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Financial Planning Guide for Newlyweds - Advice for Those Recently Engaged or Married.

Finances are the most commonly cited source of martial stress. 

At a time when you should be enjoying your happiest days together, all too often finances take control of your marriage.

Maybe you are worried about student loans or paying off your credit card debt, or maybe you are wondering whether you are saving enough for retirement, or for a down payment on a house or maybe you are planning to have children and freaking out about how much college is going to cost...

It is a hectic time, but there is a lot you can do today that will help ease frustration later on.

 

Here is a list of a few topics to discuss now, and what to consider when charting your financial future as a couple so that you can ensure you journey is as stress free as possible.

We also offer a solution for you to get started with our financial planning software TODAY, for FREE. Read on to learn how to get started: 

 

Debt

How to Handle Debt as a Newlywed Couple

 

Before getting married, you each should have an understanding of each other’s debts. Not only because it is now (or will be) both your responsibilities to get the debt paid off, but also because understanding your debt levels can impact how you should handle, prioritize and organize your finances in your future together.  

If one partner has significant amounts of debt, it may negatively affect your chances for qualification on new loans or force you to pay a higher interest rate. It may be best to keep the indebted partner’s name off of loan applications until we can repair their credit and get debt under control.

Also, if one partner is faced with a high level of debt, the money in any joint accounts may be subject to creditors if any debt cannot be paid back on time.

On the other hand, if one partner has a very high credit score, establishing joint accounts may help raise the other partner’s score faster. Just be sure a plan is in place to be able to pay off all existing debt.

Setting the priority between paying back different kinds of debt, aggressively saving for retirement or saving for other goals will likely depend on the type of debt, interest rates, your incomes and more. So how do you tackle debt as a newlywed couple?

 

First, consider: What is the type of debt?

As you are creating your initial financial plan as a newly engaged or married couple, you are going to have to decide on the highest priority goals. If getting debt free as a newlywed couple is at the top of your list, you need to do a deep dive into your debts to determine the best payoff plan. Today’s millennial newlyweds are typically faced with several types of debt:

 

Credit Card Debt:

Credit card debt is typically high interest debt that needs to be at the top of your priority list to tackle. Worthwhile options may be available to consolidate or transfer any outstanding balances, and if your partner has exceptional credit, transferring to a joint account may provide you with lower interest rates.

We frequently talk about compounding interest as a powerful force for your financial benefit. But when you have debt, especially high interest debt, compounding interest is working against you.

For example, how long do you think it takes to pay off $10,000 in credit card debt with 13% interest paying $200 per month?

$10,000 divided by $200 leads you to think some time around 50 months, or a little more than 4 years.

But when you apply the compounded effect of the debt's interest into the equation, the reality is that it will take more than 6 years to pay off $10,000 worth of credit card debt paying $200 per month! In this situation you pay nearly $5,000 in interest. 

 

This is why it is so important to tackle high interest debt immediately. For many newlywed couples facing credit card debt, their financial plan's #1 priority will be focusing on high interest debt. 

 

Student Loan Debt:

Student loan debt is typically the largest source of debt for newly engaged or newlywed millennials. But student loan debt often has lower interest rates, flexible payoff terms, have forgiveness options available or have tax deductions. Student loans can be a very complex issue for newlyweds. Options may be available to refinance or consolidate, and large tax liabilities may be in store in the future if any debt is forgiven.

Any financial plan for newlywed couples should include an in depth look at their student loans, the type of loans they have, interest rates and payment options. 

 

Mortgage Debt:

Buying your first home together is a huge accomplishment. But for nearly every couple, buying your first home means signing up for decades of indebtedness. It can be tough to have to look at a balance of hundreds of thousands of dollars, and you may be tempted to aggressively start paying back your mortgage - but is that really your best option for using extra cash? The answer will likely depend on the type of loan you have, the loan interest rate, your income and more. We discuss home buying in more detail near the end of this post.

Financial plans for newlyweds should consider a savings plan to build up a down payment on a home, determine a home price that is affordable and ensure a mortgage loan is in your best interest

 

Next, develop a pay-off plan:

Once you put together your new household budget, it's time to allocate extra income that is left over. Is it best to tackle the highest interest rate first? Should you refinance or transfer high interest rate balances? The answer will likely depend on many factors.

