Whether you and your spouse are newlyweds or approaching a silver anniversary, how you manage savings, retirement, and other personal financial issues is critical for both your family finances and your marriage overall.
Here are five tips that will help couples build healthy habits and create a foundation of financial strength for their families that will last long into the future.
1. Be open to discussing money with your spouse.
Bob and Nora Uricchio have been married for 25 years. Together they have raised two children, bought a home, and — through hard work and smart decisions — lived a life of relative financial stability. Like most couples, they have had their ups and downs, and they understand how difficult it can be to manage finances with your partner.
“Communicating about money is probably one of the hardest things because everyone has different ideas of how to spend money,” Nora says. “Often each person has different expectations and priorities. It is vital to discuss what is important to each person to make sure that each person’s needs are being met.”
Simply said: Talk to your spouse about money. When two become one, it is no longer “my money” or “your money.” Instead it’s “our money,” and decisions should be made together as a team.
2. Create a budget.
If you and your spouse are serious about saving and spending money properly, then having a budget is essential. Over the years, this proved to be an effective strategy for the Uricchios, who were able to save by paying close attention to their spending — and having a plan.
“We learned to resolve financial challenges by having a budget and reassessing that budget often when circumstances change,” Bob says.
Phil Lenahan, a financial expert and author of 7 Steps to Becoming Financially Free: A Catholic Guide to Managing Your Money (Our Sunday Visitor, 2006), also stresses the importance of having a written budget.
“You need to analyze your spending patterns and then create an overall plan that will allow you to reach your financial goals,” he says.
He compares creating a budget to planning a vacation; most of us spend hours researching various components of a vacation to make it a success. So how do you expect your finances to be a success if you don’t evaluate your spending and make a plan?
3. Do not neglect your taxes.
For the engaged or newly married, there are several issues to consider regarding taxes. Randy Gudauskas, a tax and accounting professional for more than 25 years, says the first consideration is knowing what to do if you decide to take your spouse’s name. This can be confusing, especially if your name change is near tax season.
“If you decide to change your name,” Gudauskas says, “you must officially change your name with the Social Security Administration prior to using your new name on your tax return.”
If the name on file with the SSA does not match the name on your tax return, the Internal Revenue Service will not accept your tax return. You must also report your name and/or address change to your employer; that way you can make sure you receive your W2 form on time.
Next, Gudauskas warns couples to be wary of the marriage tax penalty. This is the difference between what you pay in taxes as a married couple versus what you would pay as two single people.
“In most cases, if you and your new spouse have very different incomes (such as one spouse does not work), then you will not be affected by the penalty,” he says. “But if you have similar incomes, especially if they are higher incomes, you may end up paying more in taxes.”
Gudauskas highly recommends discussing this with a tax accountant early in the year. That way, if you are affected by this penalty, there should be plenty of time to plan accordingly.
Lastly, Gudauskas advises newlyweds to take a look at their eligible deductions.
“If you did not qualify to itemize deductions before you were married, that might have changed,” he says.
Gudauskas explains that you may find it more beneficial to itemize your deductions instead of taking the standard deductions on your tax return. He stresses that these are just a few of the common tax issues newlyweds should discuss. It’s beneficial to consult with a tax accountant about your new situation, thus guaranteeing a smooth transition into married life.
4. Think of your savings as an expense.
When it comes to your personal finances, it is essential to have reserve funds so you are prepared for the unexpected.
“Reserve funds are just for those things that go beyond the annual budget,” Lenahan says.
These expenses include illness, car repairs, home repairs, and other items that may come up that were not anticipated when making your budget.
“The biggest misconception that I see is that there is no money to save,” Lenahan says. “You just haven’t done the legwork you need in laying out a plan.”
To make sure savings are set aside, Lenahan treats savings just as he would any other major expense that a person might have, such as taxes or insurance. If you treat savings as a priority expense and then build a budget off the remainder, you will find that saving money is not nearly as difficult.
5. Keep your debt productive.
Lenahan says that there are two basic kinds of debt: productive debt and unproductive debt.
Couples should avoid unproductive debt. This, Lenahan says, “is purchasing or using debt to pay for everyday expenses or to purchase depreciating assets.” Credit cards are a great example of this. There is no problem with using a credit card if it is used as a payment method for budgeted items and the balance of the card is being paid off every month. However, according to Lenahan, if you’re rolling over a balance every month and paying high interest rates on that balance, you are accumulating unproductive debt.
Another example that Lenahan gives is buying a car.
“What happens to the value of a car when you leave the lot? It depreciates by some 10 to 15 percent,” he says.
Therefore, Lenahan doesn’t think it makes sense to borrow money to buy a car. Instead, the money used to buy a car should come from your reserve funds.
Productive debt, on the other hand, is debt prudently used to purchase an appreciating asset or an income-producing asset. Examples of this include investing in land, real estate, or home improvements.
Although some debt is productive, Lenahan points to Scripture to give warning of the dangers of debt: “The rich rule over the poor, and the borrower is the slave of the lender” (Proverbs 22:7).Though debt is not inherently wrong, it should be used prudently and cautiously.
If you are smart with your finances and keep these tips in mind, you can help ensure that money is rarely a cause for stress or anxiety. Instead it will be one more tool to achieve your goals as a couple.