting married, work things, talk about kids, how to put meaning into your relationships, talk about each of your families and each of your likes and dislikes. Often money matters are neglected to later and if you can add money matters to the list of things to talk about before the wedding, it creates a trusting financial relationship right at the beginning of your marriage and moves money matters down on the list of potential problems to start your marriage on the right footing.

As your wedding day nears, the two of you should sit down and plan a day of financial planning. Have some serious fun and both of you lay out your financial situation. Both of you take either a scrap sheet of paper or create a spreadsheet and each of you answers a series of questions. The goal is to ready your finances to bring them together as one, you are readying each of your personal finances and how should you bring them together as one. Make sure you start this exercise independently, no looking at each other's sheet, no cheating. Prepare each of your own sheets, then share each sheet with each other and talk about each point, then try to come to a common agreement. This exercise is called "Skeletons in a Closet". Remember this exercise is just between the two of you, you don't need to share the information with anyone else!

Questions for "Skeletons in a Closet"

1.Describe your job situation, include hours, responsibilities, job relationships, and income!
2.What is your one year plan for work and home?
3.What is your three to five year plan for work and home?
4.List all your assets (bank savings, checking, real estate, insurance, retirement plan, inheritance, and other)!
5.List all your liabilities (credit cards, mortgages, and other debts you owe)!
6.What are your current monthly bills listed for each bill?
7.Where would you eventually like to live?
8.How many kids would you like to have?
9.Describe your dream home?
10.Describe your dream job?
11.What should your kitchen look like? What color?
12.What should your living room look like? What color?
13.What should your family room look like? What color?
14.What should your bedroom look like? What color?
15.Do you want a home office and if so what should it look like? What color?
16.What should your yard look like?
17.Do you have any other wishes?

After you both share your "Skeletons in a Closet" and have talked through each one, you now understand each others finances, wishes and desires and are soon ready to bring your two entities to become one. Once you complete this task, celebrate your coming together, have a drink with your favorite wine or liqueur, go out to dinner, or go to a movie. You just eliminated "Skeletons in a Closet". When you talk through everything, you may not be in total agreement on all your wishes and desires, but at least you know where each of you stands and can work out common wishes and desires over time!

After the wedding and honeymoon, the first thing you will have to do is inform all businesses you have dealings with that you just got married and provide them with your new name, address, phone number, and email address. This includes everything you can think of driver's license, social security card, mortgage companies, all credit cards, credit companies, all utility companies, and any associations you may be a member of.

Once you have updated all your records you will want to sit down with your significant other and start your financial plan at your new home. Experts suggest that when you work your finances that it is probably better to designate one primary manager that handles the household expenses mainly to keep bill paying simple. Experts also say that both parties should be knowledgeable of every bill and occasionally handle bill paying, checkbook-balancing, and the expense monitoring of bills. If one spouse is the primary bill handler, the other one should still should handle paying the bills once or twice a year so they are aware of the household bills and is familiar with the run rate and is aware of bills to be paid when the need arises. Occasionally one spouse might need to go on a business trip or could be laid up in a hospital and the other spouse has no problem picking up the slack and pay all the bills.

Right at the beginning of the marriage, the two of you should identify a place where all the bills go and you both need to create a tracking mechanism for paying the bills. One place you can pick up an inexpensive organizer is at . Studies have shown, that families that lay out a budget and track their monthly expenditures tend to be more successful in money matters. Derive a budget of all your bills for each month and year to date and measure your budget against actual expenditures and show budget differences. The tracking report should look something like the chart below. Learn a spreadsheet package like Excel or Google Docs or get yourselves a budget software program if you have a laptop, computer, or IPhone.

Household Budget

Expenditure           Budget        Actual       Difference
Auto Insurance
Auto Repair
College Fund
Credit Cards
Health Insurance
Maintenance Fees
Retirement Fund

After you pay all your monthly bills, the two of you should have at least 10% left over, if not there is a need to find a stronger paying job or find a second job or find a less expensive home. With the left over money, 50% of the funds should go into a rainy day fund. A rainy day fund is protection against life throwing you curves such as losing a job, health issues, auto repair, etc. Try to set money aside until you reach six months of salary in an interest bearing account which can be accessed by both of you. Also set aside both a retirement account and a college fund right at the beginning of your married lives. Many companies often provide matching funds with individual retirement accounts.

