This post is written for newly married couples. The closest I’ve come to writing about this was my long post on weddings, so it’s about time.
Notice how Todd’s tips below have no secrets: They’re very similar to most financial advice about starting early and setting priorities. But the way in which he frames it really does make you think.
Stay tuned tomorrow for something cool.]
Guest post by Todd Doerr
Congratulations. What an exciting season of life.
Maybe you are newly engaged and in the middle of planning your wedding day and honeymoon.
I would like to share some time-tested ideas with you to strengthen your marriage, to help you build wealth together as a team, and to help you avoid common financial pitfalls of married couples. (Learn from my pain!). This article will give you a specific game plan to start on TODAY.
By the way, this advice is for the bride and the groom. Building wealth and avoiding financial pitfalls is a team sport – one person cannot carry the financial load for both (unless you do not want to thrive financially)!
I need to admit something to you before we start. I absolutely enjoy coaching newly married couples. Why? Because you are sitting in one of the most fantastic wealth building seasons of your life. You have the most potential because time is on your side. If you work together, the sound habits and choices you make today will impact your marriage for years to come.
Let me begin by sharing what happens with many couples after the big day. Every couple has a unique story, but often newly marrieds take a similar path. You will probably see some of yourself, or better yet, your spouse, in this story.
Eric and Shelby had just returned to the “real world” after their honeymoon. Back to their jobs and the daily grind of working. Oh yea, there were lots of thank you’s to write for the wedding gifts. Then the Visa statement arrived with all of the honeymoon expenses.
Then, the vicious cycle began. The best way I can sum up their first few years of marriage for them: Consumer Debt Death Cycle. They both had good paying jobs, but even those did not cover their “honeymoon lifestyle”. They were the king and queen of eating out. They both drove new cars that they financed and leased. Clothes – they bought pretty much whatever they wanted. Travel – the honeymoon was just the beginning – they traveled to Europe, Mexico, and throughout the U.S. They belonged to the health club. They were Starbuck’s Customers of the Year. And they bought their first little cottage house in the quaint part of the city.
They did not have a written budget and did not argue about money. Ignorance was bliss.
Then, Shelby got a big bonus at work. PRICELESS. They paid off some of their credit cards and felt so good about themselves. Then….
They bought that really nice home theater system and the cycle continued to build momentum. Sound familiar?
About this time, they were ready to start growing their family (i.e. have children). I’m sure you have some sense of what it might cost to raise a child. Baby formula, clothes, diapers, doctor visits (about 6 the first year of life), hospital and delivery charges, child care, baby furniture – It adds up! Oh yea – that cute little cottage house was no longer big enough. And they decided that they had to have the (dreaded) mini-van. (I can’t bring myself to that personally!)
You’re probably thinking – yes, Todd, but their income went up. Yes, incomes increased. But somehow the expenses “magically” keep right along with their raises. Sound familiar?
Fast forward a few years – their second child was on the way. The honeymoon was long over. Eric and Shelby were tired – both working full-time and raising a 2 year old. The lack of sleep was catching up. Money was really tight and argued often over money. Eric questioned Shelby about every little expense. Shelby became resentful and began to have “I deserve it” trips to the mall. They “kinda” had a budget, but they only looked at it every 3 months.
Eventually they met with a financial coach who gave them enough “tough love” so that they could wake up and stop this cycle. They worked as a team over several months to build a realistic budget (it doesn’t happen overnight). Fast forward 18 months later, after many decisions and sacrifices, they were consumer debt-free and had an emergency fund for the first time in their lives.
All of the money that was going to car payments and Visa was now available for saving and having some financial breathing room. They kept on the same “game plan” and their daily money fights became rare.
I tell many of my clients “It’s not always easy or pretty, but it always works.” I really mean it. With years of bad habits to break, making major habit changes is tough, but worth the sacrifice.
As a coach, the best financial advice I can share with you, the newlyweds is this:
Build a foundation for a thriving marriage and future by starting sound and balanced money habits.
Let me share with you some practical ways to make this happen.
The Big Reasons for a Game Plan
Let me show you what’s possible as a couple when you live a balanced lifestyle and save for the future. By the way, I’m not saying to stop all fun and to stop buying nice things – but those have to be taken in moderation.
Let’s say you have no consumer debt and have an emergency fund, and you work diligently to save $300 each month (which is very possible if you eliminate consumer debt), starting at age 25 until age 65 in a retirement account earning 8% each year. At age 65, you could have approximately $1 Million in savings. Even if you are older than 25, you can still make real progress on retirement savings on $300 per month. If $1 Million will not support your desired lifestyle, save even more. Just get started and make it happen.
In the end, it’s not really about the money. It’s about the freedom and choices that it gives you as a family. It’s about the peace of mind that comes from having money in the bank when tough things happen in life. We all face tough challenges at some point.
The Newly Engaged Game Plan
If you are engaged, but not married yet:
- Attend pre-marital classes or counseling at your local church or synagogue. Discuss and explore areas such as finances, children, spiritual issues, parents and extended families, career plans, and dreams and goals in life. It’s better to be wide awake going into marriage!
- Do not go into debt for the wedding or honeymoon. Do not go into debt for a 5 hour block of time. It’s not fun to return from the honeymoon and get the wedding bill on the Visa. If you are already going down this road, pinch and save and pay cash as much as possible on remaining expenses.
