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You and your new husband just started your blissful life together. The last thing you want to think about is money. But there are some important financial moves that you need to make early on that will get your new life started off on the right foot.
Take this fundamental advice from the experts and you won’t go wrong.
#1) Make Saving Money a Priority
We’ve all heard it before. You get married then you buy a house, right? Not necessarily. Daniel Greiner, finance professor at the IU Kelley School of Business, suggests you should make saving money more of a priority in the early years, and hold off purchasing a home until you’ve accumulated at least a 15% down payment.
The reasoning is simple… Sure, purchasing a home early can mean tax breaks for you and your new husband. But if you purchase too soon, you will probably make a smaller down payment and end up with a higher monthly payment. The higher payment, combined with property taxes, insurance, maintenance, and other monthly expenses, could easily offset the tax break. Consider renting for a few years.
Also, you should cut as many other non-essential expenses as you can, from everything to your coffee to your clothes to your car. Greiner suggests leasing a car, rather than buying, since the payments are typically lower.
Let me point out that the key here is to invest the money each month. Don’t turn around and spend that freed-up money on other things. You should use it to start building your nest egg.
#2) Take Advantage of Tax-Deferred Savings Plans
Investing early is key. Invest as much as you can now, while you are young, because your investments will have decades to grow, your earnings will compound more times, and you will also be able to ride out the ups and downs of the market.
Fidelity Investments Group suggests that you can maximize your savings by minimizing your taxes. With tax-deferred accounts, all your earnings remain in the account and are only taxed when you withdraw them. This means that your money will compound faster than it would in a taxable account.
Fidelity suggests taking advantage of the tax-deferral features of your 401(k) or 403(b) plans by maximizing your company’s matching as much as possible.
To supplement your employer’s 401(k) plan with additional tax-deferred savings, consider an individual retirement account (IRA). You can have one for yourself and for your husband. With a traditional IRA, your contributions may even be tax-deductible. For a quick overview of traditional vs Roth IRAs, check out The Vanguard Group’s IRA comparison page.
Fidelity Investments suggests a third option for tax-free savings, which, they say, not enough people take advantage of. A health savings account (HSA), which is offered in conjunction with a high deductible health plan (HDHP), allows you to make pretax contributions to an individual account. If you use it for qualified medical expenses, you can withdraw it federal tax free. This means you never pay federal taxes on that money. The funds can be used at any time, from now until retirement.
Obviously, there are many options besides just these three tax-deferred choices, including mutual funds, stocks, and bonds, but these are a great place to start, since they will maximize the opportunity for compounding through the years.
#3) Manage Debt
The first step to managing your debt is knowing the difference between good and bad debt. Credit card debt is considered bad debt. It often bears interest rates of 15% or more, diminishes your ability to save and costs you greatly over time. Borrowing to pay for a home, however, is considered good debt because as you pay down your mortgage, you gain equity. Also, your mortgage interest payments can be deductible on your income taxes.
The first thing you need to do is get those credit cards paid off. The Vanguard Group suggests paying off the card with the highest interest rate as quickly as you can, while making minimum payments on other cards. Once the first card is paid off, they say you should divert those payments to the next most expensive card until it is paid off. Continue to do this until all of your credit cards are taken care of. Then, shred those cards and stay out of this type of debt.
Establish Your Priorities
The early years of your marriage is time to be proactive about setting up the foundation for the rest of your lives. If you keep your priorities straight and take this advice, you will be able to achieve all of your financial goals.
It makes so much sense to rent or stay with in laws whilst saving, but I hear so many of my peers saying that rental payments are wasted money! We stayed with my husband’s mother for a few years, and then rented, before we had enough saved.
Well, we tried to stay with my husband’s family but his mother disliked me so much we had to move. We are still renting, and so far away from a deposit that I can’t see the light at the end of the tunnel yet! We are sticking to a plan though, much like the one in this article.
Responding to number one and the 15% rule, I think it should be taken a step further. Save for a 15% down payment with the same amount saved up for a cushion. You don’t want to spend all of your savings in one day.
Saving and renting sometimes are hard to do when the income isn’t there. Not everyone buys a house or can afford to. Having a house is great but not at the expense of having no money.
It’s hard to live with someone else in the same house. It can build resentment because we are not all alike. They want things done one way and you do things your way. Stick to your plan and keep saving!
I think getting your priorities in order is the most important. If you don’t sit down and figure that out first, it could turn into a real problem when he wants to focus on one thing and she wants to focus on something entirely different. Financial priorities should actually be discussed before a wedding even takes place.
I agree that financial priorities should be discussed in advance of marriage. It’s amazing how many people find out they don’t agree with each other when it comes to money after they are married.
I think this is a big reason why money issues are the starting point of a lot of marital fights. My ex-husband and I went for pre-marital counseling through our church and ended up fighting over money issues. We got married anyway and continued fighting over finances and now we’re divorced.
I agree with saving up money for a significant down payment on a house, but I vehemently disagree with leasing a car instead of buying it. Sure, the payments might be lower, but you’ll NEVER own the car. As long as you’re leasing, you’ll ALWAYS have a payment to think about, plus full-coverage insurance. If your reason for leasing instead of buying is that the payment is lower, maybe you should save up longer for a higher down payment, or else look at less expensive cars.
I think the advice about putting your money into a 401K is great — too many young people don’t take their employers up the money-matching, even though it’s free money! My last employer would match your contributions dollar for dollar up to 6% of your income and I really wish I would have taken them up on that.