One other thing you should do is create three separate savings accounts with the remaining money. One for joint savings, one for her, and one for him. You should agree to a fair allocation of money to the three savings accounts, maybe 25% to the joint account, 15% to the one bringing in the stronger salary and 10% to the other partner. The joint account might be used for furniture or things for the house or going on vacation. The personal accounts is for buying clothes, buying things for each of your hobbies, or buying a special thing that each of you enjoy or maybe a box of chocolates or flowers for your partner. Of the money you receive in your personal account, a portion should be for spending money and a portion you should strive to not touch and save.

The couple should reevaluate their expense allocations at a designated interval and create budgets. This may be done at the beginning of each quarter or the beginning of the year. Just make sure when adjustments are made to your family's budget that the two of you agree to the budget and expense allocation changes, the key is to look at family money matters together and is our money now and not as each individual's money.

Also as you start your lives together, you need to start working to maintain good credit and you should start monitoring your credit. Ideally you want your credit scores to be 760 but at least above 680. There are three major credit companies Equifax, Experian, and Transunion. You can order credit reports for free up to 3 times a year. You should obtain each of your credit reports, review your credit report and if you see anything wrong put a dispute in using a certified letter. Also keep copies and document what is agreed and verify corrections are made to your credit report. If you have credit issues either get yourselves a credit repair kit or find a reputable company that can help you fix your credit.

Credit Repair Websites

Credit agencies or bureaus gather consumer credit information by soliciting creditors such as credit card companies, banks, and other lenders to join their systems and construct credit experiences on consumers to obtain credit information on consumers to approve credit decisions. The 3 national credit reporting agencies are competitors of each other and they do not normally share their credit information except in special cases. Remember to order credit reports for all 3. Your credit scores impact you in many ways, they determine what you would pay for mortgages, insurance, life, auto loans, and are looked at by rental companies, utility companies, prospective employers, and are looked at by credit card companies who may adjust your line of credit or raise rates or raise your minimum payment.

You need to learn how to handle your credit cards as well. Ideally you want no more than 4 credit cards which may be one of each, a VISA Card, Master Card, Discover, and American Express. A Gasoline Card or Department Store Card may be held in place of one of the aforementioned cards. Ideally you want your credit card balances laid out a certain way.

Credit Card Balances on each Card
< 10% is great
< 30% is good
30% - 60% is neutral
> 60% is bad

Some other notes about credit cards, try to keep balances below 30% of your line of credit for each of your cards if it is possible. If you are over 30% try to increase your line of credit to get it back under 30% or see if you can move the balance to another card which is under 30% of your line of credit. It is better to have a smaller balance on a few cards than have a big balance on one. Close accounts slowly and verified the account was closed by the consumer. Close down the newer card before the older one, the older cards give you better credit. Move money from higher percentage rate cards to lower rate percentage cards sporadically. Try to pay at least double the minimum payment and pay the credit card on time. Your mortgage payments take priority over paying you credit cards.

If you have bad credit, get a secured credit card possibly from your bank. If you get a debt collector contacting you about a debt, you have the right to request them to give you documentation to verify the debt is yours. If the debt collector can't come back with the proof that you owe the debt, they are not allowed to contact you any more. They must contact you no more than 3 times a day and can only call between 8:00 a.m. and 9 p.m.

If you continue getting unwanted calls from a debt collector, get the debt collector's address. Create a cease and desist letter. In the letter, state that the collector should cease and desist further communication with you. Note only cease and desist letters only applies to debt collectors, when you send a cease and desist letter to the debt collector, send it via certified mail with return receipt requested. The debt collection agency can communicate with you one last time to inform you that efforts to collect the debt are terminated, that certain actions may be taken by the debt collector or the debt collector is definitely going to take certain actions.

If you are overwhelmed by expenses from a debt collector, you can handle the situation a few different ways, you can negotiate a compromise settlement a lot less than you owe or you can send a cease and desist letter mentioned above. If you anticipate negotiating a settlement a few months later, you may consider making small payments temporarily. Just note, any time you make a payment the clock begins anew of the debt staying on your credit record for seven years from the day you make a payment.

So plan your financial situation together, work together to make your dreams come true. Don't let money matters wreck your marriage and allow each other a little personal spending money, we all have our little quirks and hobbies.

See you on the other side!

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