Newlyweds and their new finances
Recently I have had several meetings with different newly married or about-to-be-married young couples. These couples were at slightly different stages in their new life together, and their exposure to financial issues was also not identical. But the common denominator was that they were all about to take full financial responsibility for the first time in their lives. Something that is simultaneously exciting, liberating, incredibly challenging and even possibly scary.
Some of those I met had their own bank accounts, and some had already been earning a salary, but all of them were still financially dependent on their parents. And I think that is true for the large majority of young married couples in Israel prior to their wedding.
After the exciting build up to the wedding, and then the day itself, comes the day after. And that’s when they already need to have a basic idea of how to manage their financial lives together. As parents we have a duty to educate our children to make the transition to financial independence. While providing our young couples with support at the beginning of their journey is a tremendous chessed, teaching them correct financial management habits is even more crucial. And if some parents don’t feel that they can impart this knowledge effectively then they need to find someone who can.
Here are some critical issues that need to be considered.
1. The new couple has to build a workable budget. Before the wedding they probably will know where they will live, but they need to project their other expenses and balance that total against all projected income (including support from their parents if applicable). Their first budget, similar to virtually every subsequent one, will need to be adjusted and tweaked, but they must start with the big picture in mind.
Obviously different parents have different ideas and abilities regarding helping the new couple financially. But regardless of how much help the youngsters get, they need to put a plan together to maximize the usage of their valuable but limited resources.
2. The chances are the bride and groom will come home from the wedding with a substantial sum of money – cash and checks, possibly in more than one currency. They need to have considered whether to open a joint account. Should they open an account abroad for their foreign checks? Should they use money changers? These are very practical and common questions. The answer to each question has pros and cons all of which need to be examined.
3. And then there’s the decision of what to do with the wedding money. Invest it? At what risk level? In what type of investment? If they are both Americans they are not going to invest in foreign mutual funds. But there are many other practical and halachic issues, and often young married couples are uninformed about all these subjects. If the young couple decides to invest their savings, they will need to consider whether to invest in Israel or abroad. The decision where to hold their savings can have implications on their tax obligations, especially if they are American citizens. Educating themselves is a process that might take a lifetime but these are critical topics that need to be considered at the very beginning of their married life.
4. The young couple should be creative in their thinking regarding ways to earn money. Because they often will be able to keep their expenses very low, they may be able to balance their budget with much less income and with non-standard sources of income. They might consider subletting their apartment when they aren’t there, find part-time or casual employment that fits in with their schedules, and thereby make a significant contribution to their budget.
5. And when it comes to paying bills, should they use cash, checks or credit cards? There are advantages and disadvantages to all three options which must be considered. The main disadvantage with credit cards is that they create a mechanism to spend way beyond one’s means – one swipe and the item is yours. There is absolutely nothing to create a break between one’s impulse to buy and one’s bank account. However, the advantages include their convenience when used within a framework. An additional long term advantage is that they help the couple build up a credit rating. And nowadays when there are centralized credit scores in Israel, that is a very big advantage that can help them in the future when they look to take out a mortgage.
6. Checks can also be very convenient, but unless the check book is balanced every time a check is paid out, there will be no clear picture of the true balance in the bank account. A check can be cashed at any time (and even held for many long months), and if that expense hasn’t been factored in and deducted from the bank balance at the time of issuing the check, the eventual cashing of the check might come as an unpleasant shock.
7. Cash is the best option for physically keeping track of exactly how much money is going out, but it is less practical for larger expenses, and is less convenient in that the cash has to be in your wallet in order to spend it! Many young couples might want to use an envelope system, dividing their monthly budget into different envelopes according to the major expense categories. This approach helps to develop the discipline of spending only what you have available.
There are few things more exciting than a young couple starting what everyone prays will be a long, happy and healthy life together. But they will be at a huge disadvantage if they aren’t educated and guided in the critical financial issues that impact all of us trying to make ends meet. Start now by giving your kids the gift of knowledge, and that will very probably be the most helpful and effective wedding present of all.