Money Matters 101 for the Newlyweds

A newlywed couple meets with a financial advisor.

As newlyweds are learning more about each other, one of the most important areas to collaborate on is how to handle finances together. Many newlyweds haven’t experienced handling their money together as a couple. Now they must learn how to discuss their finances open and honestly or possibly face financial consequences later.

Financial Compatibility

Financial compatibility is important to your relationship as you combine all things monetary, including assets and debts, which are shared in your financial future together.

Are you marrying someone with a lot of credit card debt or a poor credit score? Has this person been fiscally irresponsible at some point, or has he or she ever been bankrupt? Get the difficult (and possibly embarrassing) discussion out of the way. This is the time to share your trust and accept that it’s beneficial to review all your assets, debts, credit scores, and pay stubs together. You don’t want to keep financial secrets from each other because in many instances you are now commingling your finances. Additionally, you both may have your own separate assets from before your marriage which you may still want to retain separately.

Be Transparent with Your Financial Picture

The number one reason for marriage problems is money, so it’s best to be financially honest and transparent with each other and work together on finding a strategy. Even if one or both partners have money problems, start simply. Try asking each other questions. For example, you could ask: “What’s your first financial memory?”

Consider finding a good financial advisor to get some counseling together if necessary, as it could be that your spouse was never taught how to be financially responsible and could benefit from some professional advice. After all, an advisor can work on changing spending habits and helping you both pay down any financial burdens. You’re a team now, so you don’t want to cause resentment in your marriage over money issues. Trust is essential, but make certain both of you are holding up your ends of the bargain.

Older couple meets with a financial advisor

First, find out what bills and other debts you expect to pay and who is better at taking the lead in handling the finances. There should be no unexpected surprises on how much should be used to pay bills or put into your savings account. Remember, this is a learning curve for both of you, so it’s an appropriate time to practice patience and be non-judgmental. Financial trust even builds a better, more secure relationship with fewer arguments, which could even lead to a better sex life!

Short and Long-Term Financial Goals

Once you are both comfortable with a budget, it’s time to talk about short-term and long-term goals.

Here are some examples:

Short-Term Goals:

  • Save for a six-month emergency “rainy-day” fund to survive unexpected expenses, such as car repairs and medical costs.
  • Pay down long-term debts (highest interest debts first, while paying the minimum on others).
  • Save for future vacations (possibly start a separate account for them).
  • Make a budget for entertainment such as: dining out, going to the movies, dates, etc.
  • Set month-to-month budgets for bills, car payments, clothing, gym, Netflix, etc.
  • Agree on spending limits. For example, discuss any purchases over $200 as a couple.

Long-Term Goals:

  • Save for your first home.
  • Set up an education fund for you, your spouse, or your children.
  • Use a tax-deferred retirement account, such as Roth, 401K, or regular IRA.
  • Plan for life-changing events like disability, life insurance (cheaper when you’re younger), or what to do if someone is incapacitated.
  • Make separate or joint investment goals.
  • Check on your Social Security account. Check your balance from time-to-time to make sure it’s getting properly funded.

Many financial experts advise saving at least 20% of your paycheck. Track your expenses for a few months to consider what you need for month-to-month expenses, such as: rent or mortgage, utilities, groceries, gyms, clubs, etc.

It is best to try to live on no more than 70% of your take-home pay and use the rest for paying down debt and increasing your savings.

Get into the habit of working with a budget early, as it will take time and discipline to achieve your financial goals. Work toward one day becoming debt-free. This plan could vary based on your age, individual assets, and retirement needs. Again, a professional financial counselor or your tax advisor can help in these areas.

Assets, Ex-Spouses, and Children Prior to Your New Marriage

You’ll both probably need to consult with your financial advisors and discuss with them any inheritances to prevent commingling and keep these funds or properties separate. If either partner has a business, you’ll want an appraisal of what it’s worth before the marriage, as any new worth is most likely a joint asset after the marriage. The same is true for retirement account balances before your marriage. Also, if there are any other properties, you should decide if you want to retain these properties separately. Get professional legal or financial advice before making any changes when it comes to commingling and sharing ownership of assets.

Discuss who will administer your last wishes or medical decisions if you are unable to do this yourself. Update beneficiaries on insurance and retirement accounts to include your spouse, but consult a financial professional if either of you have children. Be open-minded when it comes to children from prior marriages, as older children might want to take part in an open discussion.

Be prepared to pay for things like an ex-spouse’s alimony, child support, health care, and children’s college expenses to factor into the equation. There could be complicated family financial circumstances to consider when you update your beneficiaries and financial documents. You might want to consider using a trust to provide income for your new spouse should they outlive you, while safeguarding children’s assets from any prior marriages.

While this may be a touchy subject for some, decide if you would like to consult separate lawyers about a prenuptial agreement to decide how your assets would be divided in case of a divorce.

a couple goes over details on a laptop and tablet

Retirement, Wills, or Trust Accounts

Research your Social Security retirement accounts on the appropriate government websites to see how much will be received at retirement, and consider increasing the contributions. Look for websites with free retirement income calculators to determine how your ages, savings, pensions, and Social Security earnings effect how you should be savings for a comfortable retirement. If either of you are 50 or older, you might need to make catch up contributions to your Social Security.

Depending on your state, if you do not have a will or trust, the state could make financial and other decisions for you. Many people find that a trust is the best option, since it prevents probate. You should seek out proper legal advice, as the rules vary by state and tax laws may change.

Finally, think about your future care needs and do the research on long-term requirements.

Happy and successful marriages are a work in progress, so try to make an effort every day while working toward your financial goals.

Find Amazing Vendors