Money for two: managing finances as a couple
It’s wedding season. And if you’re one of the many who are about to get married, you’ve probably been focused on paying for your big day. After all, the average cost of a wedding is about $35,000. But have you and your significant other thought about what your financial future looks like after the wedding? From investing to buying property, your wedding should be just the start of your financial teamwork.
Unfortunately, too many couples don’t discuss money before their wedding day. That can be a mistake. Nearly 60 percent of divorcees say that finances played a role in their breakup, according to a recent survey.
To help cover your bases before you walk down the aisle, here are a few things to consider:
Will you prenup? You don’t have to be Beyonce and Jay Z to consider a prenuptial agreement. Marriage is a contract and a prenup spells out how money will be shared and what will happen to it if the marriage dissolves. Prenups are more common for those on their second (or third or more) marriage, but first-time brides and grooms with assets should consider them too in order to protect themselves in the event of divorce.
Managing day-to-day. Budgeting gets ignored as it’s often seen as complicated. But the 50/30/20 method, popularized by then-Harvard professor Elizabeth Warren in the book she co-wrote with her daughter Amelia Warren Tyagi, All Your Worth: The Ultimate Lifetime Money Plan, is an easy budgeting tool. No spreadsheet necessary. It works like this:
- Essentials: Spend no more than 50 percent of your income on fixed costs like housing, food, utilities and commuting.
- Variable: Dedicate up to 30 percent of income toward fluctuating categories like entertainment, clothing and dining out.
- Saving: Allocate 20 percent of income toward retirement, debt repayment and building a cash reserve.
Merging benefits. If you both work for an employer that offers health insurance, review each plan carefully. Because most workplace insurance requires a sizable employee contribution, it rarely makes sense to have two policies. Opt for the plan that provides the best coverage for your medical conditions, and prenatal and infant care if you’re considering starting a family.
Investing know how. It’s not uncommon for one spouse to take charge of the day-to-day finances and the other to take the lead on long-term investing. If you’re the spouse that’s less involved in investing, don’t leave this important task entirely up to your wife or husband. Get involved. And if neither of you considers yourselves to be an investing ace, seek out an expert to help you create an investing plan you can understand.
Kids in the picture. It’s safe to say that no one is truly prepared for parenthood, but getting your finances in order can make the transition less stressful. Here are some of the biggest expenses you may encounter:
- Parental leave: Only 14 percent of U.S. workers have access to paid family leave, according to the Bureau of Labor Statistics. If you’re not among the lucky few, do you have a plan for how you’ll meet your expenses during a leave?
- Childcare: Based on your state and type of care, infant care can range between $4,000 to $17,000 a year. Start identifying areas in your budget to trim so you can accommodate this new expense or make plans for other arrangements such as asking a family member to provide care.
- Healthcare: Workers pay an average premium of $1,129 for employer-sponsored health insurance for themselves, but $5,277 for a family. Figure out how you’ll pay for this big jump or investigate government programs that help you get health insurance for your child. Consider a Health Savings Account (HSA ) as a way to save money for future health expenses.
On the home front. After a wedding, many couples set their sights on a house. Take your time with this major purchase. If you or your spouse have poor credit or are carrying debt, work on a credit repair plan as a team so you can qualify for a favorable mortgage rate. And if your savings are still small, work on building them up so you can at least put down 20 percent equity to avoid paying private mortgage insurance and overextending yourself.
A wedding is a major financial undertaking for a couple, but a slew of big financial decisions await you after “I do.” Start on the right foot by talking about your money now and commit to approaching money matters as a team.