Most newlyweds spend more time picking out their wedding cake than they do talking about how they'll handle money. But understanding where your new spouse stands on key financial issues can not only strengthen your financial situation, it can also help your marriage. Here are a few areas to get you started.
Get on the Same Page
Setting some common goals is essential. Studies have shown that disagreements about money cause more divorces than arguments about relatives, who works the hardest or even sex. So talk to each other about your hopes and dreams, like houses, nice trips, and kids. You'll deepen your understanding of each other and build trust. Then work together to figure out what you can realistically afford.
More on goal setting here.
Budgeting and Saving
Now that you agree on what your goals are, the next step is setting a realistic budget. This is easier said than done for most people. So find a strategy that both partners can stick by, such as the one below:
First, determine how much money you should be spending to meet your lifestyle expenses, loan payments and other home expenses, insurance, groceries, medical costs, entertainment, transport, saving for the future and debt reduction. Here is an excellent budget planner.
Second, stick to the old adage of “pay yourself first” by automating your savings deposits whenever possible. In other words, get your monthly savings out-of-sight, out-of-mind. Make sure that that the only thing sitting in your usual bank account is truly spendable.
Third, track your progress. You need to be able to measure your progress – if you are not measuring it, you cant manage it!
Remember, the absolute foundation to financial success is to spend less than you earn and do something wise with the difference. Managing your cash flow is the key to this success.
More on budgeting here.
A good financial adviser can also help you decide the best place to invest your money. But one size does not fit all when it comes to investing. Every one of your goals should have its own specific saving and investment strategy based on many factors, including your tolerance to risk, time to reach the goal and importance of each goal. Retirement, education and house down payment goals are not the same and shouldn't be treated as such.
More on investing here:
One of the biggest potential pitfalls couples face is the debt trap. Avoiding consumer debt whenever possible is the best way to reduce marital stress. If you already find yourself with lots of debt, then start paying down your highest interest rate liabilities first while paying the minimum amount on other debts. Then move down the list by interest rate as you pay them off. To be sure, paying off the smaller loans first might seem more satisfying by clearing them off your plate. But sorting by highest interest rate could save you lots of money, especially if credit card debt is involved.
Of course, you want to have an emergency rainy-day buffer of cash. But, after that's been established, you're usually better off paying down debt, unless it's has an exceptionally low interest rate. You could effectively earn five to ten times the interest rate paid by your bank account simply by paying off your car loan or credit card faster.
More on debt here:
Life, disability and long-term care insurance policies are often the last consideration for a newly married couple, until it's unfortunately too late. Insurance policies are typically less expensive for those who are younger; a qualified financial planner can help you determine the amount of coverage that is appropriate.
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Estate planning is often associated with the “doom and gloom” of health problems or death. Most of us dont want to think about it, especially soon after tying the knot. But estate planning is really a way of saying, “I love you” and “I want to have a plan to make sure that you'll be taken care of.”
Everyone—young and old—needs to have a plan. An estate plan is especially vital if either partner has children or owns assets separately. You should have four key documents: A last will and testament, a power of attorney, a living will, and a healthcare power of attorney.
More on estate planning here.
Contrary to popular opinion, marital financial planning isn't simply about prenuptial agreements to decide “who gets what” if the marriage dissolves. Good financial planning is about how to make the marriage strong in the first place with realistic financial expectations, trust and cooperation.
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