Solid Foundations: Building Good Financial Habits for Young Couples

There are few times in life more exciting than the period when you’re choosing a mate or beginning a family by welcoming a baby into your heart and home. Those are some of life’s most important “firsts,” and the exhilaration—and, let’s face it, the anxiety—of launching out in these new directions is something that most of us will never forget.

But these early steps are also a crucial time for setting up good habits that will help you build a secure future for yourself and your family, and your family finances are an area where building good habits now will pay dividends (literally) for the rest of your life. Let’s take a look at some financial moves that young couples and first-time parents need to make to establish a solid foundation for the next decades.

Newly Married

As we pointed out in a previous article, each stage of life comes with its own priorities, challenges, and opportunities. For the newly married, along with the flurry of setting up a new household, building a routine together, and all the rest that goes with the start of a relationship, it’s also vital to consider some basic financial matters.

• One of the most useful tools for making sure your savings stay on track is developing and sticking to a realistic budget. Done correctly, budgeting involves two-way communication about financial priorities and goals, resulting in a monthly spending and saving plan that supports the goals you’ve agreed on together.
• Building the habit of “paying yourself first,” early in marriage, is one of the most valuable building blocks for long-term financial success. Make it a goal to set aside 15–20% of household income in savings. In this way, you can build an emergency fund—vital in avoiding the credit card trap when the unexpected happens—and then work toward having funds for other important purposes, like a down payment on a home or an investment account for long-term growth.
• For many couples these days, both incomes are vital to the household budget. This means that if something happens to either spouse, the other will likely need a way to replace the lost income. Young couples should make plans to insure their most valuable asset: each other. In addition to an adequate amount of life insurance, they should also make certain that vehicles and other important personal property have the right kind and amount of coverage. If you’re buying a home together, property insurance is a must, and even if you’re renting, renter’s insurance can be a smart purchase, since it can provide funds for replacement of property that is lost due to casualty or theft. And it should go without saying that health insurance, to protect against the costs of a catastrophic illness, is a must.

…And Baby Makes Three

There is no greater thrill than holding your baby for the first time. And while parenthood comes with plenty of joy, the awesome responsibilities are typically top-of-mind, too. When children come into the home, it necessitates some additional financial considerations.

• No, this isn’t an accidental duplication. Now that you have a child’s needs to consider, you should also re-consider your life insurance coverage. No one wants to think about the loss of either parent, but if that were to happen, how would the loss of income affect your future hopes and dreams for your new baby? The cost of raising a child to adulthood and then beyond that, the expense involved in a quality education should all be factored into your considerations of your insurance coverage.
• Emergency fund. Remember this, from the savings discussion above? Now that there’s a child in the house, it’s even more important. Ideally, you should keep 3–6 months’ income in a liquid account: perhaps high-yield savings or some other money-market account that can be easily accessed in an emergency.
• Estate planning. If you think this is only for wealthy older people, think again. Did you know that estate planning includes designation of the person who will raise your child until they reach age 18, in the event of your death? If you don’t have a will or other estate planning document that stipulates this, your state will make the choice for you. That’s why the birth of a child should be accompanied by the drafting of a valid will for both parents, which allows you to say how you want your estate—including the care of your minor child—handled in the event you’re no longer able to do it for yourself.
• Though this may seem so distant as to be unreal, you should not skimp on your retirement savings during this time of life. This is when you have decades of compounding available to help you build a secure retirement, so you should be contributing as much as possible to your employer-sponsored plan (401(k) or 403(b) for nonprofits) or, if your employer doesn’t offer a plan, to your IRA.
• Education funding. It’s no secret that the right education is perhaps the most important key to success in life. Further, there’s no better time to start saving for your child’s education than now, while there are many years for the funds to grow and compound. You may also want to look into tax-advantaged alternatives, like the 529 education savings plans offered in all 50 states.

The key to all these habits, of course, is consistency. And it’s easier to be consistent when you start off on the right foot. Putting these principles in place now, early in life, will yield untold benefits later, and not just financially. Having a secure financial foundation can help you live a less-stressful, more confident lifestyle.

Aspen Wealth Management is a fiduciary financial advisor, which means that we are obligated to place our clients’ best interests ahead of everything else. We provide financial guidance for families at all stages. If you’d like to learn how we can help you, please contact us.