Posted by Chad E. Smith
Congratulations! Now that the big day is over, how can you make sure to start your marriage on firm financial footing?
The average wedding in America today costs more than $27,000* and that doesn’t include the engagement ring or the honeymoon. Combine those costs with preexisting college loans, car payments, and credit card debt, and it’s no surprise many young couples start their marriage in the red. Meanwhile, mortgage payments and the skyrocketing cost of raising and educating kids loom on the horizon.
What can a newlywed couple do to cope with financial stress? Here are five tips:
- Discuss it. Talking bills and balances isn’t romantic. But experts agree that confronting your financial situation early on is a great way start a marriage. Disclose all of your debt up front. Determine whether you are spenders or savers and agree to make adjustments. Then, compute your combined net worth (total assets minus total debt) and work together to create a budget to help you increase your net worth.
- Reduce your credit card debt. A lot of couples use their credit cards to fund part of their wedding expenses, but don’t realize it could take years to pay off the balance. The quicker you pay down credit card debt, the better. This is particularly true if you plan on buying a home soon. The lower your debt, the higher your credit score—also known as your FICO score—which is used by mortgage lenders and banks to decide if they’ll approve your mortgage application. Also, lenders are more willing to approve you for a bigger mortgage if you have a good debt-to-income ratio.
- Build an emergency fund. A general rule of thumb is to save three to six months of salary in case one or both of you loses your job. Being able to pay bills while unemployed will also help keep your credit score intact.
- Open a retirement account and contribute to it regularly. The earlier you start saving for retirement, the better. Open an individual retirement account (IRA) or use your employer’s 401(k) plan if they offer one. And keep contributing to your retirement account regardless of stock market conditions — especially if your employer’s 401(k) offers a matching contributions program.
Even if you have substantial debt, making small contributions to retirement funds now will pay off big in retirement. For example: If you're 30, earn $30,000 a year and save six percent of your salary each month ($150) and if you earn a 10 percent average annual return, you'll have $574,242 at age 65. However, if you start saving at age 55 and the variables remain constant, you'll accumulate only $30,983 in ten years’ time.
- Protect your spouse and your assets with term life insurance. If dealing with your debt seems stressful today, imagine if something happened to you or your spouse tomorrow. In that case, the surviving spouse would likely be responsible for all of the debt.
The good news is that the younger you are, the lower your life insurance premium will be. In fact, a very healthy 35-year old can get a 20-year, $300,000 term life policy from SBLI for about 50 cents a day**, and that premium is guaranteed to never increase over the term.
To learn more about protecting your spouse with a term policy, call SBLI at 1-800-438-7254.
** This rate is for very healthy applicants. Your rate may differ based on health and underwriting.