MARRIED WITH CHILDREN: Allyson Allen
When it comes to keeping up with the Joneses, Allyson Allen couldn’t care less. The married mother of two boys from Los Angeles is much more interested in living within her family’s means and making sure they’re prepared for a rainy day. “I must have learned it from my dad,” says Allen, 44. “I’m very frugal and thrifty when it comes to buying things, and my dad was the exact same way with money. I want to keep my money; I don’t want to just give it away.”
With the help of their financial adviser, Allen and her husband Harold, 49, have set up a plan so that they and children Avery, 11, and Harrison, 5, can remain on sound financial footing. That means having funds automatically taken from their account each month, and diverted into 529 college savings plans for each child, so far totaling more than $15,000 for the two of them. It also means having term-life insurance policies of $500,000 each, and a living trust to hold assets such as the family home. It means wiping away her husband Harold’s previous credit card debt, so that they can now put extra money toward building up an emergency savings fund, which so far houses two month’s worth of mortgage and other monthly expenses. Finally, it means putting away retirement money for themselves––3% at her workplace 401(k) and contributing to her IRA as well, for a total as a couple of more than $400,000.
“Having kids changes everything,” says Allen, who works as a physician’s assistant with Kaiser Permanente, an Inglewood, California, healthcare organization. “The focus is now on them, not so much on me. And now that we’re on the right path, we’re trying to teach them about financial responsibility, as well.”
There’s a reason why money issues are usually at the root of marital troubles. It’s a tricky balancing act: Each spouse comes into a marriage with their own approach to money, and when financial demands start increasing—retirement, college savings, mortgage, and so on—it’s hard to be on the same page about everything.
The decision whether to merge your finances is a personal one, dependent on the comfort level of the individual couple. But many advisers suggest having a joint account for financial responsibilities that are shared by both spouses, such as household bills and mortgage payments. “Everyone should also have their own separate checking account, especially women,” says Michelle Oliver. “That way, you can go out and buy something you need without feeling like you’re taking away from the family. And there are cases where spouses have wiped out savings accounts, so if that happens, you’ll still have something left.”
Some married women are content to let their husband do all the retirement saving. This is the wrong strategy. In an economy where the Dow has dropped almost 40% in a few months, you’ll likely need both of you saving at full strength to cover all your retirement needs.
It’s really only after you start saving for your own golden years, that you should turn to saving for the kids’ college. “You can’t get a loan for retirement, because that doesn’t exist,” says Logan. “So first make sure you’re banking some money for yourself, then worry about college for the children, because they can always get loans, or scholarships, or a job, if need be.”
Once you’re able to save for your children’s’ college days, crank up a 529 plan as soon as you can. That way, your savings will compound tax-free, doubling every seven years or so, given long-term historical averages of the stock market. And many state 529 plans give you significant tax breaks on your annual returns, which will be a nice bonus when filing on April 15; for instance, New York lets contributors deduct up to $10,000 a year from their state taxes. “Tuition is increasing at twice the rate of inflation, so by the time they get to college, you don’t even know what that bill is going to be,” says Freeman. “Start saving as soon as they’re born.”
– Get on the same page. One spouse shouldn’t have sole control of money matters; come to decisions together, and be on top of all family assets and debts.
– Maintain some independence at the same time. Even if you merge finances to pay the family bills, have your own account (and credit history) as well, in case the unforeseen happens.
– Power up the 529. Once you’re contributing sufficiently to your own retirement accounts, put some money away for your child’s college-savings plan to help them deal with crippling tuitions.
– I Can’t Afford To Marry You: A Guide to Understanding the True Cost of Love (Salo Publishing; $20): “The Money Lady” Marilyn Logan’s book on money and relationships.
– www.savingforcollege.com: The basics of calculating college costs, understanding 529 plans, and choosing the right option for your needs.
– www.wife.org: The site of the Women’s Institute for Financial Education, the oldest nonprofit devoted to women’s financial independence.