The following is a guest post from Edson:
One plus one equals two, right? Normally, yes, but often the numbers do not seem to add up for newlyweds who are combining their finances. Marriage means two people to foot the bills, but combined income can also push a couple into a higher tax bracket, add a partner’s student loans and other debt, and lead to mortgages and car payments.
With all of these expenses, what can you do to save? Here are some tried-and-true tips for saving money from the moment you say “I do.”
Communicate early (even before the wedding) and often about your finances. In a recent survey, about 35% of couples reported fearing that talking about finances would cause relationship problems or even end the relationship. But open communication is the basis of a strong marriage and a strong financial plan. Don’t assume that financial problems will take care of themselves or go away if you just ignore them.
In your initial financial discussion, disclose all of your spending habits and debts to your partner. It might not be a comfortable conversation, but it will be infinitely easier in the honeymoon stage than later when the stress of everyday life takes over. Decide whether you will combine all, some, or none of your accounts.
Plan to talk about your finances at least monthly. Being aware of where your money is going will prevent overspending. Remember that you are coming from different households where money may have been handled and discussed differently. Don’t assume that your method of handling money is the only right one.
2. Don’t Go into Debt for the Wedding
The rule of thumb for all of your purchases (except a house and maybe a car) should be “If we can’t pay for it in cash, we can’t afford it.” That includes the wedding. The Joneses might have had a glamorous, expensive wedding that made the local newspapers, but you’ll be the happier couple if you start your marriage with the least amount of debt possible.
3. Set Financial Goals
Set short-term savings goals for vacations or buying a car; set long-term goals for paying off loans. Having these markers will give you something to work toward and help you resist the temptation to overspend. It’ll be easier to avoid buying those new shoes when you think about the Caribbean cruise you and your honey will be taking next year.
4. Create an Emergency Fund
In all of your wedded bliss, it might be difficult to think about the possibility of job loss or injury. But you’ll spare yourself a lot of stress and fighting later if you prepare for these incidents now. Creating an emergency fund negates the need for a discussion about where extra money will come from, a subject that can be especially sensitive for couples who keep their finances separate.
Try to have at least three months of living expenses saved up (some experts suggest up to a year of savings). Include mortgage, car payment, gas, food, and child care. Don’t worry if this feels overwhelming; start by saving 10% of each paycheck and your savings will grow faster than you expect.
5. Save for Retirement
Now that 10% of your check is going toward emergencies, put another 10% toward retirement. It may feel far away, but retirement has a habit of sneaking up on people. If you feel you can’t afford 10%, look first at your spending habits. Cut out rarely-used or unnecessary expenses (cable, gym pass, eating out three times a week, etc.). Be willing to sacrifice a little now for security and peace of mind later.
6. Pay off Debt
If you have debt, it is wise to live on 70% of your income and use another 10% to pay off debt. Feel painful to live on so little? Just remember, the faster you pay off your debt, the less interest you’ll pay and the sooner that 10% will be going back into your own account.
7. Set Purchasing Limits
All saving and no spending will drive anyone crazy. Now that you’ve established your financial goals and savings plan, give yourself an allowance. With your partner, decide how much each of you can spend at a time without having to notify the other person. Stick to your rule that if you can’t pay cash, you don’t buy it. Avoid the trap of thinking that now that your incomes are combined you suddenly have more spending money. Spend the same or less than you did when you were single.
8. Raise Your Credit scores
A credit score of 750 or above will usually lower the interest rates on your mortgage and may even lower your insurance payments. To most effectively raise your score, keep the balance on your credit card below 10% of the limit and pay it off each month. To avoid racking up debt as you build credit, use your card only for specified purchases like groceries and gas, and pay it off right away.
9. Evaluate Big Purchases
Now that you’ve found your better half, you may be tempted to complete the picture right away with a big house, a new car, and a pedigree dog in your manicured yard. Don’t believe the lie that you have to have everything right away or that getting into debt is just part of starting out.
Consider investing in a condominium instead of a house. Furnish it with cheap items you find at the thrift store and garage sales, and each month pay yourself the difference between your current mortgage payment and the payment on the house you’d LIKE to own.
In a couple of years you can rent out the condo and use the money you’ve saved for a nice down payment on a home. For transportation, contemplate being a one-car family. If you do need two cars, save up for a cheap one that you can buy with cash. Again, pay yourself what you would otherwise pay each month on a loan and in a couple years you can buy a nicer car and still not have a car payment.
When it comes down to it, the secret to saving money as a newlywed is to communicate with your spouse, have a plan, and always pay yourself first. Follow these strategies and you’ll set the foundation for a successful marriage and a rewarding financial plan.
Edson Senna is a freelance writer who enjoys writing about investing, finance, entrepreneurship, and other business-related topics. He sometimes does consulting with Infinite Wealth Advisors, financial advisors in North Carolina. In his free time Edson enjoys biking, running, and reading about finance and law.