Financial planning tips for newlyweds
Getting married is probably one of the biggest events in anyone's life. Each year an estimated 165,000 couples in Canada get married.
Unfortunately divorce and separation also are very common today and often marital strife and disagreement is over money.
"It's really important for couples to start communicating with each other about finances early in the relationship to avoid problems and disagreements later on down the road," says Peggy DeVries, a financial adviser with Edward Jones. "It's a topic many people have difficulty discussing, but if you're going to be spending the rest of your lives together it's good to do this before you get married because it can raise issues before they become problems."
There are a number of things newlyweds should do and talk about in regard to their finances, preferably before they actually get married.
Once your marital status changes you should advise the Canada Revenue Agency right away and update all your personal information including name, address and marital status because it can impact government assistance programs such as the GST/HST tax credit. If you have been receiving GST refund payments you may not qualify for them after marriage depending on your new family income.
There are advantages to doing your financial planning together but sometimes this is hard for people who are newly married. One good way is to schedule a meeting with your spouse and financial adviser.
Some couples may have only one adviser but in some cases each partner might have their own adviser coming into the marriage. In this case it may make sense to review each adviser and see if there is one that both partners prefer. If not, each person may want to keep their own adviser.
Couples should decide whether they are going to have joint or separate bank accounts and/or credit cards.
"If they decide to have separate bank accounts there is always the possibility that they may not be seeing the entire, big picture of their finances," says DeVries. "There's something to be said for having a joint account or credit card for common expenses and then personal ones for personal spending. This also can increase the number of reward points you receive on your credits cards."
Couples should sit down together, set out their goals, determine the priority of those goals, and then develop a budget.
For example, should you buy a house first or contribute to your RRSPs and/or Tax Free Savings Accounts. If a house is your primary goal, can you use our RRSP to borrow money under the Home Buyers Plan for a down payment?
Then there's the question of children and will you use the Registered Education Savings Plan (RESP) or perhaps your TFSA to save for their education.
The RESP allows you to contribute up to $50,000 for each child who is enrolled in qualified educational institutions such as a trade school, CEGEP, college or university. There is no annual contribution limit and the government will add a grant of up to a maximum of $7,200.
Income and capital gains can be generated within an RESP through investments and grow tax free until the children named in the plan are ready to pay for their post-secondary education. They only pay income tax on the gains earned by the plan and the grants as they are withdrawn, which usually is low because the income of most post-secondary students is limited.
Younger newlyweds are less likely than older couples to think about and plan for retirement. If you haven't started saving for retirement, consider opening an RRSP account for each of you so you can take advantage of their tax reductions.
Married and common-law couples are allowed to contribute to each other's RRSP accounts and can transfer income from the higher-income spouse to the lower income spouse if the higher income spouse has enough contribution room.
The advantage of this strategy is that the higher-income spouse gets a tax reduction for that year. When the lower-income spouse retires and starts withdrawing money from the RRSP he or she likely will be in a lower tax bracket and the money will be taxed at a lower rate.
It's important for newlyweds to understand their income, expenses and their needs versus their wants and DeVries recommends they set up an emergency fund consisting of between three to six months of fixed expenses.
"Sometimes it's difficult to have the discipline to follow a budget when you're caught up in the whirlwind of getting married," DeVries says. "An adviser can see whether you need help and can prepare a plan to keep you on track to meeting your goals."
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.