5 Financial Tips for Newlywed Couples
Wedding bliss can easily turn into strife if newlyweds aren’t on the same page when it comes to their finances.
For newlyweds, money is a particularly challenging subject. You’re merging just about every aspect of your lives, including your approach to handling money. If you haven't had the money talk up front, something many millennials fail to do, it can lead to poor decisions and resentment down the road.
When it comes to money matters, the more a couple discusses it, the better. For instance, a frugal person who learns early on that he or she is married to a compulsive shopper will be better able to reign in those habits than someone who finds out after the fact.
Remember, you aren’t alone when it comes to navigating finances as a newly married couple. Many have done it before you and are still happily married. They employ tried and tested strategies to keep the peace and achieve shared financial goals. Read on to learn a few of them.
1. Start and Grow an Emergency Fund
Having cash on hand from your emergency fund to deal with unplanned financial situations reduces stress and makes marriage a whole lot easier. To do that, you have to start and continue to invest in an emergency fund. Set up a separate savings account strictly for emergencies, such as for high medical co-pays, travel to deal with an urgent family situation, or to take your car into the shop. Review the emergency fund each year, adding to it as your family grows or as you acquire more property that may require emergency repairs.
A rule of thumb is to have enough saved to cover three months of bills and expenses, but that may not be attainable when you are just starting out. Save as much as you can, vowing not to touch it, and it will quickly grow. When an emergency does come up, you’ll be happy you don’t have to call the parents, put the cost of the emergency on a credit card, or withdraw from an investment account that is making you money.
2. Evaluate Homeownership
Buying a home is the dream of many newly married couples. Who doesn’t want the white picket fence and the sprawling yard? But homeownership isn’t something you do on a whim, if at all. It requires planning and saving, and both of you have to be on the same page. Without any agreement on the type of home, the price, and the size of your down payment, it could become a source of contention.
Many couples plan to purchase a home eventually but aren't sure when — or if — it will become a feasible option. The sooner you start planning for the possibility, the better off you’ll be. Even if you know that homeownership is a few years away, now is a good time to start preparing for the process. Set up a fund to save for a down payment, check mortgage options, and work to improve your credit scores. The more prepared you are, the less grief you'll incur when you do decide to make a move.
3. Start College Planning Now
If you plan to have kids one day, there's a good chance that they will go to college or trade school. You can get a head start on tuition costs by saving for school now.
The Coverdell Education Savings Account (ESA) and the 529 Plan are two popular options. These plans offer tax advantages while allowing you to invest funds so that your child or children won't have to go into debt to pay for school. Even if you don't plan to have kids, but think that one of you may eventually go back to school, starting an education savings plan is still a good idea.
4. Develop a Policy of Transparency
One area of potential conflict in a marriage is when spouses hide spending and debt from each other. This is sometimes called "financial infidelity," even if there was no intent to deceive the other spouse deliberately. Financial infidelity creates a breach of trust and can have a serious impact on a marriage.
Many couples have a policy of being completely open about their assets and debts with each other. Each party has access to credit card and financial account statements, and there is a full understanding between partners about investments and spending decisions.
Another policy that works well for many couples is to set an independent spending limit: If one spouse wants to make a purchase of more than $100 (or whatever amount is most appropriate given your household income and budget), he or she must first consult with the other spouse.
Contrary to what many people think, couples don't have "joint" credit reports or scores. Your credit report contains only your own credit history, and this does not magically appear on your spouse's report after you marry. What does show up on both of your credit reports are your joint accounts — if you apply for a mortgage, loan, or a credit card together.
This means that you — and your spouse — should be proactive in managing your debt and repayment schedules. If you miss a payment on one of your cards or accounts, the late payment will show up on both credit reports. That will have a direct impact on the cost to borrow. A ding to your credit score can mean thousands of dollars in extra interest.
When you apply for credit together, such as for a home loan, lenders and credit card companies pull both of your credit histories and evaluate them. Approval for credit or a loan, as well as the terms offered, vary depending on each of your credit histories. For example, if your credit histories are unequal (one of you has stellar credit while the other has poor or no credit), you two may still qualify for a mortgage or joint credit card. However, you may have to pay a higher interest rate together than if the spouse with better credit would have paid on his or her own.
Newlyweds have a lot to deal with in the beginning as they embark on building a life together. Don’t let money get in the way. If these tips seem daunting, don't despair. There are free resources available to help you brush up on your financial literacy and manage money. The more knowledge you amass, and the more transparent you and your spouse are about money, the higher the likelihood you’ll enjoy marital bliss for years to come.
Have you had the money talk with your spouse? How do you plan to manage your finances as a couple?
Brenda Greene is a personal finance writer and journalist. She has over 15 years of experience working in journalism and media, and she has loved every minute of it. She lives and works in Chicago, Illinois.
All content provided in this blog is supplied by Brenda Greene and is for informational purposes only. Barclays takes no position as to the views, and makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.