Five practical financial tips for newlyweds

July 25, 2006|By ANGELA TABLAC | ANGELA TABLAC,MCCLATCHY-TRIBUNE

DETROIT -- The wedding-day frenzy has ended, and the honeymoon happened weeks ago. Now one of the toughest challenges for young couples begins: managing finances.

Here are five tips from local and national financial consultants for living financially ever after:

Communicate expectations and habits. Spouses should be open about credit card and student loan debts. Begin to set financial priorities by answering either/or questions such as: Which is more important, owning a home as soon as possible or taking vacations each year?

You're entitled to one free credit check a year from the three nationwide reporting agencies. Couples should use that information to gauge their financial health and measure their year-to-year progress.

Know the difference between good debt and bad debt, and take action. Good debt, for instance, is building equity through home ownership with a 5 percent or 6 percent interest rate on your home mortgage. Bad debt comes from abusing credit cards, which can have interest rates at 18 percent to 25 percent.

Pay off higher-interest accounts first before chipping away at lower-interest student loans.

Don't fail at planning or budgeting. Couples should consider the costs of every expected life event and make sure they can afford them. Budget not only for the big items such as a house or car, but also for holiday and birthday presents, educating children and building up emergency funds. Then, track expenses and compare them with the budget.

Before making a major purchase, such as a car or house, couples should save the monthly payment for six months.

To prepare for an emergency such as a major home repair or temporary loss of work, establish a money market account with three months' worth of living expenses.

Many couples believe they can afford a home if the mortgage payment matches their current rent. But newlyweds shopping for a home should consider the taxes, insurance, repairs and maintenance fees that renters don't pay but homeowners do.

Expect to spend 2 percent of a home's value on repairs each year.

Plan for children. Raising children is, by far, the greatest expense newlyweds will face. One of the first decisions is whether one parent will stay home with the baby. These parents-to-be need to start planning for the loss of income. The birth of the baby is a good time to start thinking about saving for education, but until then, couples should maximize their retirement savings, especially if their company offers 401(k) options.

Take the surprise out of investing. Before taking a chance with the stock market, newlyweds should discuss their comfort level with the volatilities of the market. If a couple will need the money within five years, they should invest in money markets or CDs instead of the stock market.

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