Financial Unity: A Newlywed's Guide to Money Mastery
If you are newlyweds, congratulations on your new journey together! As exciting as marriage is, it brings new challenges, especially when it comes to finances. Understanding how to manage your money as a couple is crucial for a stable and prosperous future. Let’s explore the best ways to handle finances that can make your marriage not just survive but thrive!
Understand Financial Management Styles
Getting married is just the beginning of building a life together, and one of the most crucial aspects of this new chapter is learning how to manage your finances as a unified team. Discussing and aligning on your financial goals is not just a good practice; it's essential for the longevity and happiness of your marriage.
Why Discussing Finances Matters
A study by Ramsey Solutions underscores the impact of financial communication on marital health. The 2017 study revealed that 94% of couples with great marriages regularly discuss their money dreams together, compared to only 45% of those in less happy unions. Clearly, getting on the same page about money significantly matters.
The Financial Reality for Many Couples
Many newlyweds begin their marriage in debt, with 86% of couples married within the last five years starting their lives together in the red. This financial burden is a common source of stress and conflict. Couples who start off with substantial debt, averaging around $30,000, are more likely to argue about finances than those who are debt-free. In fact, debt-ridden couples argue about money more than any other topic, and these arguments are often intense due to the high stakes involved.
Financial Management Styles to Consider
Separate Accounts: Your Money, My Money
Keeping separate accounts means each of you manages your own money. This might seem easier, especially if you both have different spending habits or financial responsibilities.
Pros: Each partner has control over their own finances, which can decrease arguments over money.
Cons: It can be challenging to manage household expenses together, and you might miss out on growing your money together.
Joint Accounts: Our Money
A joint account is where both of you contribute to and manage a single account. This is great for working together towards common financial goals.
Pros: Simplifies budgeting and strengthens unity in financial goals.
Cons: Differences in spending habits can lead to disputes, and personal purchases are less private.
Combined Approach: Best of Both Worlds
Many couples find a middle ground by maintaining both separate and joint accounts. This method allows for shared expenses while maintaining some financial independence.
Pros: Offers flexibility and individual freedom while still working towards joint financial goals.
Cons: Requires more communication and can be complex to manage.
Key Steps to Effective Financial Planning in Marriage
Financial planning for married couples is crucial as it intertwines two lives not just emotionally but financially. A systematic approach to managing finances allows couples to achieve both short-term and long-term objectives, creating a stable future together. This strategy encompasses budgeting, saving, investing, and preparing for unforeseen financial needs.
Open the Lines of Communication
Effective financial planning begins with transparent communication. Couples must share their financial histories, current financial statuses, and future aspirations. Understanding each other’s perspectives on money—including past mistakes and successes—lays a foundation for trust and helps align financial goals. Proactively discussing potential disagreements about finances and setting up constructive ways to resolve them ensures that both partners are prepared to handle money matters effectively.
Set Shared Financial Goals
Once communication lines are open, setting shared financial goals is the next step. These should include short-term objectives like saving for a vacation, medium-term plans such as buying a home, and long-term visions like retirement. By setting these goals together, couples ensure they are moving in the same direction, which fosters unity and reduces conflicts.
Create a Joint Budget
A joint budget serves as a crucial roadmap for your financial planning together. It helps you organize all sources of income and categorize your expenditures, providing a transparent view of your financial health. Regularly reviewing your budget is essential—it allows you to make necessary adjustments to stay aligned with your financial goals. Importantly, you should allocate a fixed percentage of your income towards savings and investments to ensure future security.
When crafting a joint budget, it’s vital to engage in detailed discussions about various financial aspects. Here are some key questions to consider:
How Much Should We Save? Decide on a percentage of your combined income that should go into savings each month. Consider different savings goals, such as emergency funds, vacation funds, or large purchases.
How Should We Handle Debt? Outline a strategy for managing existing debts and avoiding new debts. Determine which debts to prioritize based on interest rates and balances, and decide how much of your budget to allocate to debt repayment.
