'Mellody's Mail': Starting Out Right

Q U E S T I O N: I wonder if you can give advice to newlyweds about setting up their family finances. We are both working, and there is a young teen in the family from a prior marriage.

A N S W E R: As money issues can spark some tension in a marriage, it is a good idea to come to an agreement about family finances as soon as possible. In fact, money disputers are one of the top reasons for divorce. There are several things you need to do when mapping out a financial plan for your new family. First, you should tally your combined debt, investments, and expenses, as well as determine your short- and long-term financial goals.

A common misstep by many newlyweds is to immediately get everything for their new life together — a new house, new car, new furniture and the like — thereby racking up more debt. That said, it is important to be prudent about major financial purchases, especially if you are still paying off bills from your wedding.

Once you have assessed your total financial picture, you should create a realistic budget designed to minimize your debt, while saving for your future. Along with your fixed expenses — such as mortgage, utilities, food, transportation, etc. — your budget should include monthly allocations to employer-sponsored retirement plans (e.g., 401(k), 403b, 457 plans) and IRAs to ensure you are adequately preparing for retirement.

It is essential to gain a clear understanding of how your individual retirement accounts are invested to insure diversification. Often, newlyweds neglect to look for overlap when they consolidate their investment savings — a potential negative weight on performance. In addition, you also may want to include a monthly contribution to a 529 plan or Coverdell Education Savings Account on behalf of your teenager to help offset future education expenses.

After you establish a budget, decide who will be responsible for paying which bills and whether you will combine your bank accounts. There is no right answer on the issue of one account or separate accounts. You should consider ease and your own biases. In addition, you should review the number of credit cards held between you and downsize to prevent debt-building opportunities.