13 Tips from Financial Planners
Let professionals show you how to save money.
1. Work Out Goals
Work together on a list of your financial goals for the first year. Put the list aside and take it out later in the year if differences erupt. Don't underestimate the power of the written word!
2. Save for Tomorrow
Newlyweds often neglect long-term investments, such as an IRA, because they're overwhelmed by short-term needs (a bedroom set, new tires, debt). Don't fall into that trap -- saving can be easy. Obviously, the sooner you start saving, the more you'll have in the end. You'll make interest on prior interest earned. Therefore, your money is actually making more money for you as the years go by. You might be surprised how drastic a difference 10 years of saving can make. Here's an example: A person saving $5,000 a year (earning 10-percent compound interest) for 25 years will make $500,000. While a person saving the same amount of money (a total of $125,000) over 15 years will only make $264,000!
3. Keep a Reverse Budget
Budgets are a great way to track your cash flow, but a lot of people get frustrated and quit. Try a reverse budget instead. If your goal is to save $500 a month, make it automatic. Have the bank automatically take $250 out of each of your bimonthly paychecks and transfer it to a money market account. This allows you to satisfy your priorities first -- and use the rest of your money to live on.
4. Log Your Credit Cards
Carry your checkbook register with you, and when you charge an item on your credit card, mark it down in the checkbook and delete the purchase from your balance (use an "A" for American Express instead of a check number). When you get the Amex statement, double-check that all of your charges coordinate with your log and write a check to pay the bill (but there's no need to subtract it from the balance -- you've already accounted for that money). Instead of charging things blindly, you'll see the money subtracted right from your funds, and hopefully you'll stop buying before the balance is at zero.
5. Pay Next Month's Bills
Make a list of all of your recurring fixed monthly bills (loans, utilities, mortgage, rent) and, at the start of the month, write out a check to pay each one. Don't send them in until they're due, but still deduct them from your balance. This will give you a clear idea of how much money you have left to save and spend.
6. Plan for Splurges
That monthly cell phone bill is a standard expense, but flying to your cousin's wedding wasn't in your budget. Once a month, have a financial review with your mate (it may not be as romantic as dinner and a movie, but it's just as necessary). Review your finances from the previous month and look to see if any unusual payments might be on the horizon -- like recurring bills that aren't monthly (auto insurance) or discretionary expenses like a baby shower gift, a weekend getaway, or a new vacuum to replace the one that conked out. Work all of these expenses into your budget so nothing takes you by surprise.
7. Prioritize Debt
If you receive a huge lump of money -- no, not from the sky, but from a wedding gift or annual bonus -- and are debating what to put it toward, here's the priority list: 1) credit card debt, 2) investments, and 3) school loans. The reason school loans come last is that they usually have a decent interest rate, provide tax benefits, and aren't held against you on your credit report (unlike credit card debt).
8. Know Your Funds
Don't buy too many mutual funds: Two or three are fine. Since they're already diversified, you risk overlapping investments -- so if a repeated stock tanks, it affects more than just one pot of money. Go to morningstar.com and run your funds through the Portfolio X-ray to see if any of them cover common ground.
9. Go Foreign
Make sure your investments are not underweight in foreign equities. If you buy world funds, they're usually comprised of 60 percent domestic and 40 percent foreign. You might be in position for an overlap. An international fund has a higher percentage of foreign investments, which can potentially fare better than the ones at home (think of the many upwardly mobile economies all over the world).
10. Rev up for Retirement
Put something toward your 401(k), even if you're in debt or struggling to save money. These are crucial years to be saving for that Golden Girls lifestyle. If your company has a match program (usually six percent), try to add the entire amount. If you both can't swing it, consider each putting 3 percent into your programs. Either way, stretch your budgets to squeeze something into this investment. But don't max out if you're saving for a home or other investments.
11. Choose Insurance Wisely
Health insurance is a no-brainer: You need it. But now that you've merged lives, you can save moola if you merge health plans too. Review the plans offered by each of your employers and see if it's financially smart for both of you to be on one plan or to each have your own. Choose the plan that has the best benefits at the lowest cost. Don't be put off by a high copay because it might mean a lower monthly premium.
12. Budget for a Baby
When you start to think seriously about starting a family, you should also take serious stock of your personal finances. This is the time to sock away some money. Check in with friends on what they spent on a newborn, including big one-time expenses (you only buy one crib) and recurring costs (you'll buy more diapers than you could ever imagine).
13. Don't Go College Crazy
Now (before you have kids or if they're still young) is when you should be investing for yourself. If you want to get a small start on education, opt for a 529 plan, which can be opened in your name and changed when your child is born. Basically it's a tax-advantaged savings plan designed especially for college tuition and expenses. Here's a beneficial twist: Have grandma and grandpa open the fund and, instead of buying Junior toys he'll play with once (c'mon, will he really need another Wii game?), they can put the money toward education.
[Nestperts] Mari Adam, a CFP at Adam Financial Associates in Boca Raton, FL; Stewart Welch, III, CFP at The Welch Group in Birmingham, AL, and author of 10 Minute Guide to Personal Finance for Newlyweds; Sandra Bragar, a CFP and CPA at Kochis Fitz in San Francisco, CA; and Jessica Smith, a CFP at Catalyst Financial Planning and Investment Management in Oakland, CA.