Financial tips for newlyweds
Ah, summer. It's often a time of major life changes for young adults: graduating, starting new jobs, getting married. A recent column by Maureen Dowd about finding a good husband reminded me that finances, or at least discussing them, should be an important part of preparing for this kind of milestone.
Here's a quote from Dowd's expert, a Catholic priest and marriage counselor:
“Does he use money responsibly? Is he stingy? Most marriages that founder do so because of money — she’s thrifty, he’s on his 10th credit card.
This thought was reinforced by a recent Marketplace segment on financial infidelity, where one spouse spent lots more than the other, and hid the bills (and the creditors' demands) from their better halves:
"... Some credit counselors who are reporting that in the last few months they've noticed an uptick in calls from one half of a couple. The caller asks the counselor to send all the forms to, say, their mom's house or their personal email account. "
The folks at lowcards.com have some tips for the newly married or soon-to-be-married. These include:
1. Before you ever say "I do," be honest with each other about the debt you are bringing into the marriage. At least one of you will probably have credit card loans or a student loan. One of your first priorities as a couple should be to pay down your debt. Your debt should be less than 35% of your income.
Write down all of your loans, the date due, interest rates, and minimum payments. This should include credit card debt, auto loans, student debt, wedding/honeymoon debt, mortgage, family loans, etc. Then create a plan to pay off each bill. If it is overwhelming, start by paying off the loan with the highest interest rate. Pay that, then move on to the loan with the next highest rate. (This technique is called snowballing, and Eileen told us more about it yesterday.)
2. Before your union begins, make the commitment to avoid credit card debt. If you can't pay for the item with cash, you can't afford to pay for it with a credit card either. Do not use a credit card to finance your honeymoon, furniture, home remodeling, trips, or your entertainment. A mortgage or auto loan is the only new debt you should consider.
3. Talk about finances. You will be financially tied together and you can build a nest egg together, but you must share financial goals. If one of you is a saver or a spender, admit that and create a budget that allows for spending and saving. (See examples above)
4. Get a copy of your credit reports and credit score. This will show all accounts that are open, where you stand in the opinion of creditors and what you can expect from loan offers. Aim for a FICO score of over 760 to get the lowest interest rates.
5. It is important to build a good credit history for both partners. Put major purchases, loans and savings accounts in both your names.
6. If you can't afford to pay with cash, avoid the urge to make major purchases immediately after your marriage. Each new loan including a home mortgage, financing new furniture, opening new credit cards, auto loans, etc. is reported on your credit report. Too many loan applications at once will be a red flag to creditors and could lower your credit score and increase the interest rates that you pay.
Married and cohabitating folks, I'd love to hear how you make the financial decisions in your households. What lessons do you now know about money that you wish you knew way back when, before you joined your hands --- and your credit histories --- in matrimony?
Comments
Both of us were financially well established independently before we were married. We've continued that strategy for financial matters that pertain only to one of us (loans, credit cards, certain purchases). However, we split all joint household expenses 50/50. Most of these expenses (utilities) are billed to my wife (since I moved into her house after we married) and I keep track of any joint household expenses that I spend. Then we compare total joint expenditures at the end of each month and whoever spent more $ pays the other the difference.
Combining insurance policies (car, homeowners, etc.) has also proved to be beneficial. We're also listed on each other's medical insurance policies just in case one of us gets laid off.
If both members of the happy couple are homeowners, one of them will likely either be selling or renting out their home after the big day (or after cohabitation). In our case, I was able to sell my house and generate enough profit to buy "half" of my wife's house (half the appraised value at the time). This paid off the mortgage on our house, gave my wife additional money, and we adjusted the deed such that each of us now owns 50% of the house. Depending on your situation, you might be able to work out something similar. At a minimum, renting out your "old" house for more than the monthly mortgage payments generates additional money that you can use to help reduce expenses.
Bob, that is excellent advice --- especially about renting your former home! --- lfk.
Posted by: bob | July 11, 2008 1:07 PM