A few months before our son’s recent wedding, I sat down with him and his fiancée and talked about (what else?) money. I’ll be doing the same soon with the younger of our two daughters and her fiancé, who recently became engaged.
All four of these young adults are responsible citizens, living on their own earnings from respected if not highly paid occupations. (So is our older daughter, a real super saver.)
I gave the young couples some fatherly advice about their personal finances, derived from the institutional wisdom of this magazine. Here are my key points.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Don’t jack up your lifestyle. It is a fallacy that “two can live as cheaply as one,” but combining your households can save money on rent, home-cooked meals and transportation (if you can share a car). It’s like found money.
This surplus income might make you feel as if you’ve hit the jackpot. Now you’ve got more money to spend on some of the things you’ve always wanted — electronics, clothes, travel and dining out more often, for example.
My advice: Don’t. Leave your spending as is (or, ideally, trim it a little) and budget your combined incomes to pay down student debt and credit cards, contribute regularly to your favorite charities, and boost your savings. Even better:
2. Live on one salary, save the other. Don’t assume that each of you will always have the earnings you do now. Think about the interruptions of income — voluntary or unexpected — that could lurk a few miles down the road. One of you might get laid off. One might want to change careers or start a business. One of you might want to go back to school, full- or part-time. If you start a family, one of you might want to stay home with your children for a few years.
You’ll have more options in such situations if you have enough savings to replace one of your lost or reduced salaries for an extended period — without a sharp drop in your future lifestyle. To plan for that day, start banking all or most of one of your two salaries.
3. Max out on retirement savings. I know that a financial need that’s 40 years off may seem pretty abstract to you now. But let me put it this way: No one else will provide for you if you don’t save now.
Sure, you’ll have a small monthly check from the government someday. I dispute the cynical belief, common among your peers, that “Social Security won’t be there for me” — that it’s destined to collapse. It will still be there, but your monthly benefit, 40 years from now, will represent a lousy investment return on the hefty taxes that will come out of your paychecks for decades — 12.4% of your earnings, the combined tax bite for you and your employer.
That’s why you should contribute as much as you can to your tax-deferred retirement plan at work — your 401(k) or 403(b) — to get the maximum match your employer offers. Ditto for your individual retirement accounts or Roth IRAs — and each spouse should have an account.
Your retirement-savings goal should be to save no less than 10% of your combined gross income each year. That’s in addition to the savings I described above, which you should consider your family’s accessible “working capital,” there for special needs that arise.
4. Get some insurance. As newlyweds, you need protection against catastrophic medical bills and a long-term disability with loss of income. Life insurance is good, too, but that can wait until children arrive, when you’ll need plenty of it.
5. Enjoy life, while living within your means and sleeping well at night. Good luck to you!
This piece was originally written by Kiplinger in 2013.
Related Content
-
How To Spring Clean Your PortfolioRegular purges of closets help us clear out what's not working, and the same should be done for our investments. Here's how to spring clean your portfolio.
-
Nine of the Biggest Regrets I See as a Financial Planner
Check out this list of common regrets among older people and see if there’s something you can address in your own life while there’s still time.
-
How to Write a Check for a Wedding Gift
There are some guidelines to writing a check for a wedding gift for newlyweds.
-
What To Know About Chrysler's Jeep Grand Cherokee Recall
The Jeep Grand Cherokee recall concerns an issue that could cause a loss of vehicle control, NHTSA says.
-
Verizon's Latest Bundle Offers Netflix and AMC Plus for $25.99
The new bundle will save you around $6 a month but you need to act fast, Verizon says.
-
Healthcare Costs Top Concerns For Many Voters This Election Year, Study Shows
The top financial worries for most Americans are unexpected medical expenses and healthcare costs, according to a new KFF study.
-
What to Know About Toyota’s Recall of 381,000 Tacoma Trucks
Toyota issues recall, its fourth in a week, due to concerns with the rear axle assembly on certain trucks.
-
Delta Adds Second Solar Eclipse Flight On April 8
Delta follows Southwest with special flights that offer the chance to view the eclipse as the path of totality runs across 13 U.S. states.
-
What Checked Bag Fees Cost at Major Airlines After Recent Hikes
There's a growing list of airlines that have hiked baggage fees this year. Here's the latest on what you'll pay to check bags when you fly.
-
Healthcare System Still Reeling From UnitedHealth Cyberattack, AHA Says
The American Hospital Association says UnitedHealth's breach prevents many members from processing claims and checking patient eligibility for insurance coverage.
