Getting Married
Newlyweds should say "I do" to a plan to manage money together responsibly. A couple should understand each other's attitudes toward saving and spending money before getting married. They should also know about any major outstanding debts held by the other to avoid unpleasant surprises. A husband and wife should set short-term and long-term financial goals.
Starting a Household on Solid Ground Financially
The first big financial decisions for newlyweds go beyond how to pay for the honeymoon and how to invest all those wedding gift checks. They also involve starting a new household on solid ground financially.
"Financial incompatibility is a primary reason for a significant number of failed marriages," said Lee Bowman, National Coordinator for Community Affairs. "Achieving harmony regarding financial matters before marriage, or as early in the marriage as possible, is critical to sustaining the relationship and preventing conflicts."
Have a candid discussion about your finances before exchanging wedding vows. Be open and honest about matters that could be a source of friction in the future, such as major outstanding debts from student loans or credit cards.
Some experts suggest that both of you order your latest credit reports and then sit down together and review them to avoid major surprises. Credit reports include information on debts outstanding and other information such as whether someone has filed for bankruptcy. You can get a free copy of your credit report every 12 months from each of the three nationwide credit reporting companies under federal law. Visit www.AnnualCreditReport.com or call toll-free 1-877-322-8228.
Set both short-term and long-term financial goals. Figure out how much money each of you should be able to spend for "fun" and how much you should set aside for important goals, like buying a house, owning a business or saving for retirement.
Create a formal or informal budget to help you stay focused on saving money and controlling your spending. Financial advisors suggest that young couples consider preparing and following a monthly budget. It's important to put money aside for purchases you expect to make in the next few months or years. Consider having your bank or employer automatically transfer a certain amount each month to a savings or investment account to make following the budget and saving easy and painless.
"The important thing is to understand how much you earn each month, how much you pay for essentials like rent or transportation, and how much is left over for everything else," said Janet Kincaid, Chief of the FDIC's Consumer Response Center. It's how you spend what is in the "everything else" category that is critical to successful money management, Kincaid added.
Understand the risks and responsibilities of jointly held accounts. If a husband and wife are co-owners of a credit card and one of them goes on a spending spree, the other spouse may be held responsible for paying the bill. Irresponsible use of a jointly owned credit card by one spouse can be reported on both of their credit histories, damaging the "innocent" spouses chances of getting a good loan rate or credit card in the future. When two people use the same checking account, they should share one checkbook and record all transactions to avoid losing track of their balance and paying charges for insufficient funds.
Buying Your First Home
Buying a home will be the biggest expense of most people's lives, from the initial purchase, including a down payment and fees paid to the lender and others followed by years of monthly mortgage payments, real estate taxes, insurance, and maintenance costs. Still, homeownership can be a tremendous investment and a source of tax breaks, as well as provide stability.
If you're renting a house or apartment, consider if it's time to buy. You'll most likely face the decision about when is the right time to own your first home once you start earning a steady income. While real estate can be an excellent investment, home ownership is a big financial commitment, and home values sometimes go down.
"There's a lot to consider before making that big leap into home ownership, and what works for one person isn't always the best fit for someone else," said Lee Bowman, FDIC National Coordinator for Community Affairs.
Look at the costs of renting versus paying a mortgage. Factors to consider include how long you plan to stay in the house, how much money you have for the down payment, and how good your credit record is.
"When buying a home, the most important thing to look at is what you can reasonably afford," added Kincaid. "Remember you'll be paying real estate taxes and insurance, mortgage interest payments, and the costs of maintenance and improvements. But also remember the upsides of buying a home, such as tax benefits, the potential for your home to appreciate in value, and the satisfaction of having a place to call your own."
"If your credit record is less than stellar, you may only be offered a mortgage at a high interest rate," Kincaid said.
A New Child
A new member of the family brings extra financial responsibilities. You'll have one less thing interrupting your sleep at night if you get your family's finances in shape. Start by getting spending under control, preferably with a budget. Build your savings account for short-term expenses, especially if a spouse will be leaving a job, and long-term needs such as college tuition costs. Review and update your life, health, and disability insurance coverage as well as your wills to designate who will raise the child and handle finances in case of your death.
Death of a Family Member
Consult with other family members and the deceased person's lawyer and other financial advisors about any prior instructions or arrangements before committing to any funeral costs.
Locate important documents, such as insurance policies and an original, not a copy, of the most recent will. Get multiple copies of the death certificate, as you'll need it to apply for death benefits such as life insurance policies or Social Security and to access bank and brokerage accounts.
