Credit Karma Guide to Finances for Newlyweds
Learning to communicate about finances, from credit cards to life insurance, is an important milestone for newlyweds. This guide will teach you how to navigate touchy money issues and build a financial future together. Learn how to set financial goals, create a budget and make important budgetary decisions as a couple.
Before getting married, you should give some serious thought to how you and your partner will merge your financial lives. And that financial conversation should keep happening well beyond the honeymoon.
If you didn’t discuss finances before the wedding, now is a great time to start. It makes sense to iron out financial details in order to avoid clashes over cash.
In fact, a 2014 Money magazine survey of 1,010 married U.S. adults age 25 and over found that 70% argued about money. Money was the biggest source of friction – more than sex, togetherness and household chores — the survey showed.
“It’s easy to be swept up in the excitement and romance of the honeymoon phase at the expense of tackling its serious financial implications,” says Carla Dearing, co-founder and CEO of SUM180, an online financial wellness service.
“But the fact is, investing time and effort upfront to get your joint financial house in order will free you to avoid conflicts about money and enjoy your new life together as fully as possible,” she says.
This guide lays out eight steps you can follow to build a successful financial partnership.
Have the “money talk”
Money is a sore subject for many couples.
Certified Financial Planner™ Byron Ellis, managing director of United Capital Financial Advisers in The Woodlands, Texas, says newlyweds shouldn’t avoid difficult discussions about money.
“Honesty is the cornerstone of a successful relationship, and you should be just as honest with your financial selves as you are in every other aspect of your relationship,” Ellis says.
Here’s a list of questions about finances that newlyweds should ask each other.
- How much is your salary?
- What workplace benefits do you get?
- What is the state of your investments?
- How many credit cards and how much credit card debt do you have?
- What’s your net worth?
- What are your credit scores?
- What sort of debt, such as student loans and credit card debt, do you have?
Rachel Kampersal, a spokeswoman for American Consumer Credit Counseling, says, “Sit down together and figure out your combined assets and liabilities, because you don’t want any big surprises down the line. Be transparent.”
How to avoid conflict over money
Love brought you together, but you don’t want love of money and possessions to tear you apart. If find yourself constantly bickering about money, it may be time to seek professional help. For example, you might want to schedule appointments with a financial therapist who can help you work out your financial and personal differences by learning how to see your partner’s perspective and cultivating effective strategies for compromise.
You set career goals. You set health and fitness goals. Why not set financial goals with your new spouse?
Here are some of the questions you should consider discussing when setting goals together.
- How big should our emergency fund be?
- Do we want to reduce our debt?
- Do we want to buy a house? If so, when do we need to start saving for a down payment?
- Are there any other big purchases, such as a car, that we should start saving for?
- How do we want to start planning for retirement?
- Are there any nonessential things, like vacations, that we want to save for?
Creating goals together is the first step toward a united financial strategy.
Set a budget
To some people, “budget” might be a four-letter word. But creating a budget can help keep newlyweds from hurling four-letter words at each other. Being aligned on spending can help newlyweds keep household harmony.
Some of the budgeting considerations for newlyweds:
- How much money will you set aside each month for savings. How much will you allocate for entertainment and other nonessential expenses?
- How will you handle expenses that weren’t expected? How much should you regularly save in an emergency fund to cover these surprises?
- Will each of you contribute equally to the household expenses, or will you chip in amounts based on how much money each of you earns?
- Who’s going to act as the household banker, by paying bills, keeping track of savings and monitoring investments? Or do both of you want to split the duties?
- Do you have a plan in place to wipe out debt? And who’ll be responsible for any debt that was accumulated before the two of you got hitched?
Once newlyweds are on the same page regarding their budget, they should revisit their spending plan together every month.
Evaluate your health insurance
If both of you are working and have work-sponsored health insurance, should you stay on separate plans or should one of you join the spouse’s plan? An important consideration is which choice will save the most money. Take a look at each spouse’s insurance plans and fees before making a decision.
Although you can generally only enroll in employer-offered health insurance once a year, there are special rules for people who have been recently married. Check with your human resources representative for more information.
In other words, the household budget shouldn’t be a set-it-and-forget-it blueprint.
“Schedule a financial ‘date night’ where you spend an hour reviewing your budget and have time together to talk about your goals for the future and how you can attain them,” says accredited wealth management adviser Tiffany Welka, vice president of VFG Associates, a financial services firm in Livonia, Michigan.
“The last thing that any couple wants, whether they are newlyweds or seasoned, is to argue over money. Budgeting helps open the doors of financial communication for a couple.”
Check out auto insurance discounts
In many cases, auto insurance companies may provide discounts to married couples, but you’ve got to let your insurer know that you’ve gotten hitched in order to qualify for a discount.
“If you and your spouse have stellar driving records and no recent gaps in coverage, chances are you’ll save more overall by combining policies than by keeping individual ones,” according to Esurance, part of insurance company Allstate.
Hammer out banking details
Figuring out how to set up bank accounts is not a one-size-fits-all concept for newlyweds; what works for one couple may not work for another.
It may be important for you to open joint bank accounts so you both can easily track household expenses and agree on spending objectives.
