Money advice for newlyweds
Couples need to find common ground on such challenging issues as spending and saving.
By Gregory Karp, The Morning Call June 15, 2008, LA Times
With wedding season upon us, a new crop of newlyweds will be trying to figure out how to agree on spending money smarter. But because opposites can attract in both love and money, that task could derail wedded bliss.
Newlyweds, whether young people or those on the second time around, need to find common ground on a number of money issues. But spending might prove particularly challenging. In fact, many longtime married couples struggle to achieve spending harmony, or at least a truce.
Think about it this way: At the root, money is good for only one thing, spending it. The question is, when?
Spending yesterday refers to using money to pay for things you already bought. In other words, debt. It will help early on to agree on a strategy about paying off debt and using debt in the future. Young couples might have student loans, car notes and credit card debt from the wedding and honeymoon. Older couples might have a mortgage, home-equity loan and credit card debt.
Which debts should you pay first? High-interest credit cards come first. Will you attempt to pay cash for cars in the future, even if it means buying used? Will you have an agreement to charge on credit cards only what you can afford to pay off monthly? If you need to remodel the kitchen, do you save up and pay cash or take out a home-equity loan?
Spending today refers to current spending in day-to-day living. The foremost question is whether you should combine finances, keep them separate or have his, hers and ours accounts. The answer might hinge on the personalities of the couple and require some trial and error.
Get-out-of-debt specialist Dave Ramsey is fond of saying, "The preacher didn't pronounce you a joint venture. He said, 'Now you are one.' "
Ramsey advocates combining all aspects of your financial lives after marriage -- income, debts and all the related accounts.
If you agree on everything you spend, you'll be the first couple in human history. Prepare for disagreements. You're unlikely to turn a math-challenged, free-spirited spender into a spreadsheet-wielding saver, but you need to find middle ground and develop boundaries.
Among those boundaries is a "must-tell" limit. That's the dollar amount you can't spend on a discretionary purchase without telling your spouse first. One suggestion: double your household income and chop off three zeros. The must-tell limit for a couple making $80,000 a year, then, would be $160.
One person might be more comfortable with numbers and want to do the bill paying, budget tracking, investment monitoring and tax preparation. That's fine, and perhaps preferable, but both partners need to be in the loop on daily money issues and must make decisions about spending jointly.
Spending tomorrow refers to saving money to spend later. This could include saving for retirement, a house, children's college or your next car. Among the foremost savings tasks are getting retirement savings started, preferably in a Roth individual retirement account or employer 401(k), and building an emergency fund, cash to be used for life's unexpected money drains.
Do you have dreams of retiring early? Did you always want a vacation home? Is your goal to pay for all or part of your children's college expenses? Talking about your long-term goals is perhaps the most powerful task for newlyweds. Once you agree on where you're going, it makes decisions about paying debt and current spending a lot easier.
Gregory Karp is a personal finance writer for the Morning Call, a Tribune Co. newspaper in Allentown, Pa.