What Are Our Investing Goals? Discuss what you both want to achieve through investments. Are you looking to grow wealth long-term, save for retirement, or invest in real estate? Setting clear investment goals will guide how you allocate funds in your budget for investment purposes.
What Should We Spend Money On? Agree on categories and amounts for regular expenses, such as groceries, housing, utilities, transportation, and entertainment. It’s important to differentiate between essential needs and discretionary wants.
How Much Individual Spending Money Do We Get? It’s healthy to maintain some personal freedom over finances. Decide on an amount each person can spend freely each month without needing to consult the other. This can help maintain harmony by allowing individual autonomy within the shared financial plan.
Build an Emergency Fund
Life is unpredictable, and an emergency fund is essential for financial security. Couples should aim to save several months worth of expenses (typically between three to six months' worth of living expenses, but the goal may vary depending on your individual situation). This fund should be readily accessible, perhaps in a high-yield savings account, to ensure it can cover unexpected financial needs without impacting other financial plans.
Address Debts Strategically
Managing debts is critical to achieving financial freedom. Couples should prioritize their debts—typically starting with those with the highest interest rates—and create a plan for paying them off, such as using the debt avalanche or snowball methods. Avoiding new unnecessary debts is equally important to maintaining financial health.
Plan for Insurance Needs
Insurance provides a safety net against life’s uncertainties. Regularly reviewing and adjusting insurance coverage ensures that it keeps pace with life changes, such as the birth of a child or the purchase of a new home. This step protects against potential financial hardships that could otherwise derail financial plans.
Invest Wisely
Investments are key to growing wealth. Couples should diversify their investments according to their joint financial goals and risk tolerance, and keep informed about market conditions and new opportunities. An effective investment strategy considers both current financial needs and future aspirations.
Think About Retirement
Planning for retirement should start early. Tools like retirement calculators can help estimate the necessary savings, and maximizing employer-matched contributions can significantly boost retirement funds. Regularly discussing and adjusting retirement plans ensures that both partners’ needs are met in their later years.
Consider Estate Planning
Estate planning is a critical component of financial planning, ensuring that assets are distributed according to the couple’s wishes after passing. Deciding on guardianship for children and other key issues should be addressed in this step to avoid future complications.
Seek Professional Advice
While couples can do some financial planning on their own, professional advice from financial planners or tax advisors can provide tailored strategies and insights. These experts can help navigate complex financial landscapes, ensuring that the couple makes the best possible decisions for their unique situation.
Common Financial Pitfalls and How to Avoid Them
Money remains the most common cause of conflict among married couples, and research highlights that it is the second leading cause of divorce, right behind infidelity.
1. Not Discussing Financial Styles:
One of the most significant pitfalls for newlyweds is not discussing how they will manage their finances—separately, jointly, or a combination of both. Each method has its benefits and challenges, and choosing the wrong one for your relationship can lead to friction.
How to Avoid: Before you get married, sit down and discuss each other’s financial preferences, expectations, and experiences. Decide on a financial management style that suits both of your needs.
2. Avoiding Conversations About Debt:
Bringing debt into a marriage without discussing it is a common issue that can strain the relationship. Couples often avoid this uncomfortable topic, which can lead to surprises and conflict later on.
How to Avoid: Be transparent about any debts you have before the marriage. Create a plan together for how you will handle existing debts and avoid accumulating new ones.
3. Inadequate Budgeting:
Failing to set up a comprehensive budget is a pitfall that can lead to overspending and financial stress. Without a budget, it’s challenging to manage household expenses, especially if incomes and spending habits differ.
How to Avoid: Work together to create a joint budget that accounts for all income sources and expenses. Regularly review and adjust the budget as needed to reflect changes in your financial situation.
4. Lack of Emergency Savings:
Not having an emergency fund is a common oversight for many couples. Unexpected expenses can quickly lead to financial instability.
