Whether this is your first or third marriage, it’s important to get on the same financial page as you start your happily ever after. Money stress is one of the leading causes of marital discord for newlyweds, but having a fiscal discussion, or better yet, a plan, can avoid that. Here are 10 financial tips for newlyweds of all ages to prevent financial stress.
#1 Work Towards the Same Financial Goals
It’s simple, if you don’t agree on the same goals, neither of you will be successful, and resentment will be the outcome. Do you want to buy a home, have children, travel? Do you want to change jobs or careers? Are you entering the marriage with a significant amount of debt or living paycheck to paycheck?
“Success is about incorporating and supporting each other’s goals
as a part of the overall goals.”
We all have individual and family goals. I’m not saying give up your goals, just make the shared and personal goals part of the plan. Communication is the key. As newlyweds, now is the perfect time to get a financial plan in place with your goals written down.
#2 No Financial Secrecy
Trying to hide spending never leads to good things, unless you surprise your spouse with a gift or trip. If you’re spending for other reasons the more important question is, what are you doing that you don’t want your spouse to know?
Marriage is a partnership. Treat the finances as a business. Financial secrets are the quickest way to sink the business and, more importantly, trust. You don’t have to account for every penny you spend, but don’t be sneaky.
#3 To Combine or Not Combine
There are different ways to approach combining of your banking and credit card accounts. You can keep accounts separate, combine them, or do a little of each. My preference and recommendation are to merge accounts, but I’ve seen it work well the other ways.
This point sums up the whole blog post, figure out what works best for your situation. The only wrong answer here is the one that one spouse does not want. Combining them will make it easier to manage, but if that creates more disagreements on spending, is it worth it?
If either of you has multiple credit cards, then it may make sense to close a few. Keep the ones with no fees, a low rate or a generous rewards plan. You need to be careful when canceling credit cards because it can hurt your credit score, especially if you have high debt compared to your total available credit. It may be a good idea to keep the card you’ve had the longest since that can help your credit history, especially if you have a short or limited credit history.
Be careful, though, if you have a joint credit card, both of you are responsible for the balance.
#4 The 6-Letter Word
B-U-D-G-E-T. I’ll say it again, marriage is a partnership. Look at the finances as a business. Review your income and expenses. Create a spreadsheet or use an app to determine the necessary expenses such as rent/mortgage, utilities, etc., and the discretionary expenses such as coffee, dinners, and other things that aren’t necessary but that you enjoy.
“Live within your means should be part of the wedding vows.”
Compare those expenses to your income. Is this partnership profitable or in the red? Businesses can only remain a going concern if they’re profitable and you will never reach your goals if you’re racking up debt.
One person usually plays CFO, pays the bills and balances the household finances. That’s fine, but keep your spouse in the loop. Now it’s easier because most of the bills are automatically deducted, banks and apps make tracking easy. Even if it’s showing your spouse a cash flow or net worth report every so often, it goes a long way in keeping you both on the same page.
#5 Save for Retirement
Both of you must save for retirement, in your own accounts! Don’t rely on one person for retirement savings. Things could go wrong – financial secrets, divorce, not having as much as you think.
Reduce the risk of an unpleasant surprise and participate in your employer’s 401(k) plan or open an IRA. If you have a 401(k), contribute enough to get the full match your company offers. Every year you get a raise greater than 2%, increase your 401(k)/IRA contributions by 1%. Some for you and some for retirement.
#6 Have an Emergency Fund
I recommend saving three months worth of expenses in a savings account and six months worth of expenses in a money market account. I’m more conservative than many advisors, but I prefer an overfunded emergency fund as opposed to an underfunded one.
A job loss, new roof, car repair, health issue, in other words, an emergency. They will occur and usually at the worst time. Having an emergency fund can prevent the use of bad debt, i.e., the credit card.
Like your retirement savings, start slowly. Make monthly transfers to a savings account, when three months of expenses are met, then open the money market account. Without an emergency fund, you’re setting yourself up for trouble.
#7 The Prenup
For newlyweds nothing says I love you more than a prenup. A prenup isn’t just for the wealthy, and in fact, a prenup is just as important if not more so if one spouse is entering the marriage with substantial amounts of debt.
You don’t get married with the idea that you’ll get divorced, just like you don’t buy a house thinking it’ll burn down. A prenup is marriage insurance. It’ll protect you if things go south and can even spell out the alimony, child support, and other provisions of divorce in advance.
Many experts believe everyone should have a prenup. That’s a stretch, but I agree more couples should have one, particularly if…
- If one spouse has a significantly higher amount of investments/assets than the other spouse, whether that be retirement, savings, or a business
- If one spouse has a significantly higher amount of debt, student loans, credit cards
- If one spouse is going to receive a large inheritance
- There are children from a previous marriage or you’re coming into a 2nd marriage each with your own significant assets
#8 Insurance and Benefits Coordination
Marriage is a special event, a qualifying event for your HR department. You can add your spouse to your benefits, but you need to determine who has the best coverage for the best price. I know, it sounds exciting, but going through the details can you save you money in the long run.
Another money-saving technique for newlyweds is to use employer-provided group life and disability insurance. It’s an excellent way of obtaining a significant amount of coverage at a low price.
Don’t forget to update your beneficiaries. Make sure you add your spouse as the primary beneficiary of your retirement plans, insurance policies, and any other accounts. Otherwise, if you die, those accounts will either be left to your estate or whoever is the beneficiary – parents, siblings, ex-spouse. I don’t need to tell you that’s not a good thing.
It usually pays to get on the same auto insurance policy, depending on your driving records. Insurers offer multi-vehicle discounts and discounts for bundling auto and homeowners or renters insurance.
#9 Married Filing Jointly
Congrats, you can now file tax returns as married filing jointly, it’s almost as romantic as saying “I do.” It does make sense for most couples to file jointly. The “marriage penalty” may become a factor if there is a significant difference in income between each spouse. The spouse with the lower income may miss out on some tax deductions if they file jointly.
I find that to be the exception and not the rule. Filing separately as a married couple does have some downsides. If you itemize deductions, one spouse cannot claim the standard deduction. You both have to itemize or use the standard deduction. Both of you would also be ineligible for many tax credits, including education tax credits, student tax deductions, the Earned Income Credit, among others.
Most tax software nowadays can make a quick comparison for you, but in reality, I find the “marriage penalty” to be overrated.
The one thing you should do after you’re married and throughout your life is to adjust the withholding allowances. These are used to calculate the amount of income tax to withhold from your paycheck based on income, deductions and marital status.
Check out the IRS Withholding Calculator, it can walk you through the process to determine your appropriate withholding.
#10 Estate Planning for everyone, not just newlyweds
You’d be surprised how many people do not have estate planning documents. I’m not just talking about newlyweds. I’ve seen couples married for 25 years (yes, I’m talking to you) not have a plan for their estate. Here’s a quick list of documents you need:
- Will: Directs where to send your assets (the ones that don’t have beneficiaries listed), guardians for your children, and names an executor who will carry out your wishes.
- Power of attorney: If you become incapacitated, this names someone to act in your interest.
- Healthcare power of attorney: Allows someone you deem responsible for making important medical decisions on your behalf.
- Living will: Lays out your end-of-life wishes. Do you want to be resuscitated if your heart stops or do you want machines to keep you alive?
Having all of this removes the guesswork at a time of difficult decisions.
Financial harmony is not a once and done deal. Unexpected expenses, job loss, and kids all make balancing the family books difficult. If you can stick to these 10 financial tips for newlyweds throughout your entire marriage, the road will be a lot smoother.