R. Fred Houston, a financial management expert,
answers common questions that newlyweds have
about finances, debt, investments, and buying a home.

Q: Since we just got married and money is tight, is it okay if we don’t start saving immediately?

A: It may not seem too important right now, but the sooner you start saving, the better.  Even if you can’t put too much aside, something is better than nothing.  Once you start saving, you can let the power of compounding work for you.  For example, if a person invests $2000 a year (or $133.33 a month) in a ROTH IRA starting when he/she is 16 years old, and stops at 25, that person will have over a million dollars by the time he/she is 65.  On the other hand, if a person starts this same process at 25, and pays $2000 a year (or $133. 33 a month) into a ROTH IRA until he/she is 65, that person will almost have a million dollars, and will have invested ten times as much.  You can see how important it is to start saving and investing as soon as you can so that you can eventually become financially independent.

Q: What can we do now so that we can become financially independent?

A: I define financial independence as the ability to keep the same standard of living without having to rely on outside sources of income.  In order to become financially independent, you must live by three principles: avoid debt like the plague, spend less than you earn, and make your own financial decisions.  Debt has become a major concern, especially for young couples.  A common attitude among Americans today is “buy now, pay later.”  Instead, decide together what is wise and prudent, plan and save for big purchases, and you will save yourselves a lot of money (and headache) in the long run.  By spending less than you earn, you will be able to build wealth for yourselves - instead of working for your money, you can let your money work for you.  Sadly enough, 96 percent of Americans fail to become financially free by the time they are 65, so make this a priority.  Finally, by making your own financial decisions, you will always be in control of your assets.  It is wise to seek the advice of experts, but you should ultimately make the decisions yourselves.

Q: We both have some debts that we need to pay off, so what can we do now to resolve this?

A:  You should make goals to retire your debt as soon as possible, whether you have student loans, a car loan, or any other debt.  As you manage your cash flow, set some money aside for emergencies, and then pay the maximum amount that you can towards your debts.  First, prioritize your debts based on the amount and the interest rate, and then use the rollover principle as you pay off each debt.  For example, let’s say you were paying $50 to your Visa, $200 to your car loan, and $1000 to your mortgage each month.  After you pay off the Visa, you can pay $50 more each month towards your car.  After your pay off your car, you can pay an extra $250 towards your mortgage each month.  Once you are able to pay off all of your debts, you can take the amount that were paying toward the debts and put it toward your savings and retirement.   The sooner you pay off your debts, whatever they may be, the sooner you will be able to become financially independent.  If you are fortunate enough to be debt-free when you get married, you can skip this step and immediately begin to build up your savings and investments.

Q: It’s important that we have a budget, right?

A:  Instead of using the term “budget,” I like to call it “cash flow management.”  Poor people have a budget; wealthy people manage their cash flow.  It is important to have some sort of system to manage your finances, but there is no one right way to do this.  As a couple, you should discuss your cash flow, calculate your expenses, and work as a team to get out of debt and put money aside for savings.

Q: So when can we start thinking about buying a home?

A: You can start thinking about buying a home as soon as you determine that you are able, based on your cash flow.  Buying a home is something that you will have to go into debt for.  This is okay, because it will allow you to build up equity, but you should be willing to sacrifice in order to pay it off in a timely manner.  For a $100,000, thirty-year mortgage at 9% interest, you will pay a total of $289,109, and $189,109 in interest alone.  The sooner you are able to pay off your home, the more interest you will be able to save.  Many couples think that a home is a life-long investment, but it does not have to be.  If you get a fifteen-year mortgage, and make double payments, you will be able to pay off your home in about seven years.  If you are thirty-five, and you own your own home, you are well on your way to becoming financially independent.  You may not have the means to pay off your mortgage this quickly, but you should make reasonable goals for yourselves, and plan to pay as much as you can toward your mortgage.

Q: So many couples these days fight about money, how can we prevent this?

A: Finances are one of the primary reasons for divorce.  You both will have different opinions about how to manage your finances.  But in order to prevent money from becoming an issue in your marriage, you must establish principles regarding your finances, and then abide by them.  Decide under what circumstances you will go in to debt (i.e. mortgage, education, health issues) and agree on a savings plan.  If you do this from the beginning, and develop good habits of working out your finances together, you will have a promising financial future.