Money, marriage and managing your wealth
I would argue knowledge and communication are the two most important factors determining success, or failure, when it comes to money in relationships.
Effective personal finance involves making important decisions. So, success is often more about understanding psychology than it is about knowing all the rules and allowances.
You and your loved ones won’t bring the same financials and emotions to a relationship. You don’t simply bring earning ability, and assets and liabilities, but also the baggage of past decisions and experiences.
Our propensities to save, consume, take on debt and take risk. Our hopes and aspirations. These all vary wildly. As can our views on private education, healthcare, looking after relatives, giving to charity, choosing whether to invest ethically or without constraints, how much financial support to give our children. So, you need to talk about money. Regularly. Aim to make it a frequent and enjoyable experience, and understand that compromise is vital.
Invest in yourself: read, study, learn the skills and habits needed to make the most of your time and money.
From a planning perspective, get the basics right: decide how much cash to keep available for emergencies and keep it safe. You and your partner may have some impressive plans, check they are affordable by doing a cash-flow. Use a spreadsheet, or software. If they’re not all affordable: compromise and prioritise.
You may have heard the adage that work expands to fill the time you have to complete it. This is Parkinson’s Law. It has many corollaries, including that spending expands to meet a rising income. So, don't wait until the end of the month and hope you have money left to save. Pay yourself first: set up a standing order so when your income arrives, some of it is automatically saved.
Saving into pensions and ISAs can be very tax efficient, and if investing, starting early makes a huge difference. If you saved £20,000 a year for 30 years, you would have saved £600,000. But if you got 6% growth every year you would have about £1,700,000… almost three times more! And if it’s in an ISA that investment growth would be tax free! Tax treatment will, of course, depend on your individual circumstances and can change in the future.
Know where you stand for inheritance tax and what can be done about it. Don’t just optimise for tax savings. Your legacy is about the impact you have on those around you, it isn’t just about how much wealth you pass on.
Ensure your loved ones are looked after if you are no longer able to contribute financially. Review your life cover, income protection and death in service. Life insurance is typically done to cover a mortgage, but it can be used to cover a lot more. For example, funeral costs and leaving a charity legacy. One insurance provider even covers “death wishes” such as “turn my ashes into a diamond”.
If you die without a will you don’t control who inherits your assets. This is determined by intestacy rules (available on gov.uk if you’re interested).
Would inheriting control over your assets be a burden? Could your loved one(s) run your company? Or your investments? Do they even know where everything is?
Have a one-pager naming your solicitor, bank, wealth manager and accountant, with their contact details. Better yet, involve your loved ones in those relationships if you can. Securely store a copy of your will and life insurance details, and let your family know how to access them.
Contact your pension provider(s) to ensure you nominate who inherits them, as these are typically not covered in your will.
If you lose the ability to make decisions about your health or wealth, you want those decisions taken by a person (or people) you trust. So, ensure you have Powers of Attorney in place long before it’s necessary. Set them up while you still can.
Not all relationships work out, so consider that possibility. Know how to protect your assets, any you may inherit, and any you may leave behind.
Finally, it is important to remember that some approaches may not be suitable for you; so always seek advice from professionals if you’re not sure, or if you want a second opinion.
Tax rules are subject to change and taxation will vary depending on individual circumstances. This article does not constitute advice or a recommendation; please consult a financial adviser.