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5 Common Money Mistakes Young Couples Make

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5 Common Money Mistakes Young Couples MakeDo you and your partner bicker about money? According to a survey from Money magazine, arguments about financial matters are the leading cause of friction between spouses. Of the couples surveyed, 70% argue about money – that’s a lot of arguments. Fortunately, things get better as you age because older couples tend to argue about money less than the younger folks. That’s probably because most of us become more financially secure as we age.

I feel very fortunate because my wife and I never fought about money in our 18 years of marriage. We met in college when we were both poor students and have been together ever since. Back then, we didn’t have to fight about money because neither of us had any. We were both frugal by necessity, and the habit stuck. Money isn’t a big problem for us because we have similar money values and financial goals.

Since so many couples reach a point of friction because of money, I thought I’d share some insight into money mistakes young couples can avoid to reduce discrepancies and protect each other financially

1. Spending too much on an extravagant wedding

The wedding industry has become a huge business here in the US. The average American wedding costs over $30,000. If you’ve ever planned a wedding, you’d know that it can snowball very quickly in an effort to meet unreasonable expectations. I love a great wedding party as much as anyone, but most young people don’t have $30,000 lying around. I don’t think we even had $10,000 in the bank when we got married.

Today, young couples have it tougher than 20 years ago. Weddings have become a huge expense, and many couples are struggling to pay off student debt. The average Class of 2015 graduate has over $37,000 in student loan debt. Take those combined student loan debts, add a wedding, and a young couple could potentially start their married life with $100,000 in debt. That’s a huge hole to climb out of. Of course, if you are debt free and have high paying jobs, then go for it if that’s your prerogative.

Soon-to-be-wed couples need to go over their finances before considering an extravagant wedding. We didn’t have a big wedding, but money wasn’t the primary consideration. We started to plan for the wedding, and it was just too much work. Mrs. RB40 was turned off by the planning process and unsolicited input from family members, so we just went to the courthouse with a couple of friends. It worked out quite well, though. We used the money we saved to help buy a house the following year. Instead of a big wedding, we’ll have a big 20th anniversary party and invite all our friends. Personally, I think being married for 20 years is a much bigger accomplishment than getting married.

2. Keeping money secrets

It’s not always easy to be completely honest about your financial situation. How do you tell someone that you have $10,000 in credit card debt and $37,000 in student loans? I imagine that would be a very uncomfortable conversation. However, these secrets will come out when a couple applies for a mortgage or a car loan. It’s better to be honest and reveal your imperfections before you get married.

Another common deception is keeping a secret stash. There might be a legitimate reason for keeping a secret bank account, but it is an indication of a bigger issue. My mom had a secret stash because my dad liked to gamble when he was young. It was perfectly reasonable to have money stashed away, but the underlying problem was still there. A secret bank account will just create more problems for a troubled marriage.

A better alternative is to have separate accounts – mine, yours and our account. That way, there is a limit to the spending, and it won’t impact the joint finances. Keeping separate accounts is more complicated, but it’s better than having a secret that can break up a marriage. These days, it’s perfectly acceptable to not combine your finances.

It’s just a bad idea to keep secrets from your spouse. You need to work as a team and figure out how to solve your money problems together. That’s why it is important to go over your finances together regularly.

3. Lifestyle Inflation

Lifestyle inflation is a huge problem that is almost impossible to avoid. Most of us were poor college students at one time. Life wasn’t perfect, but I bet it was a lot of fun. The transition from having no money to making a decent income is a great one for most people. However, that’s when lifestyle inflation can make the biggest impact to your future.

A lot of people spend all their income to improve their lifestyle and borrow even more to enjoy life to the fullest. Young couples are even more susceptible to lifestyle inflation because they want to start off on the right foot. We had this exact problem when we first got married. The bank was happy to give us 2 car loans and a big mortgage. Our first house was way too big for 2 people, but we thought a big house would encourage our family members to visit.  We also thought it was the way to start a family. Of course, we didn’t have a kid until 14 years later so the big house just meant years of bigger utility bills, property taxes, and maintenance. It would have been a better idea to purchase a smaller home when we started out.

Young couples should minimize lifestyle inflation as much as possible because it is much harder to cut back once you’re used to a lifestyle. Living modestly will give you a chance to save and invest more in your 20s and early 30s. This is the best time to invest and compound interest will work in your favor for many years to come. So young couples, I advise you to live in a smaller home, avoid new luxury cars, use your old TV until it breaks, and generally spend less than you make.

   4. No financial protection

Another common problem that young couples have is inadequate financial protections. Health and life insurance is expensive, but they are necessary when you’re married and even more so if you have children.

