Shortly after your stroll down the aisle, reality sets in. As a married couple, you’ll inevitably be cohabitating, coexisting, and co-spending/saving. Newlywed finances can be a bit tricky and overwhelming at times, so we sought expert tips from CFP Mary Nosuchinsky of Stash Wealth. Check out her best advice to help pave the way for smooth financial sailing for newly married couples.
1. First Things First
Like with most things, the first thing that should happen is a conversation (ideally, this will have been done prior to the walk down the aisle). You should be aware of your financial situation, and not afraid of it. Married couples should, “Know what each person is bringing into the marriage, whether "good" or "bad" (salaries, savings, debt, spending habits). It's also helpful to talk about how each partner grew up with money. A lot of times this directly correlates with current spending habits and views of money (aka a love or hate relationship!)” Nosuchinsky explains.
She also stresses that it’s important to remember, “Opposites attract! So, it's not uncommon to have a saver and a spender in a relationship together (we see this a lot). The #1 source of arguments between couples is money related, so it's best to talk it out before it escalates to an argument.”
2. Set a Budget
Budgeting is never fun, but it’s a necessary evil in planning your finances, especially once you’re married. How you set it up is entirely up to you as long as your planning for saving long term, saving short term, and spending while living within your means.
Or, you can take a unique approach, such as Stash’s Reverse Budget. Nosuchinsky points out, “A strict budget (aka tracking your expenses down to the dollar) is not something we focus on. We recommend that you use a credit card for all of your expenses, where you get rewards points/miles and build your credit too. You should focus on how much you can put on your card each month and know (with full confidence) that you can pay the entire balance each month. From there, how you decide to spend your money is up to you.” Oh hello, happy hour.
3. Set Some Goals
To be financially healthy, couples need both short and long-term goals. As far as short-term, anything that is within two years or less, you should be asking yourselves, “Do you want to travel every year, upgrade your apartment, buy a home, have a kid? We'd recommend setting up a separate online savings account for each short-term goal and automating the monthly savings needed to achieve the goal,” says Nosuchinsky.
In regards to long term planning (anything two years out and further), consider, “Do you want to pay for private school? College? Vacation home? Retire at 50? That's where investing comes into the mix. Since these goals are further out, you'll want to get your money working harder for you in the meantime!”
4. Deal with Debt
Debt is something that most people have, and nobody likes, but it’s an unfortunate reality that needs to be dealt with. “We view any debt brought into the marriage as household debt. Even if one person brought in student loans or credit card debt, we advise using household resources to pay it off. We help our clients work as a team,” explains Nosuchinsky. She continues, “The rule of thumb is to pay off the highest interest debt first (refinancing could be an option to bring down the rate) but don't divert all of your resources here. There are still other goals that need to be saved for, like an emergency fund, home down payment, and don't forget about lifestyle expenses, too! Typically, for clients that have larger student loans or credit card balances, we recommend putting 20% of your monthly take-home pay towards this."
Before deciding to invest, you need to decide if it’s right for you. “Investing for the sake of investing is just gambling and not a great way to build wealth. You'll want to invest with goals in mind. We also aren't huge fans of single stock picking. This was the primary way to invest when our parents were younger but now there are so many alternative ways to invest (mutual funds, ETFs). Although throwing $100 on red at the roulette table can be fun, there are less risky ways to build wealth,” Nosuchinsky describes.
You also need to be careful not to over-invest, or over-fund retirement. She continues, “We actually see a lot of young couples over-funding their retirement. They are so worried about maxing their workplace retirement plans, that they have no money left for their mid-term goals (think: buy a home, start a family, etc). It's important to lay out your mid-term goals and make sure there's an investment strategy in place to get you there.”
6. Marriage Perks
Aside from being married to your best friend forever, marriage also comes with some financial perks, too. “One of the main benefits of having a spouse/partner is the rent/mortgage savings. In addition, you now have two incomes contributing to the household expenses, which may provide financial peace of mind.” But Nosuchinsky warns, “Many couples are shocked to see that their taxes go up when they file jointly. This is referred to as the ‘marriage penalty’ in the tax world. The best way to prevent taxes from being owed is to tweak your W-4 election (select 0 and single). This will result in the largest amount of tax being taken up-front to avoid taxes being owed in April.”