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Top 7 Financial Tips for Newlyweds





After a popular post about the financial disaster called divorce a little while ago, I thought I would chime in with my thoughts on how to get ahead after tying the knot.  The tips below are applicable to not only newlyweds, but any family.

1. Before getting married, open your communications regarding money.

Figure out your spouses spending and saving philosophies along with long term financial goals. Make sure that you’re both on the same page or at least have similar views. In addition, all debts should be laid out on the table. As I’ve written about before, one of the leading causes of divorce in North America is money and financial infidelity.

2. Live below your means.

This doesn’t just apply to newlyweds, but to just about everyone. The only sure-fire way to get ahead financially and build wealth is to live below your means.  Building a healthy savings can be used to build a down payment fund, contribute to RRSPs, or build other assets.

3. Plan and set your goals together as a team.

As marriage is serious business, money within the family should be planned as a family. Any debt held by a spouse should be considered as family debt and paid down accordingly. Other goals such as buying a house, retirement and vacations should be planned together as a team.

4. Arrange your affairs in a tax efficient matter.

If you’re at the stage of opening a non-registered account, for tax attribution purposes, the high income spouse should pay all the bills while the lower income spouse invests his/her money. Some may have a problem with having separate bank accounts. A solution for this is to have a common bank account for shared expenses, and separate bank accounts for investing and personal spending.

5. Have regular “financial” family meetings.

This is one of the steps that ensure proper communication about money. Once a month or so (or whatever is convenient), have a family sit down to discuss financial matters, goals, large upcoming expenses and saving strategies.

6. If you have dependents, get disability/life insurance, a will and an estate plan!

Dependents are those who “depend” on the breadwinners income to live. It could be you, your spouse or your young children.  Income should be “insured” in the case of long term disability and death.  Note that insurance is not a “get rich” benefit, but a lifestyle protection benefit.

For long term disability, I would personally choose a “own occupation” disability insurance rather than a “any” occupation insurance.  In the case that you are disabled, this will allow you to collect benefits providing that your injury prevents you from doing your “own” job rather than “any” job.  If you’re interested, here is an article detailing disability insurance.

For life insurance, term life should sufficient for most.  This will provide fairly economical coverage in the case of the death of the main breadwinner in family.  Don’t know how much coverage to get?  Check out my calculations for an example of how much term life insurance we needed.

Even though death planning seems far away, you never know what can happen.  Check out my article on why you need a will and an estate plan for more details.

7. Read and follow the book “Smart Couples Finish Rich.”

David Bach has some great information on how to plan family financial affairs.  If you want a great start in your marriage, read and follow what’s recommended in the book.  Make sure to read the ‘Values’ chapter carefully as I feel that it’s among the most important.

What tips do you have for newlyweds?

Note: In respect for Remembrance/Vetarans Day, there will be no post tomorrow (November 11, 2008). See you all on Wednesday!





28 Comments, Comment or Ping

  1. 1. Stephen

    Quite a few mistakes in this post. Read through it again and you should be able to spot at least 3 (pay attention to the title) :)

  2. One of the largest reasons cited behind people getting a divorce is financial problems.. Maybe dating sites should compare people’s financial compatibility as well in their search for the true love ..:-)

  3. It being, y’know, 2008 I think this is more appropriate advice for people about to move in together. Does anyone not do these things while living together, but get on the road to damascus before getting hitched?

    You couldn’t pay me enough to read another Bach book though!

  4. 4. Sam Li

    I would agree with pretty much everything in this post. Though, I think it still coming down to the relationship established between spouses. Hiding debt from the spouse? – You have bigger problem than debt. You have trust problem in your family. Strong long lasting families are built on trust, compromise understanding in other words open sincere relationship. My suggestion is ask you self first before you marry the person would you trust your life to him/her? The rest you can work out, together as a family , as a team.

  5. 5. Ben

    Hmmmm….I count 7 tips? LOL

  6. Who’s in charge of quality control around here?

    LOL, I must have been half asleep when I wrote this post. I will fix the errors.

  7. 7. Steve

    I’m single and using eHarmony to find that someone special. I always ask up front how my match feels about debt. A lot either don’t think about it or don’t know how much debt they have. What’s funny is that my matches are supposed to be financially responsible.

  8. 8. Jeff

    I have a question….. How much are we (the guys) supposed to spend on a ring these days?

    I know, the price shouldn’t matter etc etc.
    But in the end, I’m still trying to figure out a budget.