Health insurance is crucial because anyone may need health care suddenly. Medical bills are the number one cause of bankruptcy in the United State because nobody can afford to pay those huge hospital expenses. One special case a young couple has to watch out for is a pregnancy. The delivery, prenatal, and postnatal care can cost a lot of money – anywhere from $3,296 to $37,227 depending on the hospital. Even more if you have a cesarean section.

Life insurance is even more overlooked by young couples. The subject may be a bit depressing, because nobody wants to think about death, especially when they are young. Healthy young people think they have years to live, but you never know what’s going to happen tomorrow. And life insurance helps financially protect your family from the unexpected.

I had a small life insurance policy through work when I was in my 20s thinking it was enough. Now, I know it wasn’t the right coverage because a work situation can change rapidly, and employer-provided coverage only covers you while you’re at that job. It also typically provides coverage that’s only 1 or 2 times your annual salary – the usual recommendation when you have financial dependents is coverage that’s 5 to 10 times your annual salary.

Life insurance is extremely important if you have kids. When we had a kid, I made the extra effort to get a supplemental life insurance policy outside of work. I wanted to make sure our son is taken care of if something happens. Money doesn’t solve every problem, but it would help smooth out some bumps in the event of an untimely demise. Being a single parent is very difficult, and I wanted to make sure that money won’t be a huge concern for my family. And, coverage is far more affordable than you probably think. A 20-year, $500,000 policy would cost a healthy 30-year-old man about $21 per month.

Almost every couple needs health and life insurance. Unfortunately, young couples tend to overlook this and it could have disastrous consequences. Go over your coverage today because this is the perfect time of the year to review them. Life insurance is no longer optional when you have children.

  5. Not saving for retirement

Unfortunately, we don’t save enough for retirement here in the United States. Young couples tend to ignore retirement savings because it seems so far off. There are a lot of other financial demands that need immediate attention. Many people put off retirement savings until their 40s and 50s, but that is a huge mistake.

Everyone needs to start saving for retirement as soon as they can. Compound interest works best when you invest early. In my 401(k) article, I show how early savings can give your 401(k) a huge boost. In my calculations in that post, just putting off 5 years of investing in your 401(k) from 1988 to 1993, you’d have $450,000 less in your retirement fund. That’s a huge amount.

This will hold true in the future as well. If you start working in 2017 and save the max contribution of $18,000, you still have the potential for growth towards your retirement. The best wealth building advice I can give is to invest in your 401(k) as soon as you can. Put off getting a nice car and a big house until you are able to max out your 401(k) comfortably. I promise that you won’t regret it.

Start off on the right foot

Mrs. RB40 and I are really lucky because we have similar money values, and we don’t mind living modestly. Many couples have more problems because they don’t share the same values. If one person wants to live it up and spend all their income while the other wants to save, the relationship wouldn’t turn out well. Some couples are able to work it out and get on the same track so don’t give up if you made some mistakes early on. The key is to work together as a team to become more financially secure.

What are your best financial tips for young couples? We all made mistakes when we were young, right? Good luck to all the young people out there!

This post is sponsored by Haven Life – a modern life insurance agency that has created a simple, straightforward and entirely online way to purchase life insurance and protect your loved ones – but views expressed are my own.

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{ 47 comments… add one }
  • Michael @ Financially Alert January 11, 2017, 1:43 am

    Nice post, Joe! It’s so important to communicate upfront with your partner to be.

    My parents had very different values around money and it caused tremendous tension in their relationship (probably a key reason they divorced). So, get it out of the way in the beginning and you won’t have to worry about money secrets later on. 🙂

    I was fortunate that money was never a taboo subject to talk about with my wife. In fact, we talked about our money values early on. We also had a marriage retreat (via church) that opened up this discussion again before we finally tied the knot.

    Thankfully, we have rarely fought about money after a couple of decades of dating and being married. I plan on keeping it that way. 😉

    • retirebyforty January 11, 2017, 7:52 am

      It’s really great that young couples have so much more information now. There are a ton of information on the internet and the church group is a great resource too. Great job so far. 🙂

  • Freedom 40 Guy January 11, 2017, 3:56 am

    Great points. I’ve found that just having money conversations on a regular basis with my wife is important to make sure we’re on the same page. Because I’m more interested in the topic – I tend to “take care” of our family finances, but I’m not the only one making the decisions. She needs to be involved and on board as well. Fortunately our financial goals are usually pretty similar, but sometimes we differ and so we need to make compromises before moving forward.