Byron Ellis, a certified financial planner, recommends newlyweds open both a joint checking account and a joint savings account to which both spouses contribute money. This way, he says, household expenses — like rent and groceries — can be paid from the same pool of cash. This is advisable even if the spouses decide to maintain individual accounts they had before getting married.
If establishing joint accounts isn’t feasible — for instance, one spouse would lose an account’s special perks if it’s closed — a spouse could put the husband’s or wife’s name on existing individual accounts in case immediate access to that money is needed, Ellis says. For instance, if one spouse is critically injured, the other spouse could tap into that money without any hassles.
“Even if you started the accounts years before you met, extending that trust to your partner can go a long way toward merging your financial lives,” he says.
Also, couples could maintain separate accounts for individual expenses — maybe one spouse wants, for instance, to splurge on fishing tackle from time to time while the other wants to occasionally treat colleagues to after-work drinks. This allows some level of financial independence.
“The rule should be that neither person can pick on the other one for the way they want to spend the money in that account as long as that person isn’t overspending with the couple’s credit cards or tapping into the joint account,” says Erika Jensen, president of Respire Wealth Management in Houston.
Of course, this works only if both spouses agree on individual and joint spending goals. Otherwise, this could be a source of friction.
Evaluate your credit cards and debt
Newlyweds may want to keep their individual credit cards they had before getting married, but they may also want to open a joint credit card and share responsibility for making the payments. Talk about what makes the most sense in your situation.
Credit card debt can weigh down a marriage. Therefore, it’s critical for newlyweds to sort out any credit card issues before they turn into major headaches; this includes creating and sticking to a plan to whittle down any credit card debt that was brought to the marriage.
Keep in mind that after you exchange vows, your individual credit reports and scores are not combined. Credit-reporting bureaus maintain a separate credit history for you and your spouse. However, your spouse’s credit history will affect any joint accounts you open.
Discuss life insurance
The average American newlyweds are in their late 20s, so life insurance might not be on their radar. However, a life insurance policy can help cover funeral expenses, pay off debt and replace lost income in the case of a death of a partner.
Despite the risks, many Americans lack life insurance. In a 2017 survey by Life Happens and LIMRA, 85% of the more than 2,000 U.S. adults who participated in the study indicated that most people need life insurance, yet only 59% said they had life insurance.
On top of that, nearly 40% of the people surveyed said they wished their spouse or partner had more life insurance.
“When you’re young and newly married, life insurance is probably the last thing on your mind, but there’s nothing that says love more than making sure that your significant other is taken care of if something happens to you,” Jeff Rose, a certified financial planner, wrote on his blog.
What stops consumers, including newlyweds, from buying life insurance or adding to existing coverage? Some people might mistakenly think it’s too expensive.
In the survey from Life Happens and LIMRA, people overinflated how much a life insurance policy might cost. Survey respondents guessed that the cost of a $250,000 term life insurance policy for a healthy 30-year-old was around $500 per month, which is more than triple the typical cost.
Make sure you update your beneficiaries
Craig Bolanos, founding partner and CEO of Wealth Management Group, a financial planning and consulting firm in Inverness, Illinois, advises updating your 401(k), IRAs, life insurance policies and other financial plans or assets if you intend to include your new spouse as a beneficiary.
“It is not at all uncommon for people to forget to update their beneficiary arrangements,” he says. “You don’t want to inadvertently leave money to an ex-spouse, or anyone else for that matter — assuming your goal is to give money to your newly minted partner in marriage.”
Assess your tax situation
As a married couple, you’ve got two choices for filing your tax returns: You can jointly file one return or you can each file a separate return.
Kampersal from American Consumer Credit Counseling advises consulting a tax professional to determine which option is right for you. When you meet with a tax professional, you should come armed with recent pay stubs and tax documents to help with the tax-planning process.
Each newlywed should notify his or her employer so that the W-4 tax-withholding form that’s on file can be updated to reflect the new marital status.
Since your household has gotten bigger, you can increase the number of allowances from one to two — one for you and one for your partner. If you have children, you can claim even more allowances. Typically, the more allowances you list, the less tax that’ll be subtracted from your paycheck, which means more money in your pocket.
Look toward retirement
For newlyweds, retirement may feel as if it’s in the distant future, but it can creep up on you sooner than you think.
Here are some questions to discuss with your spouse as you contemplate retirement together.
- At what age do we want to retire?
- How much money do we need saved by the time we retire?
- How much post-retirement traveling do we want to do?
- Are we going to stay in our current location or move somewhere else?
- Will we find part-time jobs or do volunteer work?
- How much will each of us contribute to employer-sponsored retirement plans?
- Will we need supplementary retirement investments, such as an IRA or annuity?
“Many individuals struggle to plan for their own retirement. When people get married, it’s also oftentimes overlooked,” says certified financial planner and financial wellness coach Marques Lang, owner of Paradigm Consulting & Coaching in Hood River, Oregon.
“This is particularly true when it comes to the type of lifestyle that each spouse would like to have during retirement.”
Sort it out now so that you can both have the retirement of your dreams later.
Being financially healthy is an important part of a successful partnership, so it makes sense to align on how you think about and treat money as soon as you get married. This can help you avoid money conflicts in the short term and help you meet your financial and life goals together in the long term.
Start talking about your finances today and keep the conversation going throughout your marriage, so you’re always on the same page about your money goals.
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