Married With Debt? How to Manage Your Money When the Honeymoon is Over

We just received the following question on our website:

“I’ve recently gotten married and both of us have entered into this marriage with our own debts. We are having a hard time, even with combined incomes, making ends meet. I would like to learn more about money management and what needs to be done to pay bills and still have enough money left for savings and cash reserves.”

There are a lot of couples who have been in a similar situation and with just a few slight tweaks to their financial lives, they have been able to reach their initial goals.  I’ll share some of the things I’ve learned from talking to couples who are now financially stable and on their way to a prosperous future.  What guidance could those couples give our newlywed couple?

The first thing to do is to get an absolute 100% handle on where you are now from a few different angles.  If your family were a business, your accountant & stockholders would want to see a balance sheet and an income statement.  In the world of personal finance, the balance sheet would look like this Financial Organizer.  The goal of this is to understand exactly what you own and what you owe.  Why is this important?  1 – Knowing where you are is the launching point for progress.  2 – You can do this at least once per year and track your progress and set longer term goals. Those are just 2 of many and even if there weren’t more…what’s the worst thing that could happen if you know this information?

The income statement would look something like this Expense Tracker.   Again, this is important so that you see exactly how much money is coming in each month and how much is going out.  This can alert you to any trends in your spending that might be the root of your financial distress.  Sometimes when you see it on paper, an area where you can really reduce your expenses is glaringly obvious.  This is  a great website for helping you think about ways to reduce your costs.

All of that is great but if you’re treading water now and just making it from one paycheck to the next, what other things can you do to take control of your finances?  One of the simplest things you can do is to buy a calendar that is to be used for ONLY financial matters.  When you get a bill, enter its due date on the calendar and the amount you are going to pay.  Have a weekly meeting with each other to discuss the coming week’s financial status.  With the calendar and the meeting, you should have no surprises that tend to derail your financial life.  You will have “a system,” which is what a lot of couples I’ve talked to have needed in order to maintain their focus.  Finding a system is actually the hardest part of the job.

With a system in place, the rest gets easier.  To get rid of debt, pick the debt with the highest interest rate (or the lowest balance depending on what you’d find more motivating to eliminate) and make it your mortal enemy. (OK, I have sons who like superheroes so “mortal enemy” is a part of my daily vocabulary now.)  Pay nothing but the minimum payments on everything except that mortal enemy so every available dollar can be used against it.

If you pay off your highest interest rate debt first, your overall interest expense is minimized.  If you pay off the lowest balance first, you get rid of 1 debt totally and feel a quicker sense of accomplishment.  Which one is better?  The one that you can stick with!  The real magic comes when the first debt is paid off.  Whatever you were paying on that debt gets added to the minimum payment on the next debt in line (by interest rate or balance) and that debt gets paid off rapidly.  Continue on this same path until all of your debts are paid off.

When it comes to the saving part of the equation, the best places to start are with your 401(k) and your emergency fund.  At the bare minimum, contributing to your 401(k) up to the maximum that your employer matches should be considered an absolute must.  It’s FREE MONEY!  Take it!!!  And one of the more critical elements of your financial life should be your emergency fund.  When (not if) your car needs an expensive repair or your house needs something replaced, you won’t have to rely on a credit card if you have enough money saved to pay for that sure-to-come emergency.  Whether it’s $5, $10, $20 per month or more, set up an automatic deposit into a savings account.  Get that account at least up to the $1,000 – $2,000 level because most household/auto emergencies don’t cost more than that.  Sell some of your old unwanted stuff on eBay or Craigslist or get a part-time job if you need help getting your emergency fund started.  The emergency fund is your first line of defense against financial disasters.  That’s the foundation of your “get out of this situation” strategy.

I know that’s a lot of ground covered.  But each and every part of this strategy helps build for your future and when used together, will create a path to a future filled with far less stress and far more control.  Get to know where you are now.  Look for ways to save on your current expenses.  Get an emergency fund started.  Automate it with direct deposit.  Pay down debts aggressively.  Invest in your retirement plan.  None of these ideas are revolutionary but when used together as one cohesive strategy, they could revolutionize your financial life.

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