4 money management tips for young couples
Whether you are a de facto, a newly-wed or celebrating your 5th wedding anniversary, you'll need to work with your partner to manage your money.
You've probably started merging your finances already. People usually start with joint bank accounts and a joint mortgage. But there are a few other financial products you should consider as a couple. They can save you money, protect your family and improve your investments.
Save money in fees - merge credit cards
A simple money saving initiative is to merge your credit cards. Most credit cards with reward points have annual fees. It can range from $50 per year to $1,200 for the Amex Platinum card. By combining two accounts into one, you'll immediate cut fees.
You can decide to have a joint credit card account. This is not common. Or have one of you as the cardholder, with your partner holding a supplementary card. The folks at CreditCardFinder.com.au did a good piece comparing the two options here.
Protect your partner - look at insurance
Once you're committed to someone for life, you cannot be young and reckless anymore. This is especially true when you have a joint mortgage with your partner. If something bad happens to you, say death or disability, you won't be able to contribute your share of income to pay for the massive debt. Your partner becomes liable to the debt and might run into big money problems.
This is where insurance steps in. Generally, people use two types of insurance:
- Life insurance: you get paid out in the event of death. It is common to get cover to pay off your combined debts (like the mortgage), cover funeral costs, and pay for part of the kids' schooling;
- Disability insurance: you get paid if you get injured or sick and cannot work. You usually look to cover your medical expense, plus cost of living during the time you cannot work.
Make sure you are paying for adequate level of cover. You don't want to be under or over covered.
Growing your money together - adjust your investments
You may have individual savings and investment accounts. If you plan to spend money together, it makes sense to plan how to grow your money together.
This means investing your money that reflects your combined attitude to investment risks. Here are the steps get started:
- Asset Allocation: find everything you both own and breakdown the investments into their asset class. For example, cash, shares, bonds, etc;
- Growth vs Defensive: find out how much of your combined investments are in Growth Assets (shares, alternatives, property, etc) vs Defensive Assets (cash and bonds);
- Risks as a couple: figure out your collective attitudes to risk. This is most likely to be different to your individual risk attitude. You can do a free risk assessment test via FinaMetrica;
- Adjust your investments: compare your collective risks vs your combined allocation to Growth vs Defensive. The government has broad recommendations on matching risk vs Asset Allocation. Make sure you consider your investment time horizon too.
Always remember and practice diversification. It will lower your risks and improve returns.
Grow old together - fix your superannuation
Just like your non-super investments, you should manage your Super money collectively. Go through the process described above for your Super funds.
One extra dimension to think about is whether you should merge your Supers together. Self Manage Super Funds (SMSF) are growing in popularity across all age groups.
SMSFs allow you to combine your collective Super money into one fund. This helps cut down on admin fees, from 2+ accounts to one. Fees are really important in your Super. Your retirement nest is particularly sensitive to fees. 1% difference in fees over 20 years will result in around 20% difference in your wealth.
BUT ... SMSF is only cost effective if your balance is large enough. ASIC says you need your combined Super assets to be more than $200,000. That is a lot for a Millenial's Super. But maybe two of you combined would be close?
The other benefit of SMSFs is to that you have 100% control of your Super's investment decisions. You can basically invest in anything you like. The downside of this is that not everyone has the skills or time to manage their super. Ask yourself if SMSF is right for you before you start.
If you are keen to start a SMSF, there are some low cost administrators you can look at like ESUPERFUND.
Good couples money management is like all aspects of a successful relationship. Communication is key. Make sure you have an honest and open dialogue at all times.