If the family's medical insurance is provided through the deceased person's employer, consider options for continuing coverage.
If your family has deposits of more than $250,000 at one bank, and one of the depositors or beneficiaries dies, you should review the coverage to determine whether funds exceed the insurance limits. The FDIC's rules allow a six-month grace period after a depositor's death to give survivors or estate planners a chance to restructure accounts, but if you fail to act within six months, you run the risk of joint accounts becoming part of the survivor's individual accounts, which could put the funds over the $250,000 limit. Also, the death of an owner or a beneficiary named in trust accounts can reduce the deposit insurance coverage.
A Medical Emergency
First, carefully review all doctor and hospital bills and insurance claim payments/denials, because mistakes can happen and uncorrected errors can be costly. If you are unable to resolve a billing dispute with a doctor, hospital or insurer, contact your state consumer protection office or insurance regulator for guidance.
Think twice before using credit cards to pay for large medical expenses, especially if you are already deep in debt or if it will take years to pay off the card balance, because the interest charges could add up significantly.
If you can't afford your medical or hospital charges, don't allow the debt to be turned over to a collection agency, as that could damage your credit score. Instead, contact the service provider's billing department to try to negotiate a reduced bill or a payment plan with monthly payments. Also, ask about assistance from a government program or charitable organization.
If you turn to a credit counselor for guidance, but choose one carefully, as some offer questionable or expensive services, and others may be scams.
You could qualify for a federal tax deduction if your medical bills are high enough, so be sure to save bills and cancelled checks or other receipts for your tax preparer.
A Divorce
Hire an attorney, because uninformed decisions can and will cost you. Discuss tax issues with an accountant or other advisor; decisions such as who will claim children on their tax return can affect each parent's tax liability. You can refer to for more information.
You may be able to reduce some legal fees by working with a mediator to resolve issues such as child custody.
Cancel joint credit cards to prevent the other spouse from running up bills. Start or build your own credit history by opening a new credit card in your name only. Decide who is responsible for debts incurred during the marriage. Notify the major credit bureaus (www.equifax.com, www.experian.com and www.transunion.com) if you change your last name.
Update your will and the list of beneficiaries you designate on life insurance policies, retirement savings accounts and U.S. Savings Bonds so that your money and other assets will go to the right people upon your death.
A Job Loss
Try to keep spending under control so you can pay your bills using existing bank accounts for the next three to six months. Avoid withdrawing or borrowing money from your retirement savings if possible. Carefully review your employer's severance benefits, including the temporary continuation of your salary and health insurance, and try to negotiate a better deal.
Contact your creditors immediately and attempt to work out a payment plan if you anticipate problems paying debts, such as your mortgage or the minimum due on your credit card. One reason to keep loan and credit card payments current is so that you can maintain the best possible credit record, as prospective employers may review your credit reports when you apply for a new job.
Difficulty Making Your Mortgage Payment
Contact your loan servicer and find out if you qualify for modified loan terms or other options to help you keep your home instead of losing it to foreclosure if you're having trouble paying your mortgage for any reason.
You can also seek help from a trained, reputable homeownership counselor by contacting the Homeowner's HOPE Hotline at the Homeownership Preservation Foundation (1-888-995-4673 or www.995hope.org) or using the U.S. Department of Housing and Urban Development for a referral to a HUD-approved homeownership counseling agency (1-800-569-4287 or www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm).
Problems Making Credit Card or Loan Payments
No matter what triggers a personal financial crisis, the important thing is to be proactive and address the problem as soon as possible by contacting your lender to try to negotiate a long-term, workable solution.
If you need help negotiating with a lender or getting a debt problem under control, ask an attorney, accountant or other trusted advisor to refer you to a reliable who can help you develop a recovery plan at little or no cost. Your financial institution, local consumer protection agency, and friends and family also may be good sources for referrals. Most reputable credit counselors are non-profit, and many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs.
If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP), where you deposit money each month with the credit counseling organization. It uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees. A DMP requires you to make regular, timely payments; it could take 48 months or more to complete.
Don’t sign up for one of these plans until a certified credit counselor has spent time thoroughly reviewing your financial situation and offered you customized advice on managing your money such as helping you create a budget and teaching you money management skills.
If you're facing problems on a loan secured by your home, including a home equity loan, see the section about Difficulty Making Your Mortgage Payment.
Source: FDIC Consumer News