money mistakes

7 Newlywed Money Mistakes

by mike on August 17, 2009

It’s hot outside, baseball season is upon us, and the kids are no longer in school.  Yes, it’s summertime and that also means it’s wedding season.  We spend so much time (and money) planning for the Big Day, that sometimes we forget to put much time and effort into planning every day after that (and I don’t just mean the honeymoon).   Below are seven mistakes newlyweds (and even some of us who have been married much longer) often make when beginning their financial lives together.

1.     Never do a budget or cash flow plan.

This is by far the most common problem newlyweds encounter.  It is vitally important for couples to spend their money on paper before the month begins.  Chances are, hundreds of thousands of dollars will be going through your household over the next five to ten years.  Without a plan, too much of that money will just “disappear” with you left wondering where it all went.  I will get into detail in a later article about the best way to do a budget, but the important point is that both husband and wife have a plan for the money together.  It is amazing how you will find ways to save when doing a budget.

2.     Keep your finances separate.

When the preacher says “now you are one”, he means it.  To truly have harmony and unity in your marriage, you must treat your household as a single unit working toward the same goals (more on goals below).  A marriage is not just a business arrangement that can be cancelled later, it is a true blending of lives together.  It is impossible to have that shared life together if husband and wife live their lives as if they never got married.  I suggest having one joint checking account and one joint savings account, no “his” and “hers”.  This same principle applies to income.  If you start viewing it as “I contribute more to this marriage financially (because I make more money), so I get more say as to how we spend money”, that is going to lead down a road of marital disaster.  It is now our money.

3.     Never discuss goals and priorities.

Newlyweds must discuss their financial goals and priorities.  Unfortunately many people never discuss these things during engagement.  For example, it is vitally important to know what is more important to your spouse: having a two-income household or a stay at home mom.  Is investing for retirement a priority or getting a new speed boat more important?  As you agree on and work out money decisions, you agree on and work out your dreams and the priorities in your life.  One thing I suggest is for newlyweds to do your monthly budget using only one income.  You can use the second income to save up for a down payment on a house or some other big purchase.  The idea is that you get used to living on one income and make all of your money decisions based on one income.  That way, when you have kids, you have the option of having mom at home and you won’t even notice a difference in your budget.

4.     Let one person “handle” the finances.

I can’t tell you how many times I have met with clients that either the husband or wife had no idea what was going on with the finances.  This is not fair to both parties involved.  One problem is it is a lot of pressure for the one doing it all.  The problem for the spouse who doesn’t have a clue is that they don’t have a clue.  Both spouses need to have a say in the finances and know what is happening monthly with the money.  Now, I realize that one spouse is usually more geared toward working with numbers and likes all the details where the other spouse immediately glazes over when the word budget is even mentioned.  The naturally gifted budgeter can work with the numbers, but both should sit down monthly (at a minimum) and go over the finances.

5.      “But we have to have that!”

The biggest problem of all for newlyweds is debt.  Debt is usually accumulated in the first few years of marriage by trying to attain the same lifestyle as their parents.  Newlyweds often forget however that it took their parents decades to reach where they are financially.  We’ve all heard the stories from parents and grandparents about living on nothing, eating bread off of a card table, and sleeping on just a mattress.  We all must learn to be content with what we do have and that is especially hard for newlyweds.  For a spouse or couple whose parents live a nice, comfortable lifestyle, the natural tendency is to want that same comfortable lifestyle immediately.  For a spouse or couple whose parents have always struggled and live in poverty, sometimes it is easy to have the attitude “we’re not going to live like that” and buy nice things since you never had them before.  The point here is to live on less than you make and only buy things you have money for.  Although you may be thinking “oh, that’s brilliant; it takes an expert to come up with that”, unfortunately most Americans have a pile of debt that can only come from living above their means.

6.     Car fever.

This is a major sickness that plagues many newly married couples.  Most of us don’t drive the best car in the world when we are in college or shortly thereafter.  It’s easy to get the mentality: “I deserve a better car because I have driven this terrible car for so long”.  I can see some of you smiling right now as you read this because that is exactly what you did!  This is not the best attitude to have, however.  You do not deserve to get yourself into debt with a car you cannot afford.  Two rules of thumb: first, save up for a car and pay cash for it; second, your vehicles (which includes boats, ATVs, etc) should not add up to more than half of your annual income.  For example, if your annual household income is $40,000, then your vehicles should not add up to more than $20,000.  So, you could afford two $10,000 cars or one $14,000 and one $6,000 car.  You get the idea.  Now, remember what I suggested earlier, you really should use only one of your incomes to calculate this in case one of you stays home with the kids later.

7.     House Fever.

This one really hits “home” with me (pardon the pun).  Mandy and I definitely fell into this trap.  We had a really nice apartment during our first year of marriage.  Nearly the end of the first year we started to believe the myth that we just had to own a house.  Interest rates were great, there were a lot of houses on the market, and we happened to stumble upon the “perfect” house.  It really was a nice house .  Now, there are also two rules of thumb for buying a house as well: first, you need to be able to put 20% down to avoid PMI insurance; second, the payment should not exceed 25% of your take home pay.  Well, we didn’t have the first one covered, but the second one we did.  The problem came when our daughter was born and Mandy stayed home with her.  With only one income, our house payment was more than 25% of our income.  It wasn’t killing us, but it kept us from really going after our savings goals for retirement and kids’ college.  So, we ended up selling our house and moving to a less expensive one.  The lesson we learned was to think about the future and only make big purchase decisions counting on one income.

Now, I realize there are many more mistakes we make as newlyweds both with money and without.  These are just a list of the seven most common.   You can certainly use these same principles even if you’ve been married for thirty years.  Newlyweds, though , can really avoid major struggles in the future if they can start their marriage on the right foot financially.  So, let’s toast to many, many years of marital bliss.

Photo Source: EricMagnuson

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