How to Build a Strong Financial Foundation as a Couple
As a newly married couple, you have many exciting life milestones to look forward to. You may buy a home, start a family or travel the world — the possibilities are endless.
However, in order to achieve your future goals, it’s important to take steps to make sure your financial house is in order. Working to build a strong financial foundation as newlyweds can help ensure you’re able to enjoy all that life has to offer long into the future. It can also help you protect each other from hardship if something were to happen to either of you!
Following are six important financial planning tips for newly married couples.
#1 – Understand each other’s approach to finances.
A great way to begin your financial lives together is by having an open and honest conversation about your approach to money. Most people’s views on spending and saving are formed early in life, and it can be difficult to alter your mindset. For example, if your parents struggled with money while you were growing up, whereas your spouse grew up with parents who were able to spend freely, you may have very different financial habits and fears.
The following questions can help you gain a better understanding of each other’s financial values and approach to money:
- What are your earliest memories about money?
- What are your biggest financial fears (e.g., not being able to pay the bills, not having a plan to provide for loved ones, an inability to keep up with the Joneses, etc.)?
- What do you believe are the most important things to save for?
- How much debt are you comfortable taking on?
- What percent of your income do you currently set aside toward savings monthly?
Taking time to understand each other’s perspective and approach to money can help you find common ground and establish a strong foundation on which to build your financial lives.
#2 – Share your financial histories.
Before beginning your financial life together, it’s important to gain an understanding of your starting point. This means sharing details about your past and current finances. Important topics to cover include:
- Income – What’s your gross and net income monthly? Do you receive bonuses? Do you have any contract income to consider for tax planning?
- Spending habits – Discuss your monthly expenses and understand where discretionary income is spent. Understanding differences in discretionary spending in advance can help you plan for how you’d like to adjust your expectations and work toward a compromise early on.
- Savings amount – Identify how much is kept in savings on average and how much each partner saves regularly.
- Investments – Does your partner have a 401k, IRA, Roth IRA or investment account? Which accounts are you saving toward regularly? The annual amounts you can save toward each account may change once you’re married, especially if one partner works and the other doesn’t.
- Debts – Understand all debts your partner may have as you enter into your marriage. These may include credit cards, student loans, personal loans, mortgages or even back taxes.
#3 – Establish shared financial goals.
The next step is to work together as a couple to establish shared goals, both in the short term and the long term. Consider questions such as:
- What do you both envision for your financial future?
- What savings goals do you have? Are you hoping to purchase a new home? Save for your future children’s college expenses? Retire early? Travel the world? Start a business?
- How do your goals differ from your spouse’s? Will you need to adjust your goals for your shared future?
One mistake some couples make is thinking they need to have the exact same financial goals and priorities. While compromise is essential to any successful marriage, it’s okay to have goals that differ from your spouse’s. The key is to communicate and come up with a financial strategy that allows you to pursue both your shared priorities as well as your individual objectives.
#4 – Create a budget.
A great way to start working toward your financial goals is by creating a budget to guide your spending. A budget provides insight into exactly where your money is going each month and can help you identify spending issues early in your marriage, before they get in the way of your long-term goals.
Start by determining how much money you anticipate spending each month. Then divide your expenditures into non-discretionary and discretionary expenses. Non-discretionary expenses are those you must pay each month in order to live, including:
- Rent/mortgage
- Minimum credit card payments
- Car payments
- Insurance
- Utility bills
- Cell phone
Discretionary expenses include “wants” or “nice-to-have” expenses, such as:
- Eating out
- Movie and concert tickets
- Streaming TV subscriptions
- Gifts
- Vacations
Once you have a handle on your monthly expenses, compare that amount to your monthly income. Are you spending less than you earn? Are you saving enough to hit your targets? If not, you may need to find ways to reduce your discretionary spending. Maybe you can cook more often or make your lunch rather than eating out. Or perhaps you can choose to take a vacation closer to home to save money on airline tickets.
You may also want to consider combining some of your bills into shared plans. For example, if each partner has a cell phone contract, can you save money by combining your plans into a family plan? This will also be a great time to shop your insurance coverages. Bundling your auto, renters or homeowners insurance into combined plans will likely reduce your non-discretionary expenses as well.
The key here is to establish a budget that allows you to pay for non-discretionary expenses and certain discretionary expenses while also making progress toward achieving your financial goals.
Tip –If you and your spouse have very different spending habits, you may want to consider giving each other an agreed-upon monthly “allowance” that can be freely spent or saved without the other spouse’s input. Establish separate accounts so that you both have complete freedom over this limited amount of money. This can help you both stick to your agreed-upon budget while also having the flexibility to spend on non-essential items.
#5 – Cover your bases.
Once you’ve had the difficult discussions, take some time to restructure your income, expenses, insurance and savings plan. You’ll want to:
- Establish joint checking, savings and investment accounts.
- Update your income payouts to be directed into the appropriate bank account(s) for your overall goals. Update your expenses to be drawn from the appropriate account(s) as well.
- Save for retirement in an employer-sponsored retirement plan or an individual retirement account (IRA).
- Review existing insurance policies and purchase/update any relevant policies (life, health, homeowners/renters, disability, auto, umbrella, etc.).
#6 – Review your Beneficiaries and Create an Estate Plan
Your beneficiary designations are incredibly important. If these aren’t updated and list someone other than your spouse when you pass, your spouse won’t have the ability to contest or receive those funds. Be sure to:
- Update your beneficiary designations on any existing retirement or savings accounts already established.
- Establish estate planning documents to help ensure your spouse receives assets as you desire if you pass away — or could make healthcare and financial decisions on your behalf if you become incapacitated. This would potentially require wills, living wills, advanced healthcare directives, financial powers of attorney, healthcare powers of attorney, etc.
- Determine whether it makes sense to establish a revocable living trust.
- Review your current W-4 tax withholdings and update as necessary.
Could you use help planning for your financial life as newlyweds? Creative Planning is here for you. Our experienced professionals understand the challenges you face in navigating your financial future as a married couple. We’re here to help ensure financial harmony, both today and long into the future. Schedule a call to learn more.
