Author: Matthew Frankel | June 19, 2018
Just married? Get your financial life in order!
After the excitement of your wedding and honeymoon are in the past, it’s important for new married couples to tackle some key financial matters. Regardless of how old you are, where you are in your careers, and what specific financial goals you might have, here’s a checklist of 12 money matters newlyweds should handle soon after tying the knot.
Have meaningful conversations about money
This sounds extremely obvious, but it’s something that many newly-married couples simply aren’t used to doing.
In most married couples, both spouses have somewhat different viewpoints of some key financial topics. Perhaps one person is a “spender” while the other one is more of a “saver.” Maybe one spouse dreams of homeownership, while the other prefers the renter’s lifestyle. Disagreements like these are common, but a healthy first step is to openly discuss financial issues with your spouse.
Get on the same page with some common goals
One smart money activity for newlyweds is to set some financial goals. Here are a few common questions to get you started:
- Do you want to buy a house? If so, when? Do you
want to save for a large down payment, or do you want to become homeowners as
soon as possible?
- How much do you want to save for retirement?
Most experts suggest about 15% of your salary, inclusive of any employer
- How much of an emergency fund would make you feel comfortable?
- Do you want to take vacations? If so, how often, and how much do you want to aim to set aside for vacations?
Make a plan to pay down debt
Hopefully, you’ve had conversations about your debts (at least the amounts you each owe) before you got married. This includes student loans, credit cards, and other forms of debt. Or, maybe you’re like my wife and I -- most of our initial marital credit card debt came from our wedding itself. The point is that many couples enter their marriage with debt, and it’s important to know what you’re dealing with from the start.
If you have any high-interest debt like credit cards, one of the first financial moves you should make is to come up with a plan to get it paid off. Working together to develop a debt-repayment strategy can be an important step towards achieving your other financial goals.
Change your name
If you’re taking your spouse’s last name, you’ll need to update quite a few things. You’ll need to change your name on your driver’s license, Social Security card, passport, credit cards, bank accounts, and more. This can be a bit of a hassle, but it’s important that everything matches up. For example, it can cause a problem if the last name on your driver’s license doesn’t match the last name on your credit card when you go to make a purchase.
Health insurance considerations
If you and your spouse both have health insurance benefits through work, it can potentially save you some money to combine onto one of your plans. In some cases, it’s cheaper to obtain “employee + spouse” coverage from one employer, and in other cases, it can be cheaper to keep both separate plans. Or, maybe one spouse’s plan is better than the other, or there’s some unique situation to take into consideration. For example, at the time my wife and I got married we worked for the same employer, and they had a “dual spouse” category of health insurance, which essentially made our coverage free -- but we had to apply for it within a certain amount of time.
Alternatively, if you get married and only one spouse is eligible for health benefits, there’s generally a certain time window after a “life event” to add your spouse, so be sure to do this in a timely manner.
The bottom line is that health insurance can be a major financial consideration for newlyweds, and some changes need to be made in a timely manner, so it’s best to handle this shortly after getting married.
Decide how you’re going to structure your finances
Do you want to keep your bank accounts and credit cards separate, or do you want all of your money to flow into and out of the same account(s)? Or do you want a little bit of both?
Many couples use some sort of hybrid arrangement, where some accounts are kept separate, and some are kept individual. My wife and I have this type of financial structure -- we primarily use our individual checking accounts and credit cards, but we also maintain a joint checking account to pay certain expenses and most of our credit cards list the other spouse as an authorized user.
To be clear, there’s no one-size-fits-all ideal arrangement. It depends on your individual circumstances and personal preferences.
Change your W-4 and decide your filing status
To be sure, this isn’t quite as big of a deal in 2018 and beyond as it used to be, especially for middle-income couples. The Tax Cuts and Jobs Act eliminated the so-called “marriage penalty,” or the differences between the effective tax rates on married and single taxpayers, for all but the top two tax brackets. However, it’s still a smart move to make.
