Don’t make these 5 personal finance missteps as newlyweds
A situation that can be very unfamiliar for anyone who is used to handling everything on their own. Since it's a new paradigm. It's often easy to make mistakes if you aren't careful. If you want to make sure you don't, it's wise to learn about common errors people make. That way, you can take steps to avoid those situations. If you aren't sure where to begin. Here are five personal finance missteps as newlyweds you need to avoid.
1. Not making a long-term plan together
Whether you intend to merge your finances or keep them a bit separate, not sitting down together to make a financial plan is a big mistake. In the end, even if you're bank accounts aren't intertwined, a good portion of your financial life likely is connected.
Ideally, you want to have an in-depth conversation about your various joint goals. For example, planning for buying a home, securing your retirement, and even making certain large purchases often need to be discussed. That way, you can both get on the same page about saving for those goals and the overall timeline.
2. Skipping out on creating a budget
While some newlyweds may feel financially flush, making them believe that a formal budget is unnecessary, skipping out on creating a budget isn't a good idea. At a minimum, it ensures you both fully understand your new household's expenses. Plus, it allows you to determine how much you can save toward various goals or if you can direct any extra toward high-interest debts.
If your household is a bit crash-strapped, a budget is often a necessity. It gives you a plan for handling your obligations, making it easier to properly allocate income to high-priority expenses and debt.
Ultimately, a simple budget allows you to track where your money is going, as well as identify opportunities that can better your financial situation. Even if you just create something simple on a spreadsheet or in a budgeting app, that can make help you stay on target.
3. Assuming your debt doesn't matter
Another issue some newlyweds have is assuming that they have plenty of time to tackle their debts. The problem with that mindset is that life can change quickly, and having debts hanging over your head can suddenly become a big issue, even if it wasn't before.
For example, if you end up having a child, your financial life will change in a significant way almost overnight. If you don't handle your debts before you have kids, you may suddenly find yourself struggling, a situation that wouldn't have occurred if you tackled your debt earlier.
In many cases, couples have more disposable income when they are newlyweds than later in their lives, particularly if they plan on having children. That's why paying off high-interest debt needs to be a priority, ensuring you are setting yourself up for long-term success.
4. Not having an emergency fund
An emergency fund gives you a financial safety net, allowing you to navigate an unexpected hardship with greater ease. At some point, something you don't anticipate is bound to occur. Whether it's a sudden illness, layoff, car issue or anything else, many of the things that can happen come with large price tags. If you don't have an emergency fund, you may have no way to cover the cost, giving you no choice but to turn to debt.
Ideally, you want to start by getting at least $1,000 in the bank. After that, working your way up to three months of living expenses – then six months' worth – is a smart move. That way, you have a solid cushion against the unexpected, ensuring you can handle a financial emergency when one arises.
5. Handing over the finances to one person
While giving one spouse full reign over the household's finances may seem like it simplifies matters, it's never smart for anyone to be in the dark. This can create an odd imbalance in the relationship, as well as cause one partner to lack insight into the household's situation in a way that could be detrimental.
For example, this could create an opportunity for the spouse who has control over the money to make financial decisions without consulting their partner. Since their activities will remain unseen, they may make choices that they wouldn't if their spouse was fully aware.
On the other side, an uninformed spouse might make spending mistakes, not knowing their choice would be a problem. This is especially true if the household isn't in good financial shape, but the uninformed spouse has been led to believe that everything is fine.
Full visibility to avoid personal finance missteps as newlyweds
Even if one spouse handles most of the nitty-gritty, both spouses need to be involved and have full visibility into the household's finances. That way, everyone remains fully informed, making it easier to navigate joint decisions and stay on target with the budget.
This article was written by Tamila McDonald from Newlyweds on a Budget and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to email@example.com.