Four Big Mistakes Newlyweds Make with Their Finances
Full disclosure: I’m not yet a newlywed myself, though I am getting married in October. I’ve been working as a financial adviser for over a decade, and in that time I have had dozens of clients get married, have kids, get divorced, and even get remarried.
One big source of stress for many newlyweds is the household finances. After years of being single, getting married can make money matters suddenly seem more complicated. Here are some of the financial issues I’ve seen pop up, both with my clients and in my own personal life.
Failing to Communicate
In my experience, the biggest issue facing newlyweds is simply a failure to communicate. This can include big things like living arrangements or making a major purchase, or little things like splitting bills or choosing to make or buy lunch. Sometimes, there is one person in the relationship who manages all the finances, and the other person is left in the dark, perhaps because they choose not to be a part of it. This lack of communication starts small, but it can grow to take on monstrous proportions. It is heartbreaking when it’s discovered 20 years later that the spouse who was trusted to manage the retirement planning never made a single contribution to a 401(k) plan. Even if one spouse is in charge of the finances, the other should be reviewing the statements and understanding the family’s current status on a regular basis.
Having Different Emotional Connections to Money
Money holds emotional power, and attitudes towards money are tied very closely to a person’s sense of self-worth, social status, and family background. People get emotionally invested in discussions about paying for college, for example.
When working with clients, I often put spouses in different rooms and have them answer a questionnaire on how they feel about certain aspects of money. Then I explore with the couple how their attitudes about money are in alignment or in conflict. Financial planning isn’t just about investment strategies, portfolio rebalancing, or insurance. It also needs to support a couple’s personal, professional and emotional life goals. If the couple isn’t aligned in their feelings about money, it will be difficult to create a long term financial plan of any value to them.
Failing to Keep Organized
I find many newlyweds aren’t organized about their finances. They don’t balance their checkbooks, or keep a record of what they’ve spent. They’re not sure how much insurance they or their spouse might have, or if they have disability insurance. Maybe they’ve started a 401(k) at work, but they’re not sure about the balance, how much they are saving each month, what they should be saving, or where the latest quarterly statement is.
This leads to a lot of confusion about where they are in their financial journey and what they need to do to achieve their goals. Are they on track for buying a house? Are they saving enough for retirement? Who knows! Even worse, there may be some bad surprises lurking in all that confusion: Taxes that weren’t paid, school loans in default, or beneficiary designations that weren’t changed when they got married.
Failing to Follow Through on Priorities
People get scared when I tell them they should be following a budget. But, as the planning process helps determine their financial priorities, it only makes sense to execute on those priorities. Budgets transform long-term priorities into near-term action.
Budgets help people visualize how their money is being spent, ensuring it is going to the right things. Many times this involves curtailing spending in some areas so they can tackle problems in another, such as debt, or saving for buying a house. Knowing their financial priorities helps them understand which financial issues need to be tackled first. Having and sticking to a budget reflects that they are living in alignment with their priorities.
Looking Forward to My Own Wedding
I would be lying if I said I’m not feeling anxious about my upcoming wedding, but I’m not feeling nervous about the big bills associated with it. We’ve been saving for a while, and we’ve talked about our priorities and made trade-offs to keep in line with our budget. It’s been a few years in the making.
I’m more anxious about how people are going to get to and from the venue, whether the limo is going to be on time, if people are going to enjoy the food, and if the music is going to be good. But, in terms of paying for the wedding, and even going forward with my future wife, I think my fiancé and I are on the same page financially. We’ve talked about where we’re going to live, her career plans, and our spending priorities. Things always change, but good communication ensures that we’re starting off on the right foot.