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by Christina Elston
Ignoring your money, even if you have a spouse who handles the family finances, is not a good idea. “Bad things can happen to you that you don’t know about,” says Janet Bodnar, editor of Kiplinger’s Personal Finance magazine and a nationally recognized finance expert. You could discover that your spouse hasn’t purchased life insurance, hasn’t been paying the bills, or botched your investment strategy. “Your spouse might not be as knowledgeable about money as you think,” Bodnar says.
The only way to really know what’s going on with your money is to find out the following:
1. How much do you have, and how much do you owe?
Bodnar and financial advisor Candace Bahr, co-founder of the Women's Institute for Financial Education (WIFE), advocate sitting down with your partner to review your financial situation at least once a year. Bahr equates it with getting on the scale at the beginning of a weight-loss effort. And since it’s time to begin rounding up information for filing your income taxes, this is the perfect time to do it. As you gather up bank statements and investment documents, stop and read them.
Your goal is to add up all of your assets, including savings, investments, insurance policies, and the value of your home and cars.
Next, add up the outstanding balance on your mortgage, car loans, credit cards, and any other debts you might be carrying. This is something Bodnar says you should keep tabs on by reviewing your bank and credit-card statements every month – even if you aren’t the one paying the bills.
Bodnar also advises getting a copy of your credit report (and your spouse’s) at www.annualcreditreport.com. This official website created by the three nationwide consumer credit reporting companies entitles you to one free report each year from each of them. Beware other credit reporting sites, which are set up to try to sell you financial services, Bodnar says.
2. How much is coming in and going out?
Examine your income and expenses. Along with all of your other tax information, in January you should receive W-2 forms showing the wages you brought in last year. Do a little math, or just pull current pay stubs, to add up your monthly income. Include income from investments, and any other money you have coming in, so that you have a grand total of what you bring in each month.
Next, look at how much you are spending. Review the last six months of transactions from your checking account, says certified financial planner Barry Mendelson, member of the Financial Planning Association, a national industry alliance. Look at how much you take out each month and where the money went.
If you’re paying credit-card bills or other debt, make sure that what you pay each month is greater than what you’re being charged in interest. This way, at least some of your payment is being put toward paying down your actual debt (the principal).
3. What are your financial goals, and how will you reach them?
Once you’ve figured out what funds you have available, think about what you’d like to do with them. Bodnar suggests that couples talk about this on a regular basis, to make sure one of you isn’t tucking away cash for a new computer while the other dreams of a European vacation.
Do you have savings? You should. Ideally, experts say we should all be saving 10 to 15 percent of our income – and that’s for retirement alone. “If you aren’t there, start where you are and try and build,” advises Bahr.
4. What is your plan for retirement?
Sign up for the 401(k) plan at work. These plans allow you to divert a percentage of each paycheck, before taxes, into a separate investment account, where it’s held tax-free until you retire. Many employers will match your contribution dollar for dollar up to a certain point, so make sure you are contributing enough to take full advantage. Find out what retirement plans your spouse is contributing to, and how much is going in.
If you are a stay-at-home mom, Bodnar says you should still be saving for your own retirement, and you can do this with the help of a Spousal IRA. IRAs (Individual Retirement Accounts) are private accounts similar to a 401(k). They allow workers to set aside a portion of their income, tax-free, to be held until retirement. Working spouses can also contribute to Spousal IRAs on behalf of their stay-at-home partners.
5. Do you need to talk to a professional?
You can probably tackle all of questions 1 through 4, and most other financial issues, by yourself – or with help from the spouse who has been handling the family finances. Here's when you might need to bring in a pro:
• If you have a major life change – The news could be bad, like a divorce or the death of a spouse, or good, like the birth of a child or a promotion and raise in salary.
• If you receive a large lump sum of money – Whether it’s an inheritance, lottery winnings or another windfall, make sure you make the most of it.
• If you have an investment portfolio to manage – Investing can get complicated.
• If you just need someone to help you get started in the right direction.
Look for a certified financial planner who charges by the hour for services. Ask for referrals from people with financial resources and values that are both similar to your own. Just don't stop monitoring your finances. “If you had a nanny in the house, don’t you think you’d be checking on your nanny to make sure she was taking good care of your children?” asks Bahr. The same is true for the person taking care of your money.
Christina Elston is a frequent contributor to the Boston Parents Paper.
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