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
-
Last Call for Fortnite Refunds: Parents Can Still File a ClaimThe FTC is sending out $126 million in refunds to families whose kids were charged for unwanted items in Fortnite — and there’s still time to file a claim.
-
Stock Market Today: Stocks Swing as Trump Scraps Canada Trade TalksDespite a mid-afternoon slip, the S&P 500 and Nasdaq ended the day at new record highs.
-
How to Choose a Mortgage Lender in Five StepsNot all lenders are created equal — here’s how to compare offers, rates and terms with confidence.
-
A Meteorite May Have Hit a Home in Georgia. Would Insurance Cover the Damage?In a rare event, a meteorite may have crashed through the roof of a Georgia homeowner. Here’s what home insurance would cover.
-
My Car Was Stolen — Here’s What I Did and How You Can Protect YourselfDon’t wait until it happens to you. Learn how to prepare for auto theft, protect your vehicle and respond quickly if your car is stolen.
-
Why Smart Retirees Are Ditching Traditional Financial PlansFinancial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
Will an AI Robot Take Care of You in Old Age?AI Robots may be just the help older adults and their caretakers need for a host of tasks. Just don't expect it to be a cute little humanoid — yet.
-
This Savings Account Earns You More Than $4,000. Here's HowSee how a jumbo CD can help you reach your savings goals quicker.
-
These Are the Key Tariff Issues to Watch in Coming MonthsWhile they're not dominating headlines right now, tariffs are not over. Some key dates are coming up fast that could upend markets all over again.
-
Technology Unleashes the Power of Year-Round Tax-Loss HarvestingTech advancements have made it possible to continuously monitor and rebalance portfolios, allowing for harvesting losses throughout the year rather than just once a year.