How to Avoid: Start building an emergency fund that can cover several months worth of living expenses (typically three to six months worth). Keep this fund in an accessible, but separate account to avoid the temptation to dip into it for non-emergencies.
5. Financial Infidelity:
Hiding financial information, such as secret accounts, undisclosed debts, or unapproved spending, can destroy trust and hurt your marital relationship.
How to Avoid: Commit to full transparency about your finances. Regular financial check-ins can help maintain honesty and trust between partners.
6. Overlooking Long-Term Goals:
Couples often focus on immediate financial needs and neglect long-term planning, such as retirement or future investments.
How to Avoid: Set aside time to discuss and plan for long-term financial goals. Consider speaking with a financial advisor to help develop a strategy that aligns with both of your visions for the future.
Benefits of Financial Planning for Married Couples
Enhanced Financial Security:
Planning your finances helps you handle money smarter, making sure you're ready for both the expected and the unexpected costs. Choosing how to manage your accounts together—whether separately or jointly—boosts this security.
Aligned Financial Objectives:
When you plan financially together, you both agree on common goals. This reduces disagreements and strengthens your teamwork. Clear plans for spending and saving align your financial paths and help you work together better.
Efficient Wealth Growth:
A well-planned financial strategy allows you to choose the best investment options that fit your combined risk levels and goals, helping your money grow effectively.
Preparedness for Life's Milestones:
Good financial planning ensures you're financially prepared for big life events, like having children or buying a home. Whether saving individually for personal goals or together for family plans, being prepared matters.
Optimal Use of Resources:
Planning helps you make the most of financial benefits, such as tax breaks and retirement fund matches from employers. Discussing how to manage your money, whether in separate or joint accounts, ensures you use every dollar wisely.
How a Financial Advisor Helps Married Couples
Integrating a financial advisor into your financial planning helps you manage finances more collaboratively and effectively as a couple. This partnership minimizes stress and potential conflicts, strengthening your relationship.
Bridge Financial Gaps:Financial advisors help you understand each other's financial perspectives, which often differ due to diverse backgrounds. This understanding is crucial for mutual financial planning.
Offer Neutral Guidance: Advisors provide a neutral space for you to discuss financial matters without judgment. This helps in addressing sensitive issues like debts and spending habits effectively.
Align Goals: Financial advisors aid you in setting and achieving shared financial goals. They assist in planning both short-term objectives like vacations and long-term aims like retirement.
Enhance Communication: Regular meetings with a financial advisor promote continual dialogue about finances, helping you stay aligned with your financial strategies and make necessary adjustments.
Prevent Financial Secrets: Advisors encourage openness, reducing the risk of financial infidelity that can arise from undisclosed expenses or hidden debts.
Provide Customized Advice: Advisors tailor their recommendations to suit your unique situation, considering aspects like career, family, and future aspirations. This ensures that financial plans are effective and personalized.
Manage Crises: Advisors are crucial in preparing you for financial emergencies, such as job losses or unexpected expenses, ensuring you are equipped to handle these challenges smoothly.
Build Financial Literacy: Through education on financial matters, advisors enhance your understanding of finances, empowering you to make informed decisions that impact your future.
Plan for the Long Term: Advisors also assist in estate planning and ensuring long-term financial security, crucial for safeguarding your financial future.
Bottom Line
Financial planning in marriage is not just about managing money; it’s about nurturing trust and teamwork in your relationship. With the right approach and ongoing communication, you can build a financially secure and harmonious life together.
Start a conversation with your spouse today about your financial goals and plans. Consider scheduling a consultation with a CERTIFIED FINANCIAL PLANNER® to tailor a financial plan that fits your unique situation. Here’s a link to find trusted advisors near you.
References
https://www.ramseysolutions.com/relationships/money-marriage-communication-research
https://www.investopedia.com/financial-edge/0312/should-you-open-a-joint-bank-account.aspx
https://www.investopedia.com/terms/f/financial-literacy.asp
https://www.investopedia.com/financial-planning-can-save-marriage-4684269