A bigger money matter is the decision of whether to file your taxes as “married filing jointly” or “married filing separately.” Generally, married filing jointly is the best bet for most people, but there are some situations where it can make sense to file separately. There are several lucrative tax breaks, such as the deduction for IRA contributions and the Student Loan Interest Deduction that are either unavailable or are severely limited if you file separate returns. On the other hand, if one spouse has a big itemized deduction -- lots of medical expenses perhaps -- it can sometimes work out favorably to file separately.
Start a budget
If you think there are a bunch of expenses on this list, you’re right. Retirement savings, emergency funds, life insurance, and vacations can take up a big part of your salary, and we haven’t even mentioned things like housing, transportation, dining out, groceries, utilities, and entertainment.
While many couples could think of few less-exciting things to do, formulating an initial budget can be a great way to get started on the right foot, and can also help identify the areas where you may be spending too much.
An alternative approach, which my colleague Jordan Wathen recently suggested, is to automate your savings. In other words, decide how much you need to save for retirement, emergency expenses, and other purposes, and set your essential expenses like your housing payment to auto-draft from your bank account shortly after you get paid. The idea is that if you do this, there’s not much of a reason to spend time tracking your other expenses.
Some couples do better with a line-by-line budget, while a strict budget will drive others crazy. It depends on what works best for you.
Make agreements about “acceptable spending”
One smart idea is to define what expenses both spouses should have to agree on, and what either spouse can do on their own. Nobody wants to have to ask permission for every little purchase, but at the same time, finding out your spouse went on a shopping spree after the fact can cause problems.
Just as an example, here’s how my wife and I do this. Any necessary expenses (healthcare, child care, groceries, etc.) can be paid for by either one of us, regardless of the amount -- although if something is particularly large, we usually give the other a heads-up. When it comes to discretionary purchases, on the other hand, our threshold is $100. If one of us is going to spend more than that out of our joint checking account, or on one of our credit cards, we need to let the other spouse know.
Get life insurance
For the most part, single people with no kids have little need for life insurance. When you get married, this changes, and life insurance is generally cheaper if you get it while you’re young. Even if you don’t have children just yet, it can be a smart idea to lock in low-cost insurance now.
How much insurance you need depends on a few factors, such as your salary, whether one or both spouses work, the number of children you have (or are planning to have), and your particular financial goals, such as paying for your kids to go to college. I strongly recommend consulting a financial planner to assess your insurance needs, but some general things to read up on are the differences between whole and term life insurance and some general things to think about before you shop for a policy.
Another smart move is to change your beneficiaries on any existing insurance policies you may have, as well as on your retirement accounts. You’ll also want to update your beneficiaries if and when you have a child.
One important thing to know are the different types of beneficiaries you can list. A primary beneficiary is first-in-line to receive a life insurance payout, or to receive the funds in a financial account, in the event of your death. A contingent beneficiary will only receive a payout if the primary beneficiary(s) are no longer alive at the time of your death. You can have more than one of each type of beneficiary in each category.
For example, on my life insurance policy, my wife is listed as a 100% primary beneficiary, while my two children are each listed as a 50% contingent beneficiary. This means that if I die before my wife, she’ll receive my policy’s death benefit. On the other hand, if she dies before me or at the same time, my children will each receive half of the payout.
Do some basic estate planning
This is a similar topic to changing your beneficiaries. While the term “estate planning” may be the furthest thing from your mind if you’re a young couple just starting out, there’s one important aspect of estate planning that you should do shortly after getting married -- make a will.
Yes, in most cases, property will transfer to the surviving spouse upon the death of the other spouse. However, without a will this process can take a long time. Plus, creating a will can let your exact wishes be known for a variety of hypothetical circumstances. For example, what happens to all of your possessions if both of you die? Are there certain things you may want to leave to other people in the event of your death?
A lifelong process
This guide can certainly help you get started on the right foot, but it’s important for married couples to make financial planning an ongoing process. It’s important to re-evaluate goals, budgets, wills, debts, and more on a fairly regular basis, so your finances can effectively adapt to your ever-changing lives.
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