Were you Just Married or planning to tie the knot soon?
Get yourselves on the right financial track with a little preparation today. It’s that time of year Wedding Bells are ringing all over the world. Bliss is happiness until all the hoopla fades to the background.
I sometimes get panic emails from newlywed couples looking for tips on budgeting or tips to help them out of a financial mess they’ve created. I do however always suggest they seek professional guidance as I am merely a man who understands money and budgets. None the less they want answers or anything to help them see a ray of light.
I typically ask them some questions right from the start.
1-Why do you want to budget?
2-How much debt do you have?
3-Are you both committed to budgeting?
4-Have you ever used a budget before?
5- Do you know your credit scores?
These questions help me to get a better understanding of their budgeting knowledge and a small picture of their debt and spending habits. It also helps me to understand who is in charge and whether or not they keep any money secrets.
I’m a firm believer that couples should understand their finances before they tie the knot not after. I think it’s important to know whether you want to get involved with someone who has 50k in student loans or 30k in consumer debt. I know some people are not happy about me putting Money over Love but as we all have learned money is the number 1 reason couples divorce.
So again I say lay it all on the line when you think you are heading to the next level of a relationship with someone. You don’t want to see them running when you empty your pockets and nothing comes out after the ring is on the finger.
Bankruptcy and divorce are two situations I don’t wish on anyone because they both can do terrible things to you emotionally and physically. I mean who can say, I can handle it.. come on… I’m a guy and I know stress can get the best of anyone.
True Scenario
My mate is in the process of divorce because he lost his job shortly after they bought their first home. They simply could not make ends meet each month on one income and now can’t get out of debt. They had no emergency savings and he’s struggled to find meaningful work. They kept putting money on the line of credit, credit cards when they were short each month. By the time he found a job they were so far in debt and so far apart in love. They have one child that is not even 2 years old. They’ve been married for only 5 years and that sadly has come to an end over money. He says they never talked about money before marriage nor did they use any type of budget. I will do what I can to help him out.
That being said, whether you agree with me or not couples who are newlyweds need to have a budget from the get go. If you are reading this I urge you to read through my budgeting series to learn how we designed our budget step by step. I will be posting our budget spreadsheet soon for others to test out and see if it’s for them but until then you need to set something up.
Sitting with your spouse with a pencil and paper isn’t a bad idea and writing down all of your financial goals to have clear targets. (again I would do this before I got married). I’m betting you will find some differences but that’s ok marriage is about compromise and teamwork and now is the time to use these skills.
Once you know what you want whether it be to pay down your debts, buy a house, have kids,buy a car etc you need to document it. I’m always saying thinking outside the box is what got me ahead so give it a try. I like to live by the S.M.A.R.T rule when thinking up goals with Mrs. CBB. There are many versions all meaning the same;
S-Specific- Make your goals specific, defined
M-Measurable- How are you measuring your goals?-Budget?
A-Attainable- Can you obtain these goals? Do you both understand and agree?
R-Realistic- Are you being realistic or trying to fool yourselves
T- Timely- What sort of time frame, how long? Are you tracking this?
Once you both get in the rhythm of a budget and saving the rest will fall into place. Thinking like it is a project at first will set the stones in place for something that is a lifestyle. It takes a little work but it gets easier with time.
I would pay off as much of my school and consumer debt if I had any before jumping into first time home buying. Houses aren’t going anywhere but jump in over your head and your house may leave you.
Once you pay down as much as your debt as possible, you can save for a down-payment for a house, emergency savings fund (highly recommend this). When I say pay down as much debt you need to figure out how much debt you can carry while being a home owner. I typically like to see people balance paying down debt and saving for an emergency. I realize this is not possible in all cases but if you can save a bit for an emergency $5.00 is better than nothing.
Sitting with a mortgage specialist should help give you an idea what you could afford as a couple with your debt and risk load. You can also ask for the current interest rate they would give you keeping in mind this figure may change by the time you want to buy a home. We will later use this to develop a mock plan to see if we can actually afford a mortgage and payments.
The banks said they would loan us well over $500k but we didn’t want to spend that much. Keep in mind we had no debt whatsoever at this point. Both of our vehicles were paid and we had no student loans or wedding bills to pay. We then decided on a figure we would be happy with. You can easily use a mortgage calculator on-line to figure out payments.
Don’t forget when you buy a house you need to have enough money in your budget for city taxes and home maintenance repairs. How much should you save for home maintenance each year? We like to save around 1% of our property value a year for home maintenance. For example our house is worth $329,000 x0.01% =$3290 or $274 a month. If you have a new home you still need to save so don’t say you won’t need it, you will.
Once we had all these numbers on paper we figured we would need around $1900 to cover a mortgage of $240,000, taxes and maintenance costs per month. Wow, sounds like a big number and it is. We set a goal that we would save 20% of the cost of the home we would want to max out at. We decided $300,000 was the top amount we would spend so we needed at least $60,000 plus closing costs of around $5k just to be safe. We ended up buying at $265,000 with an $85,000 down-payment and all closing costs paid cash.
This is why it is imperative to set goals, create a budget and a timeline. If you plan on having kids make sure you talk about it and research the costs involved. You also should both have an idea when you want to have kids as well. There is no ideal time to ever have kids but some like to wait until they have been at a job they enjoy for a while, even though no job is ever secure. Children are very expensive than factor in maternity leave and a family budget can seriously become affected. All this planning is critical to newlyweds otherwise you may see your fortress crumble around you.
How We Did it….
As newlyweds we decided to live each month paying our rent to our landlord BUT we added the $1900 a month to that rent and stashed it away each month. This was not only to save money for a down payment but to get us used to the money that we would be spending on a house. This was such an important step that I think everyone should consider it. In no time we had our down-payment, closing cost and all the other hoopla that goes with buying a house and we did it, 3 years later. The only change we would go back and make if we could is to use a budget spreadsheet. We should have tracked everything we spent like we do today.
We thought we would do it all in our heads, not so smart, don’t recommend it. We try not to think about how much extra money we could have saved in that three-year time frame. Now we like to educate other newlyweds not to make the same mistake we did and urge them to budget before they get married. If you don’t live together before you are married, that’s ok but you still should both budget so you know what you are walking into. You need to understand and discipline yourselves to get ready for the next step in your life together as newlyweds.
Steps we took before we married and some we should have done… and so should you!
1-Sit down and put all the debts on the table
2-Set long-term and short-term goals as a couple ie: save for a house, have a child,buy a car
3-Design a budget where you spending less than you both net (earn)- create categories that you both feel are essential to your budget.
4-Live and save like we owned a home and put the money aside for a down payment on our first house
4-Pay down debt (paid off Mrs. CBB’s Vehicle 0% interest)
5-Save for emergencies; We wanted at least 10K before we bought the house or 3-6 months of all your bills but it’s up to you.
Preparing like we did before we married and continue to do has brought us closer together in love and has helped us grow our finances. We have never fought about money because we work as a team and have faith in each other. We understand what money and finances mean to our present and future goals. We don’t want to have our lives turned upside down by something we could potentially prevent with simple preparation and a budget.
So if you are newlywed you have a lot to think about, I suggest reading this post twice and making notes. Don’t rush this process the world is not coming to an end. Keep your chin up and your minds working together to reach your goals. You will be happy you did, trust me. If you are a newlywed and need a budget and are reading this I commend you.
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