Congratulations, you’re married! When two people are engaged, they tend to focus on the joyful and romantic side of marriage: falling in love, the wedding and the honeymoon. As a result, many couples don’t take the time to focus on the not-so-glamorous aspect of being newly married: money and finances.
From an economic perspective, marriage creates opportunities, as well as challenges, for a couple. One of the most important commitments you can make to ensure a successful marriage is to work together to establish sound financial habits, starting from day one.
Couples often begin married life with different approaches to money. One partner pays bills like clockwork, the other runs late. One is carefree with money, the other follows a budget to the penny. One spouse saves for the future, the other spends for today. And this is all very typical but workable.
One of the biggest adjustments in marriage is figuring out financial cooperation between two people. Being transparent with open communication will help with discussions like whether you want to hold separate bank accounts and investments or combine them. Whatever the decision, keep in mind that now that you are married, financial decisions are yours to make together.
Marriage creates opportunities for a new couple’s financial life. If you identify these from the start, you can advance financially compared to where you were as single people.
If both spouses have jobs, dual incomes create your first opportunity. Combining two incomes to support one household can produce a surplus, since you are only paying for one apartment or house, a single set of utility bills, etc. To seize this opportunity, think about applying the dual-income difference to begin a joint savings plan or to pay off any debt.
By using both spouses’ perspectives to make decisions, you get better outcomes. One partner may be a natural organizer while one may be a skilled bargain-hunter. The “visionary” spouse may have the foresight to save for a house or car while the “cautious” spouse can foresee mistakes and offer financial protection.
The key is to work together as partners. Divide day-to-day financial duties according to personal strengths and preferences. Share information. Respect each other’s views. Make joint decisions on purchases and long-term changes, such as plans for career, education, savings or retirement.
Marriage also creates challenges for a new couple’s financial life. However, by engaging in open communication about potential issues, you and your spouse can avoid many of the financial problems that cause stress. Here are some common pitfalls:
- Temptations of a “dream” lifestyle – Newlyweds sometimes move quickly to buy a house, new furniture or other big-ticket items to fulfill their dreams. This can lead to overspending; take the time to make wise decisions.
- Not keeping track of money – Sure, bookkeeping isn’t romantic. But you do need to stay on top of day-to-day finances (paying bills, balancing checkbooks) and track your progress toward long-term goals (saving for a house, baby or retirement). Get a system and work it.
- Failing to communicate – If you and your partner approach finances differently, you need to commit to talking through money issues and making joint decisions. Spending money or taking risks without communication can result in marital discord.
Taking time to create a joint budget will pay many dividends. Before you are married, list out each individual’s income and all expenditures in detail. Then play the merger game: Put these lists together and see what the combined budget will look like after your wedding day.
Old and new debt
In our competitive economy, lenders and merchandisers are eager to make it easy for you to buy a house or car or TV by just putting it on credit. The danger is you can get into a deep hole of debt that causes you years of worry and extra work.
Living within your means may seem old-fashioned, and it may mean having to delay some purchases until you save up money or boost your income, but the payoff can be reduced stress and greater financial stability for your family.
A few top-line tips on spending and debt:
- Credit cards – If at all possible, don’t put a purchase on a card unless you can pay it off at the end of the month. Be sure you pay bills on time to avoid late fees. Also, if you’re making minimum payments, next month’s bill will just keep increasing.
- Auto and installment loans – Protect your interests by counting the costs. These types of loans add fixed payments for years into the future. If possible, delay that purchase until you can pay for it up-front or consider scaling back on the item you buy to limit the amount you are borrowing.
- Mortgage loans – Buying a house or condo is the biggest financial decision you will make. When you commit to a mortgage for 15, 20 or 30 years, consider that your job and family circumstances will probably change and home prices will vary, as we’ve witnessed recently. Our investment advisors can offer advice about limits you should set.
Many couples begin their marriage with credit card balances, student debt or auto loans. It’s important to discuss your plans for dealing with these obligations in order to save for the future. Agree on a joint plan to pay down debt, starting with those that charge the highest rates. It’s an investment that pays long-term dividends.
Plans for a lifetime
Much of life unfolds “over the long run.” You and your spouse have a family and watch it grow, develop a lifestyle that is uniquely your own, pursue careers from the early days until your retirement, and plan for major events, celebrations and even losses along the way.
Financially, life calls for long-term planning so you can face each of these stages. From the onset of your marriage, learning to save money and invest for the future is a vital life skill.
Take some time now to seek out a financial professional who can advise you on preparing for the future with a wise plan for your savings and investments. Planning will include saving for future purchases, a growing family, education, future needs or “wants,” and retirement.
One way to stay on track is to hold a “financial summit” at least twice a year. Meet with your spouse and your advisor to review savings and investments, assess progress on goals, evaluate risks and returns, and outline a new 12-month budget your financial plan. These practices will pay off in the long run.
What to do next
- Start talking with your spouse about finances.
- Take opportunities to begin saving and investing.
- Confront your financial challenges together.
- Hold a “financial summit” with your spouse and investment advisor at least twice a year.