If you just got married – or are about to walk down the aisle – congratulations. You’re probably eager to start planning your future. However, as you do this, you should make sure to take your finances into account.
According to a survey by Ally Bank, 84 percent of Americans said romantic relationships were stronger and more satisfying when the couple enjoyed financial stability. If you want to have years of wedded bliss, it’s important to build a strong financial foundation now.
Fortunately, “newlyweds find they’re in a better financial position together than they were separately,” said Mark Luscombe, the principal federal tax analyst for Wolters Kluwer Tax & Accounting.
If you follow this advice, there’s a good chance you can take advantage of your married status to better your financial welfare. Take these six steps now so you'll have more later.
Assess your joint financial situation: Many couples don’t discuss finances before they get married. According to a survey by the credit bureau Experian, a quarter of respondents didn’t know their spouses’ annual incomes, while a third were unaware of how much student loan debt spouses had. Forty percent of those surveyed didn’t know their spouses’ credit scores.
The first thing couples need to do is assess their joint financial situation, Luscombe said. Look at the assets and debts you both have and use this information to set joint goals for spending and saving. You can then create a budget that aligns with those goals.
Align spending with priorities: After getting married, spouses need to track their mutual spending.
“When you know where your money goes, you are in control and can be thoughtful about aligning spending with priorities,” said Carla Dearing, CEO of SUM180, an online financial planning service created by women for women.
She recommends that each couple use a service such as Mint or Quicken to view multiple financial accounts in one place and create a spending plan. The goal is to monitor spending habits to ensure they align with your joint priorities as a couple.
Building a cushion for emergencies: There’s another benefit to tracking spending; it helps couples determine how much they need to make to cover monthly expenses. Ideally, you should put away six times that amount as a cushion for emergencies and unexpected expenses, Dearing said. However, you don’t have to set aside that much all at once.
“Be disciplined about saving a little every month until your emergency fund is where it needs to be, even if it means sacrificing little luxuries once in a while,” she said. “Having your cushion ready whenever you need it will give you a great sense of security and freedom. It will also free you up to work on other savings goals without getting derailed by unexpected expenses.”
Make a plan to tackle debt: Few individuals enter into a marriage with no debt. In fact, two thirds of millennials have at least one source of long-term debt, such as student loans, car loans or mortgages, according to the Filene Research Institute. Further, more than half of millennials who have credit cards carry balances.
“If you both have debts, now is a good time to focus on paying them off so you can focus on the future,” Luscombe said.
Paying down debt as quickly as possible will free up more room in your budget to save. Focus on high-interest debt first. If you carry a balance on several credit cards, pay as much as you can on the card with the highest interest rate first. Then start paying down the card with the next highest balance and so on to reduce the total amount of interest you'll pay over time.
Consider a joint checking account: There are several reasons a joint bank account is good for a marriage. Most importantly, it can help keep spending in check because spouses have to stay accountable to each other when the money is coming out of a joint account, Luscombe said.
Having a joint account can also cut banking costs. More than half of national checking accounts charge monthly fees, according to a GOBankingRates survey. Often, fees are charged if you don’t meet a minimum balance requirement. However, if both you and your spouse pool your income in one account, it can be easier to meet balance requirements and avoid fees, according to Luscombe.
Then you'll have more cash to pay down debt or boost savings.
Live on one income, save the other: Some couples have a tendency to start spending more once they’re married because they have two incomes to fund fun activities.
“You can use up both salaries if you’re not careful,” said Luscombe, who went on to advise living on just one partner’s income. Then you can earmark the other spouse’s earnings for retirement savings, emergencies and future expenses, such as a down payment on a home.
Ideally, both spouses will contribute to their retirement accounts. However, if only one spouse has an employer that offers matching contributions, focus on contributing enough to that account first in order to get the full match. Otherwise, you’re leaving free money on the table.