  9. 9. cannon_fodder

    Jeff,

    That depends. It was a DeBoer’s marketing campaign that came up with the 3 months salary metric. Hardly a conflict of interest there, huh?

    I ended up buying a good quality, loose diamond and had the ring custom made. I think that, more than the cost or the size, meant the most to my wife.

    There are a lot of poor quality diamonds out there. Go to pricescope.com and get yourself educated. You can even buy the diamonds there, too (and there was a Canadian company when I purchased years ago).

  10. My now-husband spent about 600 bucks Jeff, which needless to say was well south of 3 months salary. I don’t like, and didn’t want, diamonds. I think it’s more about the woman and, well, how much money you have available than as cannon_fodder says the De Beers “standard”. It’s not very romantic, but I’d suggest talking it out, especially if your money and/or financial goals are already combined. I would have been touched by any gift, of course, but honestly would have been somewhat upset if my man had gone out and spent a fortune. Let alone a fortune on something that wasn’t to my taste!

  11. Good tips, FT. On #4, if you’re setting up RRSPs you may want to do the opposite- have the higher income earner purchase RRSPs to maximize tax savings. I’d also push for getting a pre-nup/marriage contract, but we’ll save that debate for another day.

    Jeff, my best advice is to not get carried away. Three months’ salary seems pretty excessive to me, even though that’s what the dealers will push. When you’re caught up in the excitement of getting engaged, it’s very easy to place a greater emphasis on the ring that you really ought to. While the initial “wow” factor of a big diamond is appealing, in a short time it will mean nothing. If your fiancee is the type that needs a big diamond to feel loved or to impress her friends, maybe you need a different woman, not a different diamond. :) Cannon_fodder’s advice is great- get educated and check out independent suppliers of loose diamonds for some savings. However, make sure you get an independent GIA appraisal to ensure that you’re actually getting what you paid for.

  12. 12. Novice

    Re: Live below your means.

    Wow is that tough for my wife and I (married Sept 2005) to do. Not because we’re extravagent, eat out all the time, or live in a huge house. We do have a small but pricey house (I think housing eats up 28% of our gross income, higher than some here but lower than the 33% max recommended and its in our dream neighbourhood) in Toronto but that’s not what’s hurting us: our 15 month baby boy is. From paying out of savings (not line of credit) to cover my wife’s maternity leave since her EI was pathetic to paying 20% of our total monthly income now to daycare to buying clothes (used) that fit for a week, it’s really hard to live below your means while still contributing to rrsp and resp (in that order), you know? Anyone else with kids feeling the pinch like we are?

  13. 13. Nate

    My wedding cost me less than 3 months salary. Spending that much on a ring is nuts.

    But if jewelry is THAT important to your fiance, go nuts. I probably wouldn’t have married a girl that wanted to waste (opinion only) several thousands of dollars on a ring.

    Living below your means has come easy for us. We’re spending less than 10% of our income renting an apartment right now and share a vehicle.

    However, once kids are in the picture and we need to buy a home, things will be difficult. Housing doesn’t come cheap out west and when you want to maximize your RSP/TFSA contributions every year, $350k starter homes are a troubling future.

  14. 14. nobleea

    3 months salary is ridiculous for a ring. i don’t think i was even close to 1 month salary, maybe a couple weeks. a year later, i feel i should have spent a little less and got the same effect (gone with white gold instead of platinum for example).

    mind you, i did spend a lot of money on the engagement itself (a surprise trip to paris) and have no guilt about doing so.
    how you propose is far more important than what you propose with. i’ve had to retell the engagement story hundreds of times, even on TV.

    i used bluenile.ca and was impressed with their prices and speed.

  15. I spent $170 on an engagement ring (and she said yes).

    Think of it this way – for $5k (or whatever) you can buy a nice ring and the two of you can sit around and look at it. Or, you can spend $500 (or less) on a token ring and then $4500 on a really nice trip for 2 somewhere….which is more romantic?

  16. 16. Gates VP

    Hey Nate;

    However, once kids are in the picture and we need to buy a home, things will be difficult. Housing doesn’t come cheap out west and when you want to maximize your RSP/TFSA contributions every year, $350k starter homes are a troubling future.

    If it’s any consolation you can raise a kid in 2-bedroom apartment for several years. They also have 3-bedroom apartments and lots of families the world over raise kids out of apartment-style complexes (rather than homes).

