Getting married is exciting, but it also means there is some work ahead. Combining finances with a new spouse is a potentially cumbersome undertaking, particularly if couples don’t know how they should approach it. Fortunately, by focusing on the correct areas, it’s much easier to do. If you’re wondering, “What are the 7 steps of financial planning?” here is an overview of seven smart moves that can help newlyweds get moving in the right direction.
1. Start by Identifying Financial Goals
As newlyweds, it’s normal to feel incredibly optimistic about the future. Harness that sentiment and work with your spouse to define a few critical financial goals. Determine what you’d both like to achieve in the short-term and long-term. Aim to be as specific as possible, too.
For example, if buying a house is something you’d both like to achieve, dig a bit deeper. Determine approximately how much you’d like to set aside for a down payment when you’d like to be ready to make the purchase and other similar details. That will help you figure out if your targets are reasonable and what it would take to make them a reality.
2. Outline Your Income, Expenses, and Obligations
When you form a new household, creating an updated budget that aligns with your new financial picture is essential. Spend time gathering information about all of your income sources, including how much is netted from each type of work. Next, create a list of your expenses, such as groceries, auto insurance, homeowners’ or renters’ insurance, rent (if you aren’t paying on a mortgage), and similar costs. Then, outline all of your debts, including their current balances, assigned interest rates, and minimum monthly payments.
In many cases, it’s also wise to take a deep dive into your other spending habits too. The goal is to compare how much money you jointly bring into the household with the amount that heads out the door each month. That way, you can determine if any gaps or shortfalls exist and whether spending adjustments are necessary to get everything in order.
3. Update Your Plan
Once you know if there is a shortfall or financial gap, you can update your budget to address the issue by cutting back in various areas. Additionally, this is an excellent moment to revisit the goals you initially created and see if adjustments are necessary.
If the gap or shortfall isn’t addressable through spending reductions, then take a moment to work together to find an alternative solution. You may need to discuss options for generating more income, for example.
The goal here isn’t just to cover your expenses and debts but also to ensure there’s enough space to make your goals a reality. As a result, if your current income and spending habits won’t make that possible, consider what you can change to alter the equation in your favor.
4. Consider the Possibilities
Even if you have a solid budget that will make achieving your goals straightforward, an unexpected event can often derail even the best plans. Since that’s the case, spend time working together to consider all of the potential scenarios that could impact your lives.
For example, think about what would happen if one of you suddenly lost a job or was injured in an accident. What about a car accident, house fire, or similar emergency? You may also want to consider how an unexpected pregnancy may alter the equation (if applicable).
The goal here is to look at various potential situations that may arise. Then, you can see if you’re prepared to deal with them or if you need a new goal to make navigating the unexpected simpler. For instance, you may determine that building a larger emergency fund should be a goal, giving you an extra objective to fit into the equation.
5. Think About Retirement
Another part of the picture that’s easy to overlook accidentally (particularly for younger newlywed couples) is retirement. Since starting to save as soon as possible works in your favor, spend time working together to determine what you’ll need.
Talk about how you envision spending your golden years and what it would take to make that financially plausible. Then, use resources like retirement calculators to identify a suitable savings target. Finally, look at all of your retirement savings options, allowing you to identify a viable path.
6. Monitor Your Progress
At this stage, you likely have a relatively solid financial plan in place, but that doesn’t mean the work is done. In many cases, it’s easy to accidentally be overly optimistic about how your financial life will unfold. As a result, you need to keep an eye on your progress as you move through this journey together.
Keep an eye on savings account and retirement account balances. Monitor spending across all of your budget categories to see if anything exceeds your projections. Gather as much information as possible over several months. That way, you’ll have the details you need for the next step.
7. Adjust Your Plan
Ultimately, couples should never treat their financial plan as a set-in-stone roadmap that will work for the rest of their lives. Circumstances will change. Priorities will shift. The unexpected will happen.
As a result, you want to take the information you gathered while monitoring your progress and make adjustments to your financial plan as the need arises. By doing so, you can adapt to how your life changes over time, allowing you to remain focused on your goals and keep your financial life in order with greater ease for years (if not decades) to come.
Do you have any tips that can help newlyweds increase their financial savvy and put themselves on the path toward success? Are there any money moves that they should consider besides those listed above? Share your thoughts in the comments below.
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