Your Guide to Managing Family Finances
Frequently Asked Questions
How do you combine finances after marriage?
When you get married, it is important to understand how household finances will work in your relationship. That means you need to have several conversations about where both of you stand financially, and decide to combine or coordinate your new household’s accounts and debt. The first step in that process is to review both of your credit reports and identify your strengths and weaknesses, such as a history of late payments or outstanding debt. Next, you and your spouse should list all sources of income and expenses. Take a stern look at this and make a plan. There are many strategies for combining finances, and no matter which one you choose, it’s important to agree on a joint budget and decide who is going to pay for what.
How much does having a kid cost?
The U.S. Department of Agriculture (USDA) projects that it costs more than $233,610 to raise a child from birth through age 17. Plus, if you choose to pay for your child’s college education, that adds another $35,331, on average, per year. Generally, though, the average costs can also fluctuate depending on the family, as well as factors like choosing to adopt, work with a surrogate, or whether or not the child is being raised in a single-parent household.
What is the average cost of divorce?
The cost of divorce will depend on several factors, including the individuals involved, the assets the couple shared together, and whether or not you choose to get a lawyer involved. Generally, the average cost of divorce in the U.S. can be around $15,000, but can also be lower or higher in some cases too. When it comes to court proceedings, in most states, you will have to file the divorce with the court, and that tends to come with a fee between $100 to over $400. Additional court fees bring the total cost (not including cost of mediation or lawyer fee) to approximately $925.
How much do you need to save for your kids' college education?
How much you need to save for your kids’ college education depends on when you start saving, how much of the total you are willing to pay, and where your child ends up going to college. Fidelity has a rule of thumb that you can follow. It assumes that, if college costs continue to grow at 2.5% above inflation and your child starts college at 18, choosing to graduate in a four-year period, then you should aim to save approximately $2,000 multiplied by your child’s current age. The formula also assumes that you will be paying approximately 50% of college costs from savings. Remember, though, every family has a different savings goal and a plan to get there. One way to save funds from when your child is very young is investing in a 529 savings plan.
A trust fund is a special type of legal entity that holds property for the benefit of another person, group, or organization. There are many different types of trust funds and many provisions that define how they work.
The marriage penalty is the increased taxes some married couples owe over the amount of taxes they would have owed if they were not married. The marriage penalty can be the result of disparate tax rates between individual and married taxpayers at certain levels of income. It also results from the tax code implementing the same limitation on certain tax benefits for both individual and married taxpayers, or both those situations.
An education IRA is a tax-advantaged account for qualified education expenses. Education IRAs let parents and guardians finance a child’s elementary, secondary, and higher education costs via contributions to a trust or custodial account.
Alimony is financial support provided by one spouse to another when a marriage ends. A divorce doesn’t necessarily have to be final yet, nor does every divorce result in alimony being paid. The exact rules for alimony can vary by state, but some federal tax rules apply as well. Payment of alimony depends on the specific circumstances of each couple and each marriage.
A family loan, sometimes known as an intra-family loan, is any loan between family members. It can be used by one family member to lend money to or borrow it from another or as a means of wealth transfer—the purpose doesn’t matter. It’s just a loan that does not use a bank, a credit union, or another traditional lender that’s outside of the family.
Financial health is a state of being in which a person, business, or financial institution measures their well-being by the condition of monetary assets and liabilities, such as debt and savings.
A 529 college savings plan is an investment account that allows you to invest money for education. These investing plans have federal tax savings and various tax benefits depending on the state you live in.
A financial plan creates a timeline for you to follow in order to reach your financial goals. It includes things like budgeting, retirement planning, saving, insurance, and getting out of debt. By creating a financial plan, you can better focus the way you manage your money and ultimately reach your financial goals.
If you are getting a divorce, you may need to talk about a qualified domestic relations order, or QDRO. A QDRO assigns a share of a retirement plan to a former spouse or another dependent in the event of divorce. In most cases, someone with a retirement plan cannot give someone else a share in that plan. It can only happen if a court orders a QDRO.
Discretionary income refers to the amount of income left over after accounting for taxes and essential day-to-day expenses. It's distinct from disposable income, which is simply the amount of income left over after taxes are taken out.