Now that the excitement of the big day has started to subside, you may have had some time to finally settle in with your spouse and adapt to your new way of life as a married couple. Money troubles can be a main cause of stress and anxiety in a marriage, so coming to an agreement about how to invest your money together as newlyweds can be beneficial to ensuring a healthy and stable future.
Maybe you were fortunate enough to receive a large amount of cash from your wedding, or perhaps you are trying to navigate, combining both salaries and debts with your spouse. No matter where you and your spouse are in your financial journey, take some time to sit down and discuss your financial goals to determine the best ways you plan on moving forward with your money as newlyweds.
Pay off debt
Your financial status will vary greatly from other couples and vice versa, depending on what stage you and your spouse are in life and your financial background. It’s common within a marriage for your spouse to have a completely different perspective on how to allocate your money than you do.
Marriages where one partner is a saver and the other is a spender are very common so it’s important to try to come to an agreement about the best course of action to take with your finances moving forward.
Remember that despite the possibility of having a different financial philosophy than your partner, it is beneficial to start your journey together as debt-free as possible.
If you paid for your wedding yourselves, you might already be starting off your marriage carrying a decent amount of debt. Whether you had a small wedding or your family paid for the wedding, there is a high probability that you are still entering into your new marriage with debt from other places—such as student loans, credit card debt or medical bills.
This debt can feel overwhelming because it can potentially inhibit you and your spouse from achieving some longer-term goals that you may have. But if you can commit to living frugally, you may be surprised how fast you can make progress.
If you can’t pay off all of your debt with wedding money, first try to determine which would be the best debts to pay off first. For example, if you or your spouse have any outstanding medical bills that could go into collections, that should be the first debt that is paid off so that your credit is not affected.
Many consider paying off debts with high interest rates first so that the money saved on interest can then be put towards paying off other debts in the future.
Remember that if you have a large sum of money to put down from your wedding, paying off credit card debts with high interest rates first is a good choice because getting stuck in credit card debt is like being up the river without a paddle. This is because on top of already high interest rates, they also have compounded interest.
Compound interest is interest that is paid on the principle amount of your debt plus interest paid on interest that has already been accrued.
Save for the Future
As newlyweds, it is important to be diligent about allocating some of your income towards a savings account each month to help support your long-term financial goals.
Putting money into an emergency fund where you can discipline yourself to refrain from spending is crucial in securing your financial future regardless of circumstances.
Life has a way of throwing curveballs, and you want to make sure that you are both financially prepared for unexpected situations such as job loss, health issues, and unanticipated large expenses that you wouldn’t want to have to put on a credit card.
Experts suggest saving 20% of your income each month; however, if this seems like an unattainable percentage, try starting with 10% and then building up from there. You will want to always try to have at least a month’s worth of living expenses built up to account for some of life’s curveballs.
Using some of your wedding gifts to put into a savings account can be a great way to jumpstart your future together and help you achieve your goals as a couple.
Invest in insurance
Properly insuring yourselves as a couple is a key component in securing your financial future as newlyweds.
Now that you are married, it is important to account for insurance premiums each month in your budget to ensure that your family and assets are protected if an unforeseen event were to occur. Life insurance is an essential component in protecting family members that may depend on you for financial support.
Certain policies may be more beneficial than others, depending on your specific circumstance, so make sure to compare the various options available. An online marketplace is a great resource to help you better understand and calculate life insurance coverage costs to determine how much you and your new spouse actually need.
It is also a convenient way to connect with experts in the field who can walk you through different policy options and rates for your personal situation.
Before you purchase a policy, make sure to understand the basic differences between the main options that are available. Term life is the most popular type of life insurance for the younger demographic because the policies are typically less expensive.
These policies are less expensive because they are paid for each month and cover you for a set term such as 10, 20, or 30 years. If you were to pass during this time, the insurance company provides a payout to your beneficiary.
Cash-value policies, which include whole life, universal life, and variable life policies, are a bit different because they provide an insurance policy that can also be used as an investment. Since you can cash in on these policies, if you choose not to use them as a form of life insurance, you will pay a premium when purchasing one of these plans.
Another reason that insurance is an imperative part of financial planning early on in your marriage is that it secures your assets. If you are a homeowner or a renter, make sure that you have an insurance policy that would adequately cover you in a total loss.
