By: Kelsey Paine
Before you got engaged, you and your partner probably already had some serious “life” talks, from where you’ll live to if and when you’ll start a family. Underlying these big-picture discussions, of course, is money, because in order to achieve any goal—both big and small—you need to take stock of what you have and how much you need to get there. In short, money is an unavoidable topic for all couples, and getting on the same page is crucial. This is especially true when you’re just beginning your lives together; you want to set good financial habits now, or you risk falling into bad routines that will stay with you throughout your marriage. We rounded up the money missteps many young couples make, along with sound strategies and money management tips for avoiding them yourselves. If you’re looking for some spot-on financial advice for newlyweds, read on, and you’ll both be better prepared to take on whatever life throws your way—for richer or poorer.
Mistake #1: You never discussed spending habits and debt before marriage.
Too many couples avoid talking about money including how much debt they carry, what they consider a big purchase, and how much is too much to spend on things like travel, clothes and gadgets. Sometimes this is because one person fears being judged; other times it’s just a lack of interest in personal finance. Either way, the first step in opening a dialogue is just asking each other a few questions: What was your family's attitude toward money while you were growing up? What are your short- and long-term financial goals? Where do you stand on opening joint accounts as opposed to keeping funds separate?
After answering those questions, be sure to talk numbers, and be as upfront as possible. “It can create problems when one person is unaware of a debt or how much money is being spent if they pay for things together,” says Bre Romeo, a wealth management advisor for Fifth Third Bank. Plus, when it comes time to buy a house or a new car, your credit history will be revealed anyway, she says. “Get ahead of these conversations with your partner now, so there are no surprises later.”
Mistake #2: You haven’t set a budget, much less stuck to one.
Make it a priority to sit down and create a monthly budget together. Even if your attitudes toward money are on opposite ends of the spectrum, it’s important to agree to a basic blueprint for spending and saving. Romeo suggests the 50/30/20 approach, where 50 percent of income goes to necessities, 30 percent is earmarked as “fun money” to spend however you like, and 20 percent gets deposited to savings and investment accounts. Organize your finances with spreadsheets or free apps Fifth Third’s puts all of your accounts in one place to give you an idea of where your income is going and help you create specific budgets.
From there, make adjustments as necessary to keep you on track. For specific goals—like saving up for a dream vacation to Australia—Fifth Third Bank offers a goal-setting savings account*, which actually pays you a bonus when you reach your target. As for who’s doing what, Romeo likes the idea of appointing a household CFO, but emphasizes the need for both of you to understand and feel included in family finances. “There may be one person who is actively paying the bills, but that person should not be the ‘bill and budget police,’” she says. “Otherwise, both sides may build resentment. Household financial decisions should be made jointly.”
Mistake #3: Your rainy-day fund is pretty much nonexistent.
Life is full of surprises, and the best way to protect yourself from unforeseen expenses is by having a healthy savings account to tap into when you need it. Like many experts, Romeo recommends building up three to six months of living expenses. That doesn’t mean you should stop contributing to a retirement plan or stop paying down your credit cards as you save—just put away whatever you can, even if the amounts are small. “Once your emergency fund is where you want it, start adding more to your retirement savings, or decide what the next most important thing is for you to save for and work toward that,” Romeo says.
Mistake #4: You spent more than you should have on a house or car.
It’s easy to get excited about purchasing a brand-new home or car together. And you’re not alone: Nearly 50 percent of the average American’s income goes just toward housing and transportation costs. But beware the temptation of using your newfound two-income status to justify paying for more than you can afford. Use one of Fifth Third Bank’s online calculators to help determine the maximum home price and mortgage loan amount that makes sense for your budget. Flexibility is key as you think about the future: Do you or your partner plan to go back to school or start a business? Will you have enough saved up for your future kids’ college tuition? Don’t overspend now if you want to keep your options open later.
Mistake #5: You don’t have a plan for the future.
Taking the time to discuss what happens in the event that either of you dies unexpectedly can actually provide peace of mind that you’d be leaving your partner in the best possible position. Update your beneficiaries on retirement and other investment accounts, evaluate and amend life insurance policies, and file a payable-on-death form at your bank if you keep your accounts separate. Also important: writing a will and designating a health-care power of attorney to clearly state your wishes should you become incapacitated. When it comes to retirement, decide whether you and your partner want to save up together or contribute to separate accounts. For her part, Romeo says most couples who have 401(k) plans prefer to manage their own accounts—especially if their employer offers a match on contributions. You should also look at opening an IRA, she says “Many of my clients have both 401(k)s and Roth IRAs because we don’t know what tax rates will look like in the future.” (Contributions to a Roth IRA are funded with post-tax income, so you won’t have to pay taxes on them when you start withdrawing.) And remember: Whatever does or doesn’t happen, keep the lines of communication open, and you can bank on that bliss lasting far longer than your status as newlyweds will.
The views expressed by the author are not necessarily those of Fifth Third Bank, National Association, and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank. Member FDIC, Equal Housing Lender.
*No minimum deposit required to open a checking or savings account. Account must be funded within 45 days of opening.
The Knot and Fifth Third Bank present "Life Made Better", a sponsored series full of financial advice for couples preparing for the costs of a wedding and married life. Visit 53.com/better to learn how its services can help make your life even better.