If you just got married — or are about to walk down the aisle — congratulations. You’re probably eager to start planning your future as a twosome. However, as you do this, you should make sure to take your finances into account.
According to a survey by Ally Bank, 84 percent of Americans said romantic relationships were stronger and more satisfying when the couple enjoyed financial stability. If you want to have years of wedded bliss, it’s important to build a strong financial foundation now.
Fortunately, “newlyweds find they’re in a better financial position together than they were separately,” said Mark Luscombe, a CPA and principal federal tax analyst for Wolters Kluwer Tax & Accounting.
If you follow this advice for newlyweds, there’s a good chance you can take advantage of your married status to better your financial welfare. Take these nine steps now so you’ll have more later.
1. Assess Your Joint Financial Situation
Many couples don’t discuss finances before they get married. According to a survey by the credit bureau Experian, a quarter of respondents didn’t know their spouses’ annual incomes, while a third were unaware of how much student loan debt spouses had. Forty percent of those surveyed didn’t know their spouses’ credit scores.
The first thing couples need to do is assess their joint financial situation, Luscombe said. Look at the assets and debts you both have and use this information to set joint goals for spending and saving. You can then create a budget that aligns with those goals.
2. Align Spending With Priorities
After getting married, spouses need to track their mutual spending.
“When you know where your money goes, you are in control and can be thoughtful about aligning spending with priorities,” said Carla Dearing, CEO of SUM180, an online financial planning service created by women for women.
She recommends that each couple use a service such as Mint or Quicken to view multiple financial accounts in one place and create a spending plan. The goal is to monitor spending habits to ensure they align with your joint priorities as a couple.
3. Build a Cushion for Emergencies
There’s another benefit to tracking spending; it helps couples determine how much they need to make to cover monthly expenses. Ideally, you should put away six times that amount as a cushion for emergencies and unexpected expenses, Dearing said. However, you don’t have to set aside that much all at once.
“Be disciplined about saving a little every month until your emergency fund is where it needs to be, even if it means sacrificing little luxuries once in a while,” she said. “Having your cushion ready whenever you need it will give you a great sense of security and freedom. It will also free you up to work on other savings goals without getting derailed by unexpected expenses.”
4. Make a Plan to Tackle Debt
Few individuals enter into a marriage with no debt. In fact, two thirds of millennials have at least one source of long-term debt, such as student loans, car loans or mortgages, according to the Filene Research Institute. Further, more than half of millennials who have credit cards carry balances.
“If you both have debts, now is a good time to focus on paying them off so you can focus on the future,” Luscombe said.
Paying down debt as quickly as possible will free up more room in your budget to save. Focus on high-interest debt first. If you carry a balance on several credit cards, pay as much as you can on the card with the highest interest rate first. Then start paying down the card with the next highest balance and so on to reduce the total amount of interest you’ll pay over time.
5. Consider a Joint Checking Account
There are several reasons a joint bank account is good for a marriage. Most importantly, it can help keep spending in check because spouses have to stay accountable to each other when the money is coming out of a joint account, Luscombe said.
Having a joint account can also cut banking costs. More than half of national checking accounts charge monthly fees, according to a GOBankingRates survey. Often, fees are charged if you don’t meet a minimum balance requirement. However, if both you and your spouse pool your income in one account, it can be easier to meet balance requirements and avoid fees, according to Luscombe.
Then you’ll have more cash to pay down debt or boost savings.
6. Live on One Income, Save the Other
Some couples have a tendency to start spending more once they’re married because they have two incomes to fund fun activities.
“You can use up both salaries if you’re not careful,” said Luscombe, who went on to advise living on just one partner’s income. Then you can earmark the other spouse’s earnings for retirement savings, emergencies and future expenses, such as a down payment on a home.
Ideally, both spouses will contribute to their retirement accounts. However, if only one spouse has an employer that offers matching contributions, focus on contributing enough to that account first in order to get the full match. Otherwise, you’re leaving free money on the table.
7. Look for Healthcare Savings
If you and your spouse are both offered healthcare through your employers, you should evaluate both plans to see which is the better value. Because you’re married and can now be a dependent on your spouse’s plan, you might be able to save money by getting coverage through the plan with the superior benefits, Luscombe said.
For best results, compare premiums, deductibles and co-insurance rates, as well as the providers that are in the plans’ networks. You might find that you can slash insurance costs dramatically by getting coverage through just one spouse’s plan.
8. Adjust Your Tax Withholding
You might be able to boost your take-home pay now that you’re married by adjusting your tax withholding to reflect your new status. Consider altering your W-4 to claim an allowance for your spouse as well as one for yourself. Claiming more allowances will lower the amount of taxes withheld from your paycheck.
You can use the IRS Withholding Calculator to figure out how many allowances to claim so you don’t have too much or too little withheld from your paycheck.
9. Take Advantage of Tax Breaks
You’ve likely heard of the marriage penalty, which is an idiosyncrasy in the tax laws that can cause a married couple to pay more in taxes than the spouses paid cumulatively when they filed as singletons.
Spouses who earn about the same amount are often hit with the penalty. However, if one spouse earns much less than the other, the couple can often get a marriage bonus, Luscombe said. Having a lower tax bill as a couple can help you put your money toward financial goals instead of Uncle Sam’s coffers.
If you think you and your spouse will have a high tax bill this year, don’t assume you’d be better off using the married filing separately status. According to the IRS, couples tends to pay more combined taxes when using separate returns than they would on joint returns. Not only is the tax rate higher for individuals classified as married filing separately, but they also can’t claim valuable tax breaks, such as the earned income credit for low-income taxpayers, education credits for college expenses and the student-loan interest deduction.
The married filing jointly status has another benefit. If you sell a house and make a profit, you don’t have to pay taxes on up to $500,000 of your gain — which is double the amount a single person can exclude from taxes.
“That could be helpful as a source of tax-free income,” Luscombe said.