At Hylland Capital we help clients determine their optimal debt payback plan. With our client portal powered by Right Capital, we can simulate different payback strategies to determine the best option for you.

Newlywed Deby Payoff Guide

 

Our Newlywed Planning Package includes debt analysis to help you determine your best course of action in tackling your debt and other savings priorities.

 

Want to get started creating your plan today? We provide readers free access to a portion of our financial planning software so you can start to create a plan today:

 

 

Savings Goals and Priorities

Setting a Savings Plan as a newlywed couple

 

Emergency Fund

Before you aggressively tackle debt, or stash away money for retirement, your priority should be building up cash in case of an emergency. Generally, an amount to cover 3-6 months worth of expenses should be available in an easily accessible account. But the correct amount for you will likely vary based on your employment status, household structure (Only one partner works, sporadic/seasonal employment, children, etc.), household expenses and more.

Why is something as simple as an emergency fund so important?

When an unexpected event inevitably arises, you will be forced to pay up. Maybe your car broke down, maybe a medical issue caused you to miss work, maybe your roof leaked...

And if you are unprepared with an inadequate emergency fund, you will be required to borrow money to cover expenses, likely on a credit card at incredibly high interest rates. Paying $300 per month on a $5,000 credit card balance with a 24% interest rate will take almost 2 years to pay off, and you will pay an extra $1,200 in interest. Money that you set aside as an emergency fund can really help save you money in the long run!

Take a look at your financial picture together. Would your family be prepared to handle an emergency when it arrives? If not, start saving today. 

We help clients determine the appropriate amount to keep on hand in case of an emergency, how to budget to reach your target, and the best type of account to save that money in. With our client portal, you can see your up to date personal balance sheet, savings levels, and more.

You can track your net worth, liquidity, debt, retirement savings and more today, for free, with access to our financial planning software:

 

Lifestyle goals:

What big picture financial goals do you have in common?

No one agrees on everything. But can you agree on what some of your major long term financial goals are? Do you want a special vacation each year? Or would you rather pinch pennies in order to retire early? Do one of you have a dream of opening your own business?

Each of these lifestyles requires a different financial plan. Opening up your own business adds additional risks to your family’s finances, but also greatly increases the amount you are able to contribute to tax advantaged retirement accounts through SEP IRAs and Solo 401(k)s. Early retirement may mean saving in a taxable account with proper asset allocation, vacations may mean budgeting for extra expenses. Whatever you goal, we help clients create a plan to achieve it.

 

"Fun" Savings Goals

You deserve to have some fun too! Talk with your partner about a couple of your bucket list items. Want to travel the world? Climb Mount Everest? Remodel the kitchen? Now is the time to get a plan laid out to start putting money aside so your dreams can become reality.

Break it down to create a simple, easy to follow savings plan. Will it cost $5,000 to go to Europe in a year? That means you should start saving about $415 per month for the next year. Have a long term goal years from now? We may be able to get your savings to earn interest along the way to help you save faster.

It may be as easy as creating a spreadsheet to help determine a monthly savings target, or maybe you want to get a little more aggressive for a long term goal and invest your money to hope for a higher return.  Set bi-weekly, monthly, and annual savings goals to help keep you on track and accountable.

With our interactive financial planning software, we can track a number of financial goals, include their costs into your monthly budget, and evaluate how to best allocate extra savings into your goals. The image above is one look into our interactive financial planning client portal. You can start creating your financial plan for free, find out how:

 

 

Benefits

Evaluating retirement plans and benefits as a newlywed couple

 

Marriage brings up new options and decisions for how to best protect your family and save for your future together.

 

Health Benefits:

Marriage is a “qualified life event”, which allows you to change or add to your health, life, vision and dental insurance outside of the usual open enrollment period. Use this to your advantage. Households can typically save money on health insurance by switching to a family or plus-one plan, and if one partner has better health care options it gives the opportunity for the other partner to gain access to the better plan.

Marriage may also provide an opportunity to switch to a health plan that offers the ability to contribute to a Health Savings Account (HSA). For newlywed millennials in particular, health savings accounts offer incredible tax efficient savings available in no other accounts.

 

Retirement benefits:

Marriage also opens up additional options for retirement savings and benefits for your family. If one partner has poor investment options and little or no company match in a workplace retirement account, it may make sense for the other partner to contribute extra into their workplace retirement account to take advantage of lower fees, better investment options or a better match.