- Start living off a budget now. Keep an individual written monthly budget that you update each month. You can work on them together, but keep two separate budgets. Make sure that every dollar of income is allocated to a line on your budget. Don’t let money “slip through the cracks”.
- Keep finances separate until you are married. Don’t combine banking accounts, etc. I’ve seen too many crazy things happen here. You have the rest of your lives to share accounts.
The Newly Married Game Plan
Here are practical steps and habits you should start TODAY.
- Boost your marriage – Build a written budget together, every month. Build a realistic budget that includes setting money aside for those annoying expenses like car maintenance and repairs, house repairs, car insurance bills, etc – these items usually don’t occur each month and generally are the ones that bust your first budget. Note that how you spend money as a couple reflects your values and priorities as a family. Communicating each month and working through differences may be difficult at times, but it will build your “oneness”. Learn about each other’s money personalities. Open a joint checking account together – this has a “magical” way of getting you to communicate with each other. By the way, once you get in a routine, your monthly budget meeting should only take an hour per month (give it 3 or 4 months).
- Rapidly pay off all consumer debt and stop borrowing. How much are your car, credit card, and student loan payments really costing you in your wealth building plan? Total up your debt payments and calculate what they could do for your future. Get motivated!
- Build a 3 to 6 month emergency fund. Want to have some breathing room and margin in life and be able to deal with job uncertainty, car breakdowns, and medical expenses? The emergency fund is the answer. How would it feel if you had $10,000 to $20,000 in a savings account right now? (No, not for the trip to Hawaii.) For most couples, I recommend this goal after you have eliminated all consumer debt. It’s a good idea to have a small emergency fund as soon as possible, but hold off on building a larger one until you are consumer debt-free.
- Rent a modest apartment or home for a few years. Don’t dial up the financial pressure on your young marriage by renting a luxury palace. Save that money for your future home.
- Build fun, travel, and experiences into your budget. Save each month so that you take at least one vacation each year. Life is too short to not enjoy it. Just don’t put it on the credit card!
- Save for a house down payment. This is important: Do NOT buy a house until you have eliminated your consumer debt, have a nice emergency fund, and have saved a down-payment of at least 10% to 20%.
- Drive used cars. This step along may really speed up your wealth building. Not having a $400 per month car payment is HUGE. Here’s an idea for the really motivated: If you both work near each other, share one car for a couple of years and use the extra to pay down debt.
- Simplify and setup autopilot on all savings. Life is busy and we can all get lazy. Setup automatic drafts from your checking account or paycheck when building up your emergency fund, house down-payment, and investments.
- Buy level term life insurance, especially if you plan to have children. This step is not for you, it’s for the ones that you could leave behind. This is a priority. Generally you are healthier in your 20’s, so qualify now for the best rates. Buy 20 to 30 year level term (not through your employer). The general rule of thumb is to buy 10 times your income in coverage ($50,000 salary would mean approximately $500,000 of term coverage). Shop around for the best rates.
- Let the IRS Help your Wealth Building.
- 401k’s, Traditional IRA’s, Roth IRA’s. Since you are now sharing living expenses, you may have some additional money to invest each month. However, you should hold off on aggressive retirement savings until you have paid off your consumer debt and have built a nice emergency fund.
- Begin itemizing deductions if it makes sense. Really dig into Schedule A and make sure you are getting the maximum amount.
- Deduct interest on student loan payments. There is good news if you are paying down your student loans. You may be able to deduct that pesky interest you are paying.
- Small business opportunities. There are tons of great tax-saving ideas for small businesses. If you and your spouse have the entrepreneur bug, don’t overlook these opportunities. The “Medical Expense Reimbursement Plan” can be very helpful if you can “hire” your spouse. Check with your personal tax accountant on this strategy.
- Deduct job-related moving expenses. You may be able to deduct moving expenses if you move for a new job.
- Deduct tuition and fees for job related training. You may be able to deduct the cost of additional education related to your job.
- Claim the Child Tax Credit on your children. If you qualify, you get up to a $1000 tax credit per child.
- Finally, become a cheerful giver. Giving to others who are in need is a blessing to them, to your family, and to your community. When we learn to give on a regular basis, we develop character and contentment by keeping life’s real priorities in sight each month. My wife and I have seen God bless our family and others through giving. Find an organization in your area and learn about how you can be a part of their mission.
Changing Your Family’s Future
So, there you go. I have shared my top ideas for helping you to start to build a thriving future. I will say this again: YOU ARE SITTING IN ONE OF THE MOST FANTASTIC WEALTH-BUILDING SEASONS OF YOUR LIFE.
You are at the moment of decision – are you going to bury your heads in the sand and just be like everyone else (nearly broke or just not thriving)? Or will you, as a couple, embrace new habits and a game plan for success.
Todd Doerr is a personal finance coach. He helps his clients to rapidly get out of debt and to build serious wealth. He tells his clients, “It’s not always easy or pretty, but it always works.” You may reach him at firstname.lastname@example.org or at www.taxmakeover.com.[Update] 1. See the two other articles Todd wrote:
- What to do before you file your taxes this year
- How college students can save their parents tax money
2. Then check out his eBook, The 2008 Tax Makeover Guide