While most of your attention may be focused on the big day, don't forget about the not-so-romantic issues - money management and estate planning.
MANAGEMENT
As newlyweds, will you be tempted to buy cars and furniture on credit? Don't plunge head-long into a debt trap. Today's low-interest rates cannot last forever.
When you have one less monthly rent bill to pay and no children, you should have a golden opportunity to save money.
But saving money does require agreement on spending priorities.
SET GOALS TOGETHER
Make a date to discuss your dreams about having children and owning a house. Too many newlyweds never discuss debts, spending and saving money before they get married.
Money problems are the leading cause of divorce. Conflicts can arise when one partner starts making financial decisions unilaterally and only discusses them after the fact.
Never hide spending goals and credit card debts. Consult your spouse when you are contemplating a big purchase.
SAVING MONEY
You will be better off accumulating cash and paying for a reliable used car without incurring debt. Rent an apartment. Furnish it with second-hand furniture. You don't need to instantly match the standard of living that took your parents decades to achieve.
The simplest way to save money is to set up a preauthorized monthly deposit into a high-interest savings account.
Make saving money painless by starting with small deposits. Elaborate budgets usually fail. Trying to save whatever is left over at the end of the month is futile.
Do you want to buy a house?
When you accumulate a down payment of at least 20 per cent of the house price, you can avoid having to pay premiums for CMHC insurance against default.
Make tax-deductible deposits to a Registered Retirement Savings Plan (RRSP). Then, each spouse can use the Home Buyers Plan to borrow $25,000 from your respective RRSPs. There would be no immediate tax bill payable on your two $25,000 RRSP withdrawals, but you'd have to begin restoring the savings in equal instalments over 15 years - otherwise you pay tax on yearly repayments you don't make.
ESTATE PLANNING
Meet with your financial adviser, who can ask you some tough "what if" questions.
What if you were to die prematurely? What if death occurs at a time when you have a big mortgage and a new baby? Review your life insurance coverage. A tax-free life insurance payout of $300,000 or $400,000 could replace a few years of lost income to help loved ones cope.
Who inherits your home and your life insurance? You need new wills. Appoint your spouse as executor. Anticipate the future arrival of children by including guardians and trust provisions (in case both parents die). If you are like most people, you may not update your wills for another 10 or 20 years.
CO-ORDINATE
Many new tax planning opportunities arise when your marital status changes from single to married.
You can pool medical expenses and charitable donations on one spouse's return. It becomes possible to transfer unused age, disability, tuition and pension credits from one spouse to the other. If one of you had been a single parent, the year you marry is the last chance to claim the eligible dependant credit for your child.
Remember that the income tests for the GST Credit, Child Tax Benefit and Guaranteed Income Supplement require you to add both incomes together.
Once you start talking about money, make it a habit. Talk to your partner about money issues once a week. Do not wait until you have a disagreement.
Terry McBride is a member of Advocis (The Financial Advisors Association of Canada). This article provides general information and should not be considered personal investment or tax planning advice.
No comments:
Post a Comment