    Of course, if you’re socking away 20%+ of your income (RRSP + TFSA), then I don’t know that you really need to worry about owning your home, especially in a market with 350k starters

  17. 17. Mike

    My tip is to capitalize on the fact that two people can live together for less than twice what you had been paying to live apart. This is obviously do to the fact that many expenses can be shared. So once you’re married, and assuming you both continue working, you can maintain your standard of living and save/invest all of the excess income.

  18. I agree with all of them except #2 ;-)
    It’s fun to spend money once in a while ;-)

    Seriously, We have a joint account since we are 19 (we are 27-28 now). I thought it was easier back then to manage our finance as a team instead of separately and we still do it today.

    I agree with Four Pillars, the cost of the ring doesn’t matter (and you can go far with a 4,5K trip :-D)

  19. 19. Scott

    Cost of ring vs. ???: all depends on your situation. Our situation was that we were living common-law for years without a ring (really, what is the purpose of a ring anyway!?!). Wife landed a job at a high-end jewelry store (think ‘blue’) for a while so it was then that we took advantage of her employee discount. We got a $10K ring for around $7K.

    Yup, it was a lot and still is an outrageous amount for me too! But…here’s the kicker, we can go back to the store at any time (she no longer works there) and trade up using the original RETAIL value of the ring! This is especially great right now because the ring is platinum (if you think your RRSP’s have plummeted, check out the prices of platinum!).

    Not only do we have $3K in “extra” value to use, but the retail price of the trade-up ring gone down in value. A small cure for my large sticker shock! Gaining ‘more for less’, in this situation, wouldn’t have been possible if we had spent the money on a consumable good (i.e. vacation). We both win in this situation — she gets a bigger ring, I get more for my money!

    It’s kind of crazy how many of these types of arbitrage situations are out there in all kinds of industries. You just have to do research (or be an insider).

  20. Everything boils down to: Living below your means. This is the best financial advice and the one that his the hardest to follow for most people, these are the same people who can’t figure out why they have no money.

  21. 21. Novice

    @ 20 – hey MG – I understand what your’e saying but while I find it easy to live below my means, it doesn’t mean that my son’s daycare isn’t ridiculously expensive and its hard to make him live below his means – and I’m a dad who has never (I mean never) bought my son a toy (all gifts, handmedowns). I know we could move hundreds of miles away from our family and live cheaper but then my wife and I would be giving up well paying careers that we just can’t “put on hold” for 10 years. (A teacher probably can, but in the corporate world a 10 year gap is a hard thing to explain in a resume). Daycare in Ontario is our oppressive cost – I know why we have no money.

  22. 22. Carl

    Hey Frugal,

    Errors or not, it’s a great post. I especially like Number Three. I think your readers will enjoy the relationship advice section at http://www.financialtales.com , specifically, “A Tale of Teamwork.”

    I also recommend reading “Rich Dad Poor Dad.”

  23. 23. Craig

    Great tips. I’m not at that point in my life yet but it’s nice to know that this is something to think about and clearly its a big issue that others deal with.

    Craig

  24. Very, very good information. Thank you for this post. I just forwarded it to my wife.

  25. 25. Scott

    Great article.

    One tip I would add is to develop financial trust with your soon-to-be spouse. While you can and should do a lot of the planning together, you have to trust that your spouse will make sound decisions.

    Being the more financially minded partner, I had trouble trusting my spouse and her spending decisions. This led to a multitude of confrontations and the beginning stages of bitterness. It wasn’t until I learned to trust her decisions that we broke the pattern and came to financial agreement.

  26. You really do need to plan and set your goals together. Work as a team. Listen to each other and trust each other. Both should learn to compromise and do what would be beneficial to both parties. The focus of your plans and goals shouldn’t be “i” but rather “us”.

  27. 27. Clf

    “4. Arrange your affairs in a tax efficient matter.” – Hmmm. that is the whole reason why I got divorced in the first place – I didn’t arrange my affairs in an efficient manner – I got caught!!!

    Just kidding – my divorce bankrupt me completely and utterly. I have it all to my ex and our daughter. Started over all together.

  28. 28. krist

    I think the most important thing you can do as a newlywed couple is have a shared vision for what your goals are. If one person wants to live in a $3M house – and is willing to work like hell to get there – while the other person wants a stress-free life and would be happy in a $150k home and really only cares about having enough time with their family and friends, this could cause a serious problem.

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