When we got married, it truly was one of the happiest days of our lives. We had a great time with our friends and family, and had an awesome honeymoon to Tahiti. Once we got back, we settled into our day-to-day routine living together.
One thing we realized quickly was that we needed a plan to effectively handle our finances.
We needed to get on the same page and work together to reach our goals. By communicating and planning, we are well on our way to becoming financially stable.
Here are our top tips for newlyweds or couples to become financially free.
1. Talk About Your Financial History
Finances can be awkward to talk about. That’s completely understandable for friends and neighbors, but you should become comfortable talking with your spouse or partner.
You’ll probably want to start asking some financial questions as you get to know your partner. This will help you make a decision about if they are compatible life partners and if you can make compromises to work together. At the very least, you need to get serious about asking these questions once you are engaged.
As you get to know your partner, ask them questions to find out about their finances. Some ideas to ask and understand are:
- What is your income?
- Do you have any debt? What kind… student loans, credit card, car?
- Do you have any savings?
- Have you thought about investing anything yet?
- If we started a family, do you think you could help contribute financially?
Once you find out about your partner’s financial history, see if it is compatible with your own thoughts. If you have two different strategies so far in life, talk about how you might be able to compromise and come up with a new plan going forward.
2. Determine Your Financial Goals
The next step is to work together to come up with specific goals for your finances. This means determining what you want to work towards with your spouse, both short-term and long-term.
Think about your short-term financial goals and write down what you want to focus on. Do you have a six month emergency fund? Do you want to pay off your student loans? Buy a house? Think about what you want to do in the first 3 to 5 years of your marriage.
After that, you’ll also want to figure out what your long-term financial goals are. This could be retiring early, buying a vacation home, or simply having enough money at retirement.
Work as a couple to come to an agreement on your goals and then write them down somewhere you can both see them. Over the course of your relationship, continue to revisit and refine your financial goals. If you accomplish one, see what you want to work towards next.
3. Combine Your Bank Accounts
Now that you’re married, the best idea is to combine your finances into joint bank accounts. By doing so, you’ll promote transparency and openness about your money. This is critical to allow you to work together to reach your financial goals without hiding anything from the other person.
If possible, open joint bank accounts that you can both contribute to and have access to the money. This will make it easier to share your funds and track all of your transactions in one place.
As an option, you could maintain separate bank accounts if both people have access. To be honest, my wife and I have a few joint bank accounts but still use our own for most of our transactions. However, we have a system where we know exactly where we stand with our income and expenses. We also know who pays each bill and have a plan for saving together.
For example, we both get direct deposits to our own bank accounts. Jane pays the gas bill, food, and some entertainment. I pay the mortgage, cell phone, and electricity. We both will contribute to our joint savings account, mortgage, and various investments each month.
While it might not be fully integrated, we do have an integrated system that is based on communication and transparency.
4. Create a Joint Budget
Once you have combined your accounts, the next step is to set up a budget that you both can adhere to. Start by determining your monthly income as a couple. See how much money you make after-tax from all of your income sources combined.
Next, track your expenses to see where you are spending money. Determine how much you spend on every category, including food, transportation, utilities, housing, and entertainment.
You can track your budget in spreadsheet or download a copy of our own budget tracker for free.
When you create your budget, the goal is to split your income between your expenses and savings. A good allotment is 50% of your income to your essentials, 30% to discretionary spending, and 20% to savings.
By reducing your expenses and overall spending, you’ll be able to increase your savings. Our savings are closer to 45% because we have been able to lower our expenses. Saving more will let you invest and grow your wealth at a faster rate.
TIP: Automate Your Budgeting
There is an easier way to track your monthly expenses than using spreadsheets and logging into each of your bank accounts. My number one recommendation is to automate tracking your expenses, savings, and net worth by using Personal Capital.
Sign up up for a free Personal Capital account to get started.
5. Tackle Your Debt Together
Starting your marriage with debt can be difficult but is all too common. When Jane and I got married, we had over $88,000 in student loans. With a plan to pay them off, we were able to get rid of our loans within 5 years.
Any type of debt can loom over a marriage and create tension as it drains your money every month. Ignoring your debt will only make it worse and increase the amount of interest you have to pay. Even when you pay the monthly minimum, it reduces your monthly income and how much you can ultimately save.
Paying off your debt quickly is one of the best ways to dramatically improve your wealth and financial security. As a couple, figure out the best way to tackle your debt together. By working together, you’ll be able to pool your resources and likely pay it off faster than if you were separate.
An example of this would be allow one person’s income to primarily cover living expenses and discretionary spending. The other person can then focus on paying off the debt and saving some extra money every month. If you have combined your money into a joint account, you’ll have twice as much money to use towards your goals.
6. Start Working Towards Your Goals
As your start your life together and have settled on your goals, start working to make them a reality. Simply saying that you want to retire early won’t make it happen. You need a plan and the determination to follow through on that plan.
That’s where being in a relationship can be so powerful. As a couple, you can hold each other accountable and remind yourselves why you have a financial strategy. On those days that you’d love to go on a shopping spree, being in a healthy relationship can help remind you to minimize that cost so you can save money.
Start with your short-term goals and come up with an actionable plan of how you can get there. If the goal is to create an emergency fund, figure out how much money you can put into a savings account every month to make that happen. Factor it into your budget and pay yourself first, before any discretionary spending.
Don’t forget to think about your long-term goals, as well. Due to the awesome power of compound interest, the earlier you start investing, the more you’ll have later. Even if you only have an extra $50 per month, put it away in an investment to not touch until you need it later in your relationship.
7. Don’t be Afraid to Pivot
There are a lot of times in life when things don’t happen the way we planned. The house you love is more expensive than you thought. There’s unexpected medical bills or need expensive IVF to have the baby you always wanted. A new job offer is on the other side of the country, forcing you to move.
These things happen and it’s ok. Don’t be afraid to reassess your goals periodically and pivot if they’re not working for you. Perhaps your original goal was to buy a house within 3 years of getting married and now it has to wait until 5 years. That’s ok as long as you have a plan together and keep working on it.
The first few years of any marriage usually have plenty of road bumps as you learn to live together. The goal is to build a strong financial base in those years so that you will be set up well later on, if things change.
Remember, the benefit of being in a dedicated relationship is that you can support each other. Even in hard times, it is easier to get through it with a loving partner that is on the same page as you. Use that to your advantage by communicating frequently about your financial goals and plans for reaching them.
Best of luck in your new life together!
