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Dec 01, 2020

The Top Three Things to Consider When You Combine Incomes

Social Security


One of the most overlooked details to consider when you financially partner up with someone in a new household is the importance of budgeting. There are many expenses that will come up in the next few decades that, with proper planning, don’t have to be stressful. While there are dozens of things to take into consideration, here are the top three steps that will help you get started down the right path.

        1. Have financial transparency with one another: This is the No. 1 thing that will help you and your partner plan for your common future. Some couples combine all their respective incomes, debts, etc. Some couples decide to keep them separate. Either way can achieve the goal of transparency, so long as each partner is open and honest about their financial situation.This is especially important if one partner will be bringing debt into the relationship. Too often partners keep secrets about credit card debt, large student loans, or just monthly payments in general. Being secretive can create many problems down the road that could otherwise have been addressed upfront and managed early on, especially as it relates to reducing your debt.
        1. Create goals: Whether you’re blending finances at age 25 or 55, it’s good to sit down and talk about what future goals may be. For example, if you have kids or plan to have kids, do you expect to fund their college 100%, or will the child be responsible for some of the costs? While this can certainly be somewhat of a moving target, work with your Financial Advisor to project out how much you’ll need to save in order to fund their education. Getting a head start by way of a 529 plan or other investment vehicle can be hugely impactful. If you combine finances later in life, there are equally important things to discuss, such as retirement and how much cash flow you’ll need for your combined expenses. Does one of you have an expectation for a second home? Is travel a priority? Do either of you have expensive hobbies? All these things can be attainable (within reason) with the right planning. At Baird Retirement Management, we thoughtfully talk through how to address all of these cash needs in a way that will help your retirement be stress-free.
        1. Keep a budget and revisit it each year: Once you’ve achieved a level of trust and transparency with one another and have created your goals, spot-check yourself at least once a year. There are many tools online to help you track your monthly inflows and outflows. While setting goals of spending and saving is very important, it’s even more important to ensure that you’re following your budget, and if you’re not, adjusting your goals and expectations. Keep yourselves honest!

These are just a few high-level ideas to open up the lines of communication with your partner. At Baird Retirement Management, we drill down into each of these items to provide guidance for our clients annually, to keep you on track with your goals and expectations as you move through the different phases of your life.

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