Financial Considerations for Newly Married Couples
With memories of your special day and honeymoon bliss, it’s back to reality. Money is the leading cause of stress in most marriages and for years, research studies and surveys have cited financial issues as the top, or near the top reason for divorce. Even though you might have different opinions and philosophies, communication is the key. You should have addressed concerns about money, debt, and financially planning, prior to getting married, but now that you are hitched, it’s time to make sure you are on the same page and take action to ensure a financially fit marriage. Here are some financial considerations and things you can do as you start out your new life with your trusted partner by your side.
Create a Budget
The “B” word might easily scare some newly married couples because they think budgeting means no more fun stuff. While it's in your best interest to spend wisely, budgeting is not a sentence to sitting at home on the sofa, drinking water, and eating ramen noodles for dinner every night. Creating a budget is simply putting down on paper, or a spreadsheet, how you and your spouse plan to spend your money each month. This includes a rent/mortgage payment, utility bills, cell phone bills, car payments, student loan payments, and other must-pay items, as well as for deciding how much to save, how much to spend on entertainment and any other discretionary spending. When you create a budget together, you should also decide whether you will be using joint or individual checking accounts, and who will track monthly expenditures.
Establish an Emergency Fund
An emergency fund is a special account you use for true financial emergencies, often a result of job loss, illness, or an accident. This special account is not for buying a new car, going on vacation, or paying for holiday gifts. Your fund needs to be liquid so you can have quick and easy access, but it should remain hands-off unless a true emergency occurs. Consider opening a savings or money market account for these purposes and funding it with a minimum of 3 to 6 months of living expenses (6 to 12 months is recommended). An emergency fund helps take some of the emotional pressure which accompanies the financial burden of an unexpected and stressful life event.
Pay Off Debt
Depending on your age, as well as your spending habits when you were single, and the debts from your wedding and honeymoon, you and/or your spouse might have entered the marriage with debt. You cannot plan your future, work towards your financial goals, save for big-ticket items, or accumulate wealth if you are saddled with debt, so paying off your debt should be your first priority. Attacking debt in a serious manner typically includes one of two approaches:
– High to low interest. List your loans and credit cards with the associated interest rates. Send as much extra money as you can to the one with the highest interest rate to pay it off first, and keep moving down, paying the lowest interest rate debt last. Proponents of this approach argue you save more money by getting rid of high-interest rate debt first.
– Snowball method. List debts in order of size. Send as much extra money to the smallest debt to pay it off. Take that payment and add it to the next smallest debt, and on and on. By the time your reach your largest debt, you will be sending the same amount from all previous payments to pay it off. Proponents of this method claim strong psychological effects. As you pay off each debt, you become inspired to stick with the plan because you can more easily see the progress.
Set Financial Goals
Part of sharing and planning a future together includes discussing financial goals for the short, immediate, and long-term. Your discussion should determine the priorities and include goals for spending, saving, and investing. Some examples of things you might address include:
– Buying a house, car, boat, vacation, or vacation home
– The amount you want to budget to save each month just to save
– Specific savings goals such as a down payment for new home, or maybe
planning for children
– Protecting your new family and your ability to earn a living with life and disability
– The amount you want to invest each month above and beyond your savings
– How to invest, including contributing to workplace retirement plans, 401(k) program, or
a Roth IRA
After you discuss and agree on some of these items, schedule a meeting with your financial advisor in order to get everything in place.
Review Your Insurance Needs
Prior to getting married you likely had individual insurance coverage for medical and dental, property and casualty, disability, and life insurance. You can now combine the auto insurance policies and medical coverage in order to save money on the premiums.
If you are both employed, review your employee benefit plans to see where you get the best coverage for the best price. Whether or not your employers offer life insurance, you should consult with your insurance agent to put plans in place to protect your new family, as well as your ability to earn a living. In the event that one of you dies suddenly, life insurance will not only pay for the funeral and burial costs but more importantly will protect your spouse and possibly children’s lifestyle, while also providing the funding for the goals and dreams which the two of you set. This is especially important if one person makes considerably more income than the other.
Commit to Discussing Your Finances
Many newly married couples start of on the right foot by creating a financial plan, paying off debt, and talking about financial goals, but some let continued discussions fall to the wayside. It’s easy to do, especially if one person is paying the bills and tracking expenses. Yet, it’s the continued communication about finances that protects your marriage from the common pitfall of fighting about money. Agree to a special date night once per month when you review your monthly budget and progress towards your goals. It keeps both of you engaged in your future and gives you an opportunity to talk about what’s working and what things you might want to change.