The honeymoon is over. The thank-you notes for your wedding gifts have been mailed. Now it's time to get down to managing your finances as a couple.
In a previous column this year, I addressed the issues facing someone getting a new job. In upcoming columns, I'll address the financial issues facing parents of newborns and new home-buyers.
But for now, I want to talk about how newlyweds can merge their money without stressing each other out or getting a divorce before the wedding and honeymoon bills are paid. (Actually, I hope you didn't rack up debt for the wedding or honeymoon, but that's another column.) At any rate, the most important thing newlyweds can do is get on the same page with their finances, recommends Andrew D. Schwartz, a Boston area certified public accountant.
"Many couples don't talk about their finances, because it's uncomfortable," Schwartz said. "In fact, I have clients that come in each year to do their taxes and I know this is the only time they talk about their finances."
To help newlyweds begin their new financial life together, Schwartz has developed an eight-step checklist.
To start, Schwartz says couples should calculate what he calls their financial APGAR score.
For those of you who have had a baby, you probably know that soon after birth, your child is given the APGAR test, which is used to quickly evaluate a newborn's condition. The APGAR score ranges from 0 to 10 and serves as an initial indication of the baby's overall health.
Likewise, newlyweds need to evaluate their overall financial health. To do that, Schwartz suggests couples rate themselves based on the following five factors:
* Accumulated wealth: For this test, couples compare their total debt with their net investments (not including their principal residence and cars). The idea is to have couples look at what they have accumulated in retirement and saving accounts.
* Payment of credit cards and consumer debt: "I wanted to use this test to encourage couples to talk about their philosophy of having credit card debt," Schwartz said. "Really, if they can't pay off their credit cards in six months, they are starting off wrong."
* Got life and disability insurance? While couples generally get life insurance, Schwartz and other experts say they often fail to get disability insurance, which is designed to replace a percentage of your gross income (usually 45 to 60 percent) should a sickness or illness prevent you from earning an income in your occupation. According to the Census Bureau, you have a 1-in-5 chance of becoming disabled.
* Automobile ownership habits: After a house, buying a car is the second-largest purchase most people make. "There are people who lease a fancy car and have a payment in perpetuity, and there are people who drive a car for many years. It's the last group of people that will be way ahead financially," Schwartz said.
* Residential equity: Owning a home is the best way for a young couple to begin accumulating some net worth, Schwartz said.
To get details of how to score yourself using Schwartz's APGAR test, go to www.newlywedfinances.com, the Web site Schwartz founded and edits.
Also included on that initial financial checklist are the following:
* Prepare an "ow-ow" statement, a snapshot of what you own and what you owe: "The starting point is the net worth statement. So couples should sit down and list all of their assets and liabilities," Schwartz said.
* Prepare a monthly cash-flow statement: This is essential. You should know how much cash is coming in and how much is going out.
* Set savings and debt-reduction goals.
* Determine whether you are saving enough for retirement: You will find a retirement savings calculator on Schwartz's Web site.
* Consider your new tax status: For example, your filing status for any tax year depends on your marital status as of Dec. 31 of that year. Once you get married, you're no longer eligible to file as a single individual. Instead, you'll need to file your tax returns using the status "married filing joint" or "married filing separate." Also remember that if you changed your name you need to notify the Social Security Administration.
* Review your life and disability insurance needs: Remember to change the beneficiary designations if you want your new wife or husband and not your mama to get your life insurance.
* Obtain essential legal documents: Get a durable power of attorney, which allows your spouse (or another person) to make financial decisions on your behalf in the event you become mentally or physically unable to do so. Get a living will or a "health care proxy," which allows you to make decisions in advance about your health care and determines who can make decisions for you in the event you become incapacitated. Finally, you should have a will, which will give instructions on how you want to disburse your assets.
All of this may seem daunting, but if you want to ensure financial bliss, you have to create a financial plan.
"The key is to communicate," Schwartz said. "Find out where you are and where you want to be."
While Michelle Singletary welcomes comments and column ideas, she cannot offer specific personal financial advice. Her e-mail address is firstname.lastname@example.org. Readers can write to her in care of The Washington Post, 1150 15th St. NW, Washington, DC 20071.