Financial Advice for Newlyweds

If you don't know where you're going, you'll probably end up somewhere else

by Peter Bohush

They say money can't buy happiness -- but it can sure mess it up. Especially when it becomes the topic of disagreement between a husband and wife.

Harmony and understanding probably won't happen by themselves. So couples should set aside some time to discuss their philosophies and goals about money -- how much you want, how you want to use it and how to make it part of your happy marriage.

While many of us would love to have the problem of too much money, most of us, particularly newlyweds, will feel that there's never enough money. That's why it's so important to manage it well.

Discussing your finances before and during marriage boils down to two questions: "How much do we have?" and "What are we going to do with it?"

Before you say your wedding vows, while the two of you are still thinking about important wedding-planning choices such as chicken or beef, band or DJ, garden or banquet reception, take time out for this little quiz. You can call it, "Our Little Discussion About Money That Will Keep Us Happy When We're Married."

We guarantee it will at least be more fun than listening in on a Federal Reserve Board meeting, and may actually get you talking openly and honestly about money. And that's a good thing.

Where is each of you on the fiscal policy scale?

This can also be thought of as, which of us likes to spend money and which likes to save it? Often in a couple, one has a more liberal approach to money (the Spender) and one a more conservative approach (the Saver).

Studies have shown that denying the Spender the ability to spend may result in temporary crankiness. But denying the Saver the means to save will result in a really angry Saver, and could lead to the Spender spending a lonely night on the couch.

Some couples get along just fine when both have the ability to spend and save. Some divide up the bill-paying duties. Some put one person in charge and the other happily lives off an allowance. Since this is a lot like the old days of living with Mom and Dad, it may encourage one of you to do more chores around the house, like mowing the lawn, cleaning the bathroom or doing the dishes to get an increase in your allowance.

Actually, finances in marriage should be like doing the dishes: both should participate. So decide early on who will wash your money, and who will dry it. And try not to leave your dirty money in the sink overnight.

The point here is to decide -- as a couple -- how you will control your finances.

What do you want in life?

This is not about sociopolitical goals, such as international peace and harmony, world domination or making assistant manager someday. Career goals are important, and you should both believe in and support each other's dreams. But you also should determine, on a regular basis, what you want to save money for.

You may want to someday buy a house or condo or double-wide trailer. A new Mazda Miata may be your big goal. Unless you're expecting to win it on Wheel of Fortune, you'll have to set aside money for the monthly payments.

If you are planning on having a family, remember that children are like monetary black holes, sucking up every dollar you make for food and clothing, ear infection antibiotics, Disney videos, Teletubbies lunch bags, Pokeman cards, college tuition, weddings, cars and bail money.

And whatever your age now, you should be thinking about retiring with enough money to take the exciting trips you'd like to, even though by that time you may not be able to make it to Mount Rushmore without stopping ten times to use the rest room.

At the very least, plan to save enough money for retirement needs such as housing, heat and dropping by the buffeteria once a week or so for the Swedish meatball senior special. Believe me, if you end up in your old age having to empty your penny jars to buy your Viagra, you'll wish you had planned your finances better instead of blithely spending it all on Goo Goo Dolls memorabilia at eBay.

Buget, budget, who's got the budget?

Once you agree on what you want to save your money for, you'll need a budget to tell you how much money to set aside every month, and where to put it.

An old saying tells us that rich people save their money and spend what's left, while poor people spend their money and save what's left. If saving becomes your first priority, you'll be more successful at achieving your long-term financial goals.

So agree on how much you'll put aside with every paycheck, and don't touch it except for emergencies or to use it for its purpose, such as a house down payment.

Write this budget down. Make a spreadsheet or a PowerPoint presentation and call a meeting. Make your cases, take a vote and record this in the minutes. Draft some bylaws. You'll stick to it better if it's been documented somewhere. Make a penalty for early withdrawal, something really painful such as no ER for a year, or giving up those season tickets for the World Wrestling Federation super grudge matches.

Only you can determine what your investment deposits will be. Conventional wisdom states that couples in their 20's or 30's should set aside at least 10 percent of their earnings for investment; while those in their 40's or 50's need to set aside up to 20 percent to achieve sufficient results.

Where should we put our money?

Actually setting your money aside, like next to the La-Z-Boy recliner, is not good enough. You must invest your money if you want it to grow. Leaving it in your bank savings account, at two percent interest, won't result in enough growth to buy a cheap leisure suit for your retirement party. You've got to make your money work for you, and that takes work on your part.

