6 Simple Investing Steps All Newlyweds Should Take
Being on the same page as your spouse when it comes to finances is key. Learn about creating and working together towards shared financial goals with this investing advice for newlyweds.
When most people think of the finances behind getting married, they think of the costs.
The cost of the ring, the cost of the wedding, the cost of the honeymoon – it all adds up to some staggering numbers. So it’s no wonder that people are focused on wedding budgeting to save money leading up to the big day.
However, your focus on finances shouldn’t stop after the wedding day.
There are a lot of money questions you need to answer as a newly married couple, including if you should combine finances, how you will budget, and what your investing strategy will be.
In this article, I’m focusing on the last item – investing. Below, you’ll find six steps every newlywed couple should consider when it comes to investing.
Why Investing Matters
First, I want to highlight a quick example that demonstrates why investing matters.
Let’s say that you and your new spouse have $1,000 in wedding gift money and are trying to decide what to do with the money.
One popular option would be to put the money in a high yield savings account, ideally, one that pays enough interest to offset inflation. Another common option would be to invest the money. For the purposes of this example, the investment would take place in an equity index fund that averages a 7% real annual return.
After 40 years, here is what the result would be for each option:
- Savings Account: $1,000
- Index Investing: $13,994
Investing your money nets a return that is nearly 14 times greater!
The bottom line is that investing matters because if you want to retire, you need to invest your money and take advantage of compound interest. Take a moment to consider what you could do with the money you would’ve spent on an expensive wedding! It could literally change your entire financial life to plan your big day without debt and put your savings to work for you!
Investing Advice for Newlyweds: 6 Steps to Grow Your Savings
Below, I’ll share 6 steps you should take to set yourself up for financial success after you get married.
1. Align on Your Goals
The first step you should take as a new couple is to align on your goals. This advice applies broadly to all things in life but is essential with personal finances and investing too.
The most critical investing goal to align on is retirement. You need to ask yourselves two questions:
- At what age do you want to retire?
- How much money do you need to retire?
The first question is relatively easy, and yes, you are allowed to change it over time. Goals should change as your priorities do, but it’s important to start with a rough idea of how long you want to be working.
You can answer the second question with the 4% rule. If you know how much you roughly plan to spend annually in retirement, you can divide that number by 4% to get your target nest egg.
For example, if you want to spend $50,000 per year in retirement, you will need $1.25 million in order to retire ($50,000 / 0.04 = $1,250,000).
It’s a rule of thumb, but helps give you a target to start working towards. Once you have your retirement goals, you can begin to figure out how much you need to save and invest every year to get there.
Beyond retirement, you should also align on other high-level financial goals, such as:
- If you want to buy a house
- Saving for a car
- Paying off debt
- Investing for a future child’s education
- Starting a new business
- And so on…
You likely don’t want to invest in the same way you would for retirement for shorter-term goals. Using a saving strategy like creating sinking funds is a better approach.
It’s important to consider all of your financial goals and not mistakenly save for one goal and forego another.
2. Pick an Investing Strategy
After aligning on your retirement and other financial goals, it’s time to pick an investing strategy.
If you are new to investing, this is an excellent opportunity to learn together. Many different strategies exist for varying levels of risk tolerance and involvement. To keep things simple, these are the first two steps to look into:
Step One: Choose Investment Vehicles
You have a few options in terms of what you can invest in, including but not limited to:
- Individual Stock
- Individual Bonds
- Real Estate
- Index Funds
- Exchange-Traded Funds (ETFs)
The easiest path is to invest in a couple of index funds or ETFs. These are funds that hold multiple stocks or bonds and allow you to diversify your portfolio with just a few investment vehicles, rather than having to buy 10, 20, or 30 individual stocks and bonds.
One popular strategy is to build a 3 fund portfolio. Newlyweds can take advantage of this investing advice to grow their savings together.
Step Two: Choose Where to Invest
Then, it’s time to choose where you (or your broker) want to invest. If this decision is for a broker you can use for an IRA (step 4) or brokerage account (step 5), but it won’t apply to 401(k)s, which we’ll cover in the next step.
In general, you have three primary options:
- A traditional full-service broker, like Vanguard, Charles Schwab, or Fidelity
- An investment app, like Robinhood or Stash
- A Robo-advisor, like Betterment or M1 Finance
A full-service broker will give you the most options, an investment app will be the easiest to use, and a Robo-advisor will do a lot of the investing work for you.
Again, this is another opportunity to do some research together and pick the best option for you.
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3. Use Your 401(k) Match
Steps one and two were both “high-level” steps. They require conversation and research. Now, it’s time to take action.
In step 3, you should take a look at your 401(k)s, if you have them.
A 401(k) is one of the most popular tax-advantaged accounts and is offered by your employer to help you save for retirement. You can learn more about 401(k)s and their rules here.
The common feature of a 401(k) that I want to call out is the employer match. An employer match is exactly what it sounds like – your employer will match a portion of your contributions that you make to your 401(k).
For example, if you make $40,000 per year and contribute 10% to your 401(k), your employer might match “up to 3%”.
This would mean as you contribute $4,000 to your 401(k), your employer will chip in an additional $1,200 ($40,000 * 3%).
Not all employers offer a 401(k) or an employer match, but if they do, you both need to take advantage of this free money!
4. Utilize Your Other Tax-Advantaged Options
After examining your 401(k)s and contributing up to the employer match, you should consider other tax-advantaged accounts available to you, including:
- Traditional Individual Retirement Accounts (IRAs)
- Roth Individual Retirement Accounts (IRAs)
- Health Savings Accounts (HSAs)
- 529 Plans
These tax-advantaged accounts are the best way for newlyweds (or any couple) to save and invest their money because you get to keep more of it. You have the option to continue to invest in your 401(k), to invest in one of these accounts, or a combination of both.
5. Open a Joint Brokerage Account
After you take advantage of 401(k)s and other tax-advantaged accounts, you should consider opening a joint brokerage account together.
A regular brokerage account provides the least amount of tax benefits but is the most flexible. You can access your money at any time penalty-free.
It’s a good option for general wealth building and saving for medium-term goals, like if you want to buy a house in 10 years, while your 401(k) and tax-advantaged accounts are great places to save and invest for retirement.
6. Update Your Beneficiary
Last but not least, you should update your beneficiary on any accounts where applicable.
While the other pieces of investing advice are largely in order, this last step is a mandatory bonus one that newlyweds should take immediately. Now that you are married, you want to make sure that your spouse will be able to access any accounts as needed in case of an emergency. You may want to look into life insurance policies as well.
Summary: Communication is Key
At the end of the day, the most important advice for investing well as a couple (newlyweds or not) is communication. You need to be open about your goals so that you can both work together to achieve them.
That is why the first two steps above are so necessary! By getting on the same page early, you make the execution of your investing plan that much easier.
So don’t delay! Start working through your investment plan with your partner now so that you can both secure the financial future of your dreams.