WEDDING- Money matters: Marriage makes your fiancee your financee
Keller Williams Realty
Q: What's your advice to newlyweds looking to buy a house together?
A: My advice for newlyweds purchasing a home together: don't attempt to tackle a wedding, honeymoon, and home purchase at the same time. It is a huge potential budget strain. Couples must prioritize– if you buy a home now, plan on getting married in a few years; if you plan your wedding now, buy your home later. It puts more stress on the couple if you have wedding costs as well as down-payments and other costs associated with buying a home. Take time to enjoy married life because this is the biggest investment you'll ever make.
If you do decide to buy a home together, first of all, get your finances in order. Create a home budget that includes regular expenses as well as factoring in home maintenance and decorating costs. Be familiar with your debt and credit scenario. The cat is out of the bag when credit reports are pulled– know your credit scenario because you can't hide past mistakes. Be honest with each other and don't hide from your credit report. Be pre-approved by a lender that you trust who can qualify you and do credit checks.
Gauge your future family plans and purchase accordingly. Factor in extra space for children if they are in the near future. If a family is in your short-term plan, don't use both your incomes to qualify your purchase. Don't take out a mortgage for more than you can afford to spend at one time. Understand your budget and what you are capable of spending.
Create a home wish-list to include both your wants. Accept that no home is going to be perfect and let the small, minor things go. Focus on what's important for your home. Get excited for starting life off together, but take a step back and evaluate your financial position.
Q: How should newlyweds tackle insurance coverage?
A: There are three different areas newlyweds should think of. First is insuring personal belongings. For newlyweds who just had their wedding, there is likely a significant value in the wedding gifts they received. If this is the first time away from home– where they may have relied on their family to provide coverage– they need to consider getting a homeowner's or renter's insurance policy.
There are the same insurance needs for personal belongings, especially liability coverage for the engagement ring. If the ring is valued at $5,000 or more, most of the time insurance companies ask for an appraisal or a bill of sale. There are limits on standards insurance policies for jewelry, so I would advise buying extra coverage, such as valuable items coverage. This broadens the type of loss scenarios and eliminates deductibles. For example, standard policies don't cover mysterious disappearance– if you were to lose the ring, it would cover the cost to replace it.
Automobile insurance is another area newlyweds should focus on. Most of the time, both the bride and groom own their own auto policy, or if they lived at home, they were under their family's policy. Now that they're living independently, it's time to have their own policy. If they have separate policies in their own names, they can combine and reduce the premium for both cars. Get a quote from both companies to determine which would be the most cost-effective. Many insurance companies give credit on auto and homeowner's insurance if the company covers both. Ask about account credit on auto insurance– it could be enough to pay the premium for renter's insurance. That way you have two policies for not more than the cost of one automobile policy.
While most newlyweds are young and don't like to think of death, this is an appropriate time to think about life insurance. When you're young, it is the most economical time to buy life insurance because the lowest price you'll ever find is now. Young couples who are planning a family should factor that in when buying life insurance. You can start out with the minimum amount companies offer, because they will likely offer some kind of automatic increase or buy-up option.
It's a good idea to get established with an insurance agent– they can provide advice that you won't necessarily get from an 800-number. Keep insurance at the forefront of your list of things to do rather than on the back burner. It may not seem important at your wedding, but it will be much more important later.
Q: What advice can you give regarding short-term and long-term investment planning for newlyweds?
A: Honestly, the discussion should certainly happen before they get married, to determine where they stand financially for better or for worse, the positive and negative aspects of each other's financial situation.
The first thing is the wedding. The ability to stick to their budget for the wedding says a lot about how the relationship is going to go. If a young couple is setting a budget for 10 grand and then they go and blow it out of the water, that's going to go into the marriage itself. From the start, you need to figure out each other's financial habits– whether you are a saver or a spender– and then set guidelines.
As far as short-term goals, you need to figure out where you're going to live, and whether you will rent or buy. Are you going to have individual or joint accounts? What you find with individual accounts is that there are no checks and balances, and each spouse will tend to do what he/she wants. With a joint account, it's a lot harder to waste money. One short-term financial suggestion is that a couple should find a convenient, manageable way to track their expenses for a month. They should look at their expenses objectively to see what seems reasonable and what seems ridiculous. If a couple is spending $700 a month on going out to dinner and they're trying to buy a house, that's ridiculous.
Additionally, a young couple should build up a cash reserve of $5-10,000. This can be very difficult for young people to do, so I suggest that whatever they can do automatically, they should. If you can put $100 from your checking account into your savings account, you should do it.
As far as long-term goals go, talk first about whether you want to have kids, and then your education goals for them. Do you want to send them to public or private school? Do you want them to go to college in-state? Also discuss when you want to retire.
The money thing is a huge deal for couples, and it's one of the leading causes for divorce. That's why it's important to discuss money up front.