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6 financial planning tips to help couples build wealth

Money can be a common cause of arguments in a relationship, with many couples disagreeing on everything from their spending habits to debt repayment efforts.

And yet, if you’re on the same page and willing to work together to achieve your financial goals, money can be used as a tool to empower your family and build a fulfilling life.

Here are a few financial planning tips for couples looking to make the most of their income.

1. Married? Make the most of tax advantages

Married couples can benefit from significant tax advantages that aren’t available to non-married couples.

Marriage tax allowance

For example, in a couple where one person earns less than £12,570 and the other is a basic-rate taxpayer, the marriage tax allowance allows the person who earns less to transfer £1,260 of their personal allowance to the higher earner.

Higher-rate pension contributions

If one spouse is a higher-rate taxpayer, it might be worth increasing their pension contributions so they can benefit from more tax relief.

While a basic-rate taxpayer’s pension contributions would only benefit from 20% tax relief, those in the higher tax bracket can see their retirement savings boosted by 40%. Over time, this can make a huge difference to the value of their pension.

Passing on assets tax-free

Married couples can also pass assets between them to avoid capital gains tax. If one spouse passes away, their widow will inherit their assets without paying any inheritance tax at all.

2. Keep your wealth balanced

It is usually better to save two pensions of £1m each, rather than one pension of £2m.

There are two reasons for this. The first is largely psychological. This approach can make both parties feel like they’re contributing equally to the relationship.

The second reason is financial and practical. There are tax advantages to keeping wealth balanced. Two pensions of £1m are likely to pay a marginal rate tax of 20% in retirement. Whereas a portion of a £1.5m pension is likely to be taxed at 40%, making it less efficient.

Work with a financial planner to determine how much you and your spouse should save for retirement based on your income and the tax advantages available to you.

3. Don’t over insure the higher earner

Insurance can be a valuable tool to protect families if the partner who earns more passes away. However, there can sometimes be a tendency to over insure the higher earner with little thought into what will happen if the person who earns less passes away.

Whether the lesser earner has a lower salary, works part-time or is a stay-at-home parent, there needs to be some thought and forward planning in case something happens to them.

Working through your options with a financial planner can help you prepare for the worst and minimise the financial impact on the rest of the family.

4. You need a will - especially if you’re not married

Many people overlook the importance of getting a will until they’re approaching retirement.

Some people leave it until they’re well into their 70s or 80s before laying out how they’d like their home and assets to be divided when they pass away.

However, this can make things harder for those left behind and even cause arguments between family members.

A will is particularly important if you and your partner aren’t married.

Don’t assume that living together or having children together will be enough to see one partner’s assets passed to the other. 

If either you or your partner have children from a previous relationship, this is also something to take into consideration when drawing up a will.

You’ll each need to come up with a plan to make sure the people you care about the most are supported financially. Even those with the best intentions can find themselves making difficult decisions after their partner or spouse passes away.

5. Work together on financial decisions

In many couples, one person takes on the role of managing all the money. They’ll open bank accounts, organise documents, memorise passwords and move assets around.

This might seem like a smart strategy if the other person isn’t financially savvy, but it can have serious consequences if something were to happen to the most financially organised person in the relationship.

It’s important that both parties know where to find important passwords and documents. 

There’s nothing wrong with one person taking the lead, but by working together to make financial decisions, no one will be left in the dark if they suddenly have to manage the money by themselves.

6. Enjoy your money

Always diarise your next holiday as soon as you finish your last. This is a rule me and my family try to live by.

Building a financial future together can create security and reduce stress, but there’s little point in doing these things if you don’t use your money to create memories.

When you pay attention to your money and look for ways to put it to good use, it’s easy to get a little obsessed with it.

Some people get to a stage where they feel guilty for taking a day off, particularly if they’re self-employed, because they see each day as worth a certain amount of money.

But surely the whole point in making good money is so that you can spend time with your partner and children without worrying about where your next pay cheque is coming from.

Download our free WealthMap guide to learn about our innovative software designed to help you plan your future and build a life you love.

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