Basic Financial Planning for Newlyweds




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Your Initial Financial Plan:


Looking For a CPA, Lawyer or Financial Advisor who has worked with lots of other newlyweds and is familiar with the issues that affect you?  

by Susan Schwartz, CFP

What does the phrase "financial planning" mean to you?  Do those words make you think about setting a budget, paying down your debts, investing your money, or something else entirely?

By definition, financial planning involves a variety of services to help you manage your financial resources and achieve your financial goals.

Financial planning begins by identifying your individual financial goals, evaluating your current financial position, and identifying risks that may prevent you from achieving your goals.  You then develop a financial program, put it into action, and periodically review your progress.  Keep in mind that your financial plan is not set in stone and will evolve as your life, obligations and objectives change.

A financial planner can provide you with a comprehensive plan or can help you tackle individual areas of your personal finances including:

  • Budgeting

  • Managing debts

  • Evaluating employment offers

  • Selecting employee benefits

  • Investing

  • Buying a home

  • Setting realistic financial goals

  • Evaluating insurance needs

  • Planning for college

  • Planning for retirement

  • Caring for aging parents

  • Estate planning

Here are some of the issues that seem to be common to young healthcare professionals:

Saving for Retirement

During your working years, contributing to a 401(k) or a 403(b) plan at work is one of the best tax shelters available to you.  Amounts contributed reduce your taxable earnings and grow tax-deferred.  Plus, amounts held within the plan are generally protected from your creditors, and you can borrow up to half the balance in your account (up to $50,000) to purchase a home or for other reasons.  In 2006, you can contribute up to $15,000 ($20,000 if 50 or older) into this tax-advantaged retirement account.

Other retirement savings opportunities include Individual Retirement Accounts (IRA), and self-employed retirement accounts such as SEP IRAs, SIMPLE IRAs, or Solo 401(k)s.  If you're not eligible for a 401(k) or 403(b) this year, or you're already maxing it out for 2005, then consider contributing to one or more of these types of accounts.

Saving for College

Many parents are concerned with saving for their childís college education.  A 529 plan is a great way to save for college since earnings within the account grow tax-deferred and withdrawals are federally tax-free through 2010 if used for college related expenses.  (Starting in 2011, qualified distributions will be taxed at the child's rate.)  These plans are available to all taxpayers regardless of income, and you can contribute up to $60,000 in one year for your child.

Contributions of $2,000 per child per year can be made to a Coverdale Education Savings Accounts (ESA or Education IRA) if you're single and earn below $110,000 or married and you and your spouse together earn below $220,000.  Like 529 plans, ESAs grow tax-deferred and withdrawals are federally tax-free if used for qualified education expenses.  One advantage of ESAs over 529s is that funds can be withdrawn tax-free for private elementary and secondary school expenses as well.

Home Ownership

For most people, purchasing a home is their single largest investment and is a key component to their long-term financial success.  Besides getting the tax break for the mortgage interest and real estate taxes you pay, owning a home provides a hedge against inflation since a fixed-rate mortgage remains constant over time even though inflation makes everything else more expensive.  Another benefit is that you're not taxed on the first $250,000 ($500,000 if married) of gain realized when selling your principal residence as long as certain requirements are met.

When deciding how expensive of a home you can afford, itís important to consider the additional expenses associated with home ownership .  For example, property taxes, maintenance expenses and insurance are all costs you'll incur as a homeowner.

Asset Allocation

Proper asset allocation and selection of suitable investments for your portfolio are also integral parts of your personal financial plan.  With more than 14,000 mutual funds available to you these days, there are plenty of funds to choose from.  You can buy into funds that own large company stocks, small company stocks, mid-cap stocks, or a blend.  You can also buy funds that own government bonds, corporate bonds, or even junk bonds.

When planning your asset allocation, take into account your individual tolerance for risk and the time horizon for how long the money will remain invested.  Once youíve made your selections, a periodic review is recommended to be sure that your investment portfolio continues to be on track to meet your goals.




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