If you do not have enough coverage in the event of a total loss, the deficit between your policy amount and the actual replacement cost of your property or items would then fall on your shoulders.
Similarly, you will also want to make sure that your automotive insurance sufficiently covers you; otherwise, you could be put in a bad financial situation if you had to pay for the deficit between your car’s replacement cost and what you may owe on your loan.
The type of auto policy that works best for you is dependent on the type of car you are trying to insure. For example, if you have a new car with a loan on it, you will want to have a more comprehensive policy than if you have an old beater vehicle that has been paid off for years.
Remember to update your existing policies because, in many cases, you are rewarded with lower premiums once you are married.
Purchase a home (when you’re ready)
A great way to start building wealth is to purchase a home together. In terms of annual return, a home is not necessarily the best investment percentage-wise, but considering that you are most likely paying rent month after month, it is worth finding ways to start putting your money towards an asset as a couple.
Purchasing a home is not something to be taken lightly. In today’s society, buying a home is still a major part of the American Dream. Before jumping headfirst into homeownership, make sure you are in a stable position in both your geographic location and job status of both partners.
In addition, you need to have a down payment ready, and an emergency fund built up for unexpected issues. Lastly, be mindful of your new financial situation after your wedding and make sure you don’t have monthly obligations that you will find difficult to meet.
Look into formal investments
If you and your partner have financial goals where you are looking to get a higher annual return, it is worth investing in the stock market or mutual funds. To simplify, the difference between these types of investments is that stocks are an individual purchase in a publicly traded company.
Mutual funds are a conglomerate of stocks held in a fund. Individual stocks would be beneficial if you and your spouse have similar investment principles and want to be able to choose specific companies and have a bit more control of your portfolio.
Mutual funds are more streamlined in the sense that you have easy diversification and multiple stocks purchased at once. Purchasing individual stocks can sometimes come with a higher risk and higher reward, so mutual funds could be a good place to start if you’re looking for a lower risk, diverse long-term investment. If you’re new to investing, then having a diversified portfolio is crucial.
As always, if you are serious about pursuing investing, it is worth seeking out a financial advisor who can steer you and your partner in the right direction. As you become more well-versed in investments, you could always change your strategy to be more or less risky, and an expert can help you along the way.
Plan for retirement accordingly
While it may seem like a long way off, retirement is expensive and not something that can be done with minimal planning.
Even though your 401K will be considered an individual account, it is still important to take advantage of 401Ks and IRAs and try to max out your contributions to allow for a comfortable retirement together. The average cost of retirement in the United States is estimated at $45,756 per year.
This can be an attainable figure if you and your partner do enough preliminary planning for your retirement account. It first helps to understand the difference between 401Ks and IRAs to decide how you want to invest for retirement.
A 401K is a retirement plan established by your employer, whereas an IRA is a private retirement account. Both types of retirement accounts allow for pre-taxed contributions, and you can also contribute to both types of accounts at the same time.
However, the best place to start if you don’t have retirement savings yet is to set up a 401K account with your employer. Many companies offer a percent contribution that they match to your contribution each pay period, which is essentially free, non-taxed money from your employer.
Remember, you will be taxed at retirement on your withdrawal, but you will most likely be in a lower tax bracket when the time comes.
If your company doesn’t have a 401K with a percent match available, you can look into an IRA or Roth IRA to contribute to your retirement account. The main difference between a traditional IRA and a Roth IRA is that a Roth IRA takes out taxes from your initial contributions, whereas a traditional IRA is tax-deferred. When you withdraw funds, you pay taxes on a traditional IRA, but with a Roth IRA, your withdrawal is tax-free.
Also, be mindful of the fact that (in most cases), if you try to withdraw money from your retirement account early, it will come with a hefty penalty, so experts suggest avoiding this at all costs.
Remember that not all of your money needs to go towards purchases and investments that are considered “responsible.” As newlyweds, you also want to enjoy your time together, so it is important to set aside additional funds in your budget to be able to spend on hobbies, vacations, and other exciting experiences.
Be sure that you don’t completely deny yourself access to the better things in life while trying to establish healthy financial habits. The last thing you want in your personal finance journal is to be resentful of not having any additional money left for life’s enjoyable moments.
There are many different routes to take when financial planning with your spouse; however, creating clear and concise goals in these different areas can help you tackle this tricky subject. With some consistency, research, and planning, you’ll be able to start planning ahead for a more stable and secure financial future.