There is no shortage of places to invest your money. The stock market has been on its largest and longest rise in history. No one knows how long this will last. Maybe it will go on upwards forever. Maybe not.

You can invest in companies in the U.S. and in practically every other country in the world. The farther you stray from home, the more volatile the markets can be. They often don't play by the same rules as in the U.S., and are more likely to be impacted by government policies and shifts in power.

You can invest in things you think will increase in value over time. If you know what you're doing, this can pay off. But you'd better like what you're collecting, because you could end up with a lot of it.

Interest in collectibles tends to wax and wane. While Beanie Babies had an initial run up in value, they soon fell faster than a tall guy on an icy sidewalk. Pokemans may seem like a sure bet, but keep in mind that there are a lot of people with boxes full of Pogs and Franklin Mint Gone With The Wind collector's plates wondering when their ship is going to come in.

Some rare coins can be worth thousands of dollars, others end up only good enough to drop into a soda machine. Same thing with stamps. Maybe a couple of them achieve superstardom in the world of numismatists, but an awful lot of people will end up sticking that supposedly valuable Elvis Presley stamp onto their electric bill envelope.

Stocks, bonds or Internet IPOs?

Financial planning experts haven't wavered from their age-old advice: the best way to build wealth is to invest some amount of money regularly in a balance of stocks and bonds, and just keep at it. Over time you will weather the ups and downs of the markets and individual stocks, and will end up with steady growth ready to be harvested at retirement time.

Then, of course, you might be able to do this harvesting all in one day by investing in the initial public offering (IPO) of an eBay, Netscape, Amazon.com or another amazing success story, right? Over the past two or three years, stocks of new companies have launched at $10 to $15 per share and shot up many times that on their first day of trading.

You may have wondered, how can I cash in on this? The answer is, you probably can't. Those who were able to buy these hot stocks at their opening, cheap prices were, for the most part, large investment houses or institutional fund managers. By the time average Joes and Marys were able to buy, the prices had often peaked. So while Gargantuan Capital counted their bazillions from buying low and selling high, Joe and Mary were left to cry about the difference between what they paid for the stock and what it was worth after it slid back down to reality. Little guys usually finish last in the game of big-time IPOs.

Online investing websites have made it easier for millions of people to try out the stock market. It's helped people become more educated in the process of investing, and created more interest in actively investing. Some people have been rewarded, and some have made poor choices and suffered from it.

Rule of thumb: slow and steady wins the race. It's wise to talk to a professional financial planner before you open that eTrade account. He or she can point out other investment issues you should deal with, such as life insurance and taxes.

Are you diverse?

Diversification is important, too. This means investing in different things, spreading the risk, so if one investment tanks you don't lose all your money. It's a lot like laundry, where some of your clothes are in your dresser, some in the closet, some in the laundry basket and some in the washer.

It's bad enough to lose a few socks in the dryer. But what if you washed all your clothes at once and the guy locked up the laundromat while you went next door to buy a soda? You'd have no clean clothes to wear to work the next day. How would your boss react if you showed up to work in your torn jeans and that old college sweatshirt with the sleeves cut out? Not a good feeling, and simple to avoid.

Don't put all your eggs in one basket. Don't put all your clothes in one Maytag. And don't put all your money in one investment, no matter what your friend Morty tells you about that hot new biotech company with a cure for hairy knuckles. Give a little, spread out the rest.

Do you believe in magic?

Long-distance runners often talk about the "high" of near-ecstasy they feel during a marathon jog. Big-league baseball players speak of the "zone" they get into when time seems to stand still at the moment their bat connects with the ball and they just know that baby's going out of the park.

Financial planners reach their own rapture, too, when they stand up before a crowd and describe the "magic of compound interest." It's practically nirvana for them to show how a 21-year-old who invests $2,000 per year for eight years at 10 percent interest sees it become $707,028 in 36 years through the magic of compound interest.

Pausing only long enough to disclaim that these are hypothetical examples and your success cannot be guaranteed, the advisors will amaze you with transparencies on the overhead projector showing nearly every conceivable investment plan and how they can magically compound to near riches.

The strange thing about all this is, it's true. Investments really can and do compound, building upon themselves and growing like the Blob until you're left with that wonderful dilemma called, "what do we do with all this money?"

"Aha!" you'll exclaim. We know what to do with it. We'll use it for the things we planned for at our first shareholders meeting! Hakuna matata! The great circle of life has come back around.

A little planning can go a long way. Far enough to get you all the way to where you want to go.

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Peter Bohush
WriterDirector.com
P.O. Box 689
Northboro, MA 01532