Just Married - Financial Planning for Newlyweds

Last Updated: April 19, 2010 

The vows have been exchanged. The honeymoon is over. Now comes the hard part. Now it's time, if you haven't already, to talk seriously about your money and your financial plan as a couple.

Yes, around the world, newlyweds are sitting at kitchen tables trying to figure out how to manage their checkbooks, save for a home down payment, pay down credit card debt, invest their respective retirement accounts, and so on.

What should you do with your money now that you are husband and wife? What should be on the list? And, equally important, how should the items on the list be prioritized? According to financial planners, the most important things to do in the short-term are the following:

• Have a conversation. "Sit down and have a frank discussion about each other's money history," said FPA board member, Lee Baker, CFP®, of Apex Financial Services, Inc. "Don't be ashamed of mistakes made in the past. Commit to not repeating the mistakes again in your new life together." Be sure, when talking about money that you check egos at the door. "This is usually a problem for the men," Baker said. "Quite often we can't show any signs of vulnerability."
• Create a spending plan or budget. "Develop a written budget and make sure that each person knows about all of the expenses," Baker said. "In addition, you should decide together how both of you will contribute to household expenses. Even if one person is the primary bill payer, the other spouse needs to have an idea of what's going on."
• Set goals together. Besides getting a handle on income and expenses, Baker suggests that it's wise to talk about the future and what you want individually, as husband and wife and perhaps as a family. "This does not mean you have to have the same goals but it's important to get buy in from each other on your hopes and dreams," Baker said. "Buying a boat might seem silly to him but if it's important to her, problems can be avoided if goals are shared from the beginning."
• Build an emergency fund. "Create an emergency fund that equals three to six months of living expenses," said FPA member, Carol Friedhoff, CFP^®, of Savvy Outcomes Inc. If your adjusted gross income is below $166,000, put part of that money in a Roth Individual Retirement Account (IRA). "It will save on taxes and any money contributed can be taken out at any time without a penalty," she said.
• Save for your home. Begin saving for a 20 percent down payment on a home. "But, don't overextend," Friedhoff said. "The home to be purchased should not be worth more than two to two and one-half times annual income."
• Save for your retirement. Save 10 percent of annual income, which includes contributing to retirement plans. "They offer tax savings and, if your employer matches the savings, faster growth," Friedhoff said.
• Avoid debt. Steer clear from credit card debt and, after you purchase a home, don't prepay your mortgage. "The mortgage, if it's at a fixed rate, offers great leverage and a good offset to inflation," Friedhoff said.
• Create a financial contract. In some cases, you may want to consider crafting and signing a joint financial contract to help you and your spouse stick to your financial plan.

There is much more that newly wedded couples should consider with regard to money. For instance, it's important to recognize that your will — even if you talk about money earnestly — sometimes may clash over your finances. Equally important, however is this notion: Financial planners say that marital discord over money tends to develop over a relatively small number of issues and that planners can and do acquire the ability to anticipate and address them. For example, one financial planning topic that sometimes pushes underlying marital conflict to the surface is estate planning — when estates are large enough to require equalization to avoid estate tax.

Another classic financial struggle between couples that often spills over into financial planning sessions are between "the spender and the saver," said FPA member Bedda D'Angelo, CFP^®, of Fiduciary Solutions in Durham, N.C., in a Journal of Financial Planning article.

According to the Journal of Financial Planning, one other common source of conflict between spouses, seasoned planners say, involves varying levels of risk tolerance. In some cases, one person may be more tolerant of risk than another.

Should you and your spouse start to clash about money, financial planners suggest it's wise to meet with a financial professional as a couple. Financial planners are not marriage counselors or therapists, but they can help address money issues and perhaps reduce the risk of divorce.