 

The availability of many other retirement related benefits may change once you are married. For example, the annual income limit to contribute to a ROTH IRA for a single person is $134,000 (as of 2017), whereas a married couple’s combined income can be as high as $194,000. Does marriage open up the ability for you and your spouse to contribute to a Roth IRA?

Or the reverse can happen. After getting married, your combined incomes may make you ineligible for ROTH IRAs, or eliminate the ability to get a deduction for your traditional IRA. Marriage may open up your spouse to be eligible for a spousal IRA. What are your best options?

 

 

There are a ton of things to consider when evaluating your new benefits options available after marriage. Our newlywed planning package offers a retirement and benefits review to help ensure you are protected and taking advantage of any available benefits.

 

Life Insurance

Protecting your family's future - deciding on life insurance as a newlywed couple

 

Now that you are married or soon to be married, you are each responsible to ensure that your partner is taken care of should tragedy strike. Some common reasons for needing life insurance as a newlywed:

  • One partner has significantly higher income
  • You have children
  • Large debts (mortgage, student loans, credit/auto, etc.)

 

We take into account your household balance sheet, expenses, partner's income and more to determine an adequate amount of insurance to cover your family.

Hylland Capital Management is a fee-only advisor, meaning we collect no commission from any insurance product we recommend. This ensures that you receive advice that is the best for you - not our bottom line.

 

Children

Save for your child's education and other expenses

 

The next major step for many newlyweds is expanding their family. Are children in your future? Even if children are years away, you can start planning now.

Children require additional money set aside in your budget, may require changes to any heath or life insurance policies, may require you to purchase a larger house or one in preferred school districts.

Then of course there is paying for higher education.

 As the costs of college increases every year, it makes it more and more important to start saving today in order to make college affordable for you and your children. You have many options to save for your children’s college expenses; 529 accounts, UTMAs, Cloverdells and even tax free savings bonds.  Which is best for you?

Then, after you determine how to budget for your new addition and fund future education expenses, there are significant tax implications to consider as well.

You may qualify for thousands in tax credits and deductions for qualifying dependents, or you may be able to deduct child care related expenses.

If your child (or you or your spouse) attend college, you may be eligible for tax credits and deductions from the American Opportunity Credit and Lifetime Learning Credit, or your student loan interest may be deductible.

 

 

Home Ownership

What should newlyweds consider when purchasing a home?

For many, the purchase of their home will be the largest purchase they ever make. In the buying process you will be making decisions that will impact you for decades to come. You will deal with adjustable rate loans, mortgage insurance, 15 or 30 year fixed loans, buying points to lower your interest rate and more choices. Which is best for you? We stand by our clients during the process to ensure you are making the right decision (because we know the mortgage broker won’t be!)

 

And then after you purchase your home, home ownership brings up complication in taxes, budgeting and preparing for unplanned expenses and savings allocation choices (pay down the mortgage faster? Or save that money elsewhere?)

 

 

Budgeting

Creating a Budget as a newlywed couple

 

Creating a new budget as a newlywed couple is the perfect time to “wipe the slate clean” from the budget you may have enjoyed while being single. This is the perfect excuse to go down your old bank or credit card statements to find and eliminate wasteful spending, recurring monthly charges or duplicated expenses between you and your partner.

Where can accounts be consolidated to save money? Hitching up can also usually bring in some efficiencies in your monthly budgets. From small accounts like Netflix and Hulu to larger accounts like cell phone bills, health insurance, auto insurance, housing expenses and more.

 

Sit down together with your list of debts, goals and expenses that you put together going through this article. Determine your combined monthly income and start subtracting necessary expenses and savings.

Get an idea on the total amount of money your household will have to work with each month. Is what's left over suitable to achieve your dreams? Does it allow you enough to save for retirement?

Sitting down and figuring out your monthly budget now will avoid headache later, and make sure that your long term goals are achievable.

 

 

We have ran through a long list of items to consider for a newlywed couple looking to create a financial plan. 

We have created a great platform to serve newlyweds like yourself at Hylland Capital Management. You can get started creating your financial plan right now, even if you are not a Hylland Capital client, available through our client portal and financial planning software. Sign up below to get you and your partner on track for a lifetime of financial success:

 

 

Still have questions or feeling overwhelmed? Don't hesitate to give us a shout