Finance tips for newlyweds
July 25, 2015
Hear that? It’s the sound of wedding bells. June is the most popular month to marry, followed closely by August. And if you play your cards right, newlyweds, there could be another tune to accompany those bells — the sound of cha-ching as you plan a financially secure life together.
Organize, economize and maximize
Marriage is about “two becoming one.” That includes your finances.
Your individual philosophies on financial matters, including saving and spending habits, as well as your once-separate incomes, assets and debts are now under a single roof. You and your spouse must jointly make decisions, compromise, plan and set goals — as openly and lovingly as possible — on how you’ll manage your money going forward.
You may want to combine all accounts; you may prefer a “yours, mine and ours” arrangement. Whatever you agree to, you’ll want to establish a budget, begin building an emergency fund of three to six month’s worth of living expenses (in case of job loss or other unforeseen setbacks) and pay off debt as quickly as possible to begin saving for future goals like big-ticket purchases, a home and retirement.
Retirement may seem far off, but you need to start saving for it now. Saving and investing is a long-term process, and the power of compounding interest can only be unlocked over long stretches of years.
Read more about this in my first column. Even if you can only start small, start. Trim down your lifestyle to make it happen. Decades from now, you’ll either love or curse your younger selves about this.
Adjust to a new tax status
Review your tax withholdings and work on minimizing your taxes.
If both of you work, your combined income could put you in a higher tax bracket; if only one works, filing jointly may reduce your taxes. Either way, you must fill out a new W-4 and decide how many W-2 withholding allowances to take (which determines the amount withheld from your wages for taxes). You don’t want to be taken by surprise by your tax obligation come next filing season.
Also, notify the Social Security Administration should your name change, as well as the IRS and U.S. Postal Service if your address changes (online forms are available for all three).
Tax-advantaged accounts offered by your employer such as a 401(k) and a Health Savings Account (HSA) are great tools for saving and investing. With both, the money deposited isn’t subject to taxes, in the first case allowing your investments to compound more quickly over time (hopefully) and in the second case giving you greater spending power for qualified medical expenses.
With the 401(k), you will eventually pay taxes, but only when the money is withdrawn from the account. With the HSA, you’ll never experience federal tax liability as long as the money is spent correctly — and unspent funds roll over year to year.
Protect what’s precious
It’s time to consider life and disability insurance; with parenthood, it becomes essential. That’s because life insurance replaces lost income should you die and disability insurance covers a portion of salary should you become disabled.
One or both of you may have some life and disability insurance provided by your employer, but it may be insufficient. Talk to an insurance provider about the various options and how much coverage you and your spouse need.
Finally, both of you need a will (or an update if you have one). A will legally declares your wishes on how you’d like your estate — your total assets — distributed after your death. Dying without one can be financially ruinous for your survivors, particularly if you have children, because you can bet that the state and federal governments will have very different ideas about what to do with your estate. Talk to an attorney about this.
Jennifer Pagliara is a financial adviser with CapWealth Advisors, LLC, and a proud member of the Millennial Generation. Her column, which appears every other Saturday in The Tennessean, speaks to her peers and anyone else that wants to get ahead financially.
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