First comes love, then comes a financial plan
February 14, 2014
It sounds all so sudden. But it shouldn’t be. Money problems are often touted as the leading cause of a breakup. However, experts say that taking the time to talk about money and creating a financial plan can help avoid some of the pitfalls many couples stumble into.
Where to begin? A good first step is to determine financial compatibility. If one likes to spend and the other likes to save, how can a common ground be reached? It starts with having an open and honest conversation to discover commonalities of where you both want to be (check out our conversation guide).
Once the lines of communication are established, following are some of the core considerations around financial planning for couples.
What's Mine is Mine!
Or is it? Should you merge bank accounts? Well, there is no right or wrong answer. Some couples keep accounts separate and some combine them. While others opt for a hybrid approach, which can mean household finances are pooled into one account while each partner maintains a personal account. There are a number of ways to go, but the key is to discuss them and make a plan. It can get a little complicated depending on how many accounts are held between two people, so also consider banking at the same place and use the same financial planner.
You Owe How Much?
Debt is a particularly hard topic to talk about. While it seems easiest to keep debt, such as student loans, car loans, and credit separate, consolidating some of it has some benefits. The savings in interest can make a difference over time, and on the bright side, you're working together towards financial freedom.
The Tax Man
Being a couple, either in marriage or common law, comes with some bonus tax breaks. Basically, spousal tax planning can lower the tax bracket for the one with the higher income by borrowing some of the unused tax credits from the other partner. These tax credits will come into play if one partner is not working, in school or earning less. Filing a joint tax return will help reveal some of the credits available to couples.
A House with a White Picket Fence
A house is the single largest expense for most and so it's a big part of a couple's financial plan. When to buy, how much to spend, where, or how big, are just a few questions that couples need to sort out before shopping for that dream home. Consider getting a pre-approved mortgage; it will show you what's manageable. In determining a pre-approved mortgage, a Libro Coach will look at a number of factors, including closing costs and moving expenses, while also taking into consideration current debt load and savings plans like RESPs or RRSPs.
Sailing into the Sunset
It may seem like a lifetime away, but the years will fly by. Retirement dreams are different for everyone. Finding one that you both share will be a central piece to a financial plan. Save and invest early into an RRSP is a wise approach, even if both of you can only put a small amount away each month.
There are a few RRSP options. Couples can either buy separate RRSPs or Spousal RRSPs, which basically means one makes a contribution and claims the tax deduction, but the other owns the plan. Spousal RRSPs are not for everyone; they are designed in instances when one partner earns more than the other. However you structure things, remember to start retirement planning early.
Wherever your paths lead, a couple's goal should be to have a plan that leads to financial well-being. Sure, there will be bumps in the road, and that’s where a Libro Coach comes in with financial guidance.
Self Employed? RRSPs are not just for Retirement
Starting a business or freelancing is the best option for many in a stubbornly shaky job market. And for others, being self-employed allows for some flextime. Learn more about different ways RRSPs can be valuable for those who are self-employed.
Have you heard about co-operative banking? Maybe you’ve seen the ads on TV or YouTube, or you might have seen the logo. As an Owner at Libro you’re already familiar with co-operative banking, but many people across Ontario are not. Read on to learn how Libro is working with other credit unions to create awareness.