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Combining finances when remarrying

Marilyn and Ron


Profile: Marilyn and Ron of Brookville, Ohio.

The problem: Newlyweds Ron and Marilyn wish to coordinate their goals and manage debt.

The plan: The newlyweds need to pay off debt while saving money to meet different goals.
The first order of business is to get organized. Although it appears that Marilyn and Ron have a financial cushion every month in their budget, Marilyn is not sure about the accuracy of that number, and is uncomfortable with their recordkeeping.

The couple should consider using one of the many financial software packages available to track their finances. I recommend they subscribe to either Quicken or Finicity.com and start using one of these online tools to monitor and plan their monthly income and expenditures. Commit to doing this for at least a year (and maybe forever). They will immediately feel better about their finances when they start tracking things regularly.

Next, the couple should see an attorney to draft the appropriate estate planning documents. These should include wills, living wills and powers of attorney. They also may want to consider trusts for the children and guardianships in the event something happens to both parents. These provisions may have added importance in post-divorce families as Marilyn and Ron may have some strong opinions about finances and guardianships if they predecease their children.

Insurance for worst-case scenarios
Life insurance is primarily for income replacement and the most reasonable approach would be to buy level term coverage. Marilyn and Ron each currently have $50,000 of life insurance from their employers. Based on the number of years' income they would like to protect, the value of their current investment portfolios and their future cash flow needs, the following amounts of additional coverage would not be unsuitable:

Ron: $500,000Marilyn: $300,000

Also important: They should check the beneficiary provisions on all of their insurance and retirement plans and make sure that they are amended to reflect their current marriage. They certainly don't want an ex-spouse named where they shouldn't be!

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Another important consideration is disability insurance. They should make sure they each have appropriate levels of disability income insurance, particularly long-term disability, which should kick in after a 30-day to 180-day waiting period. The amount of coverage should be at least 60 percent of their monthly income and continue to retirement age.

Establish a rainy day fund

As a rule of thumb, the couple should establish a cash reserve of $12,000 and an emergency fund of $24,000. The cash reserve should be in a checking, savings or money market account. The emergency fund should be invested in cash, CDs or short-term bond funds. The idea is for the cash reserve to be in easily accessible funds while the emergency reserve earns a little higher return in relatively safe investments (not stocks or stock funds), and yet be accessible if necessary. It's OK if it takes six months to a year to build up the emergency funds -- just get started on it now.

Prioritize and tackle debts

Marilyn ad Ron have three credit cards with interest rates that range from 3.9 percent to 9.9 percent. These relatively low rates reflect their disciplined approach to paying bills.

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