    • retirebyforty January 11, 2017, 7:55 am

      Great job having money conversations with your wife. We talk about expense and income, but we don’t talk much about investment. She is our editor so she knows the basic. It’s hard to talk about investment when she’s not that interested. 🙂

  • The Green Swan January 11, 2017, 4:19 am

    A very important subject, Joe! My wife and I have been married for almost 9 years and we’ve never had a major issue around money. The key is being on the same page with the same goals. If we ever have a disagreement, we revert back to talking about what our goals are to clarify why we disagree and this makes it easier to understand and get over it.

    The risk of fighting over money never goes away though. That’s why we regularly have financial check-ups to make sure we are always on the same page. Otherwise, you know what they say…mo money mo problems!

    • retirebyforty January 11, 2017, 8:01 am

      It is so much easier when you have similar money value. We’re lucky that way too. It’d be so much more difficult if we had to change the other person.

  • Erik @ Hippies de Land Rover January 11, 2017, 4:51 am

    The basis for a long term relationship! 🙂 Nice post, I’ve found that talking about finances is good to align objectives. Now we’re in the path to FI so it’s easy to be aligned although some times we both have different opinions on a certain purchase we both put FI as priority and the decisions becomes easier.
    Thanks for the input!
    Cheers!
    Erik

    • retirebyforty January 11, 2017, 8:04 am

      It’s awesome that both of you are on-board with FI. I know it can be tough to convince your partner about FIRE. Good luck!

  • Apathy Ends January 11, 2017, 4:55 am

    All are good Joe, but The lifestyle inflation point stands out to me. Not only do couples fight about $ but the stress from barely being able to pay bills spews into other aspects of your life and creates stress on the family. Don’t let your debt keep up with your income and you won’t have to live in fear.

    • retirebyforty January 11, 2017, 8:08 am

      Lifestyle inflation can really sneak up on you. I think it’s such an important point when you start making good money. Once you’re used to a certain lifestyle, it is so difficult to cut back. That’s why it’s best to max out your 401k contribution early on. You won’t have that much cash in the bank account. 🙂

  • Full Time Finance January 11, 2017, 5:22 am

    Great points. The wedding one really resonated with us. We went small and cheap but part of that is my wife doesn’t like being the center of attention. Still when all was said and done including honeymoon to hawaii we probably spent 1k. Here we are 6 years later still happily married. Several friends with large weddings are already divorced. Ie a big wedding says nothing of your future together.

    • retirebyforty January 11, 2017, 8:10 am

      $1,000? That must be a typo.
      We went to Hawaii for our honeymoon too and that cost more than $1k already. 🙂
      Yeah, sadly some of our friends are divorced. It’s tough to go the distance these days.

      • Full Time Finance January 11, 2017, 5:28 pm

        No typo, though a bit of accounting trickery perhaps. Instead of wedding gifts we requested contributions to out honeymoon fund from our 40 or so guests. Both trip and wedding combined cost about 5k. 2k in gifts and a small 2k stipend from my father in law that paid for the cater, and we spent 1k. Yes in reality the whole deal cost 5k however me and my wife only spent 1k of it.

        • retirebyforty January 12, 2017, 7:42 am

          That’s awesome! 🙂

  • Ms. Montana January 11, 2017, 5:50 am

    We started off in a similar way. Young and broke. =) I was naturally frugal, and he learned it because we only made 12k that first year. We spent about $1500 on the wedding. But tell you what I wrote a post about how we still can’t afford a $30,000 wedding that was picked up by another site, and I have never seen more angry comments! Oh, it’s a hot, touchy topic. All I was saying was that we can come along way from broke college students but still don’t feel like we can afford to spend that much on a wedding. It was one of my very first guest posts, and I wanted to quit blogging because they were so mean and angry! All that to say, it’s apparently a very touchy subject!

    • retirebyforty January 11, 2017, 8:13 am

      $30,000 on a wedding is ridiculous. That amount will turn into millions if you just invest it instead. People get too emotional invested and they can’t think logically. I wouldn’t spend $30k if I get married today. Like I said, I’d rather spend some money once we’ve been married a while. We’ll probably spend $10k on our 20th anniversary, but that will include a week of vacation for close friends and family in Santa Barbara. I’m looking forward to it.

  • Mrs. Picky Pincher January 11, 2017, 6:35 am

    Yes times three thousand.

    Our wedding was modest and it still set us back about $9,000 (yikes!). In hindsight I wish we had held the wedding in our parents’ back yard and done a simple barbecue instead of the white wedding. It was fun, but that money really could have been put to better use.

    Mr. Picky Pincher and I always try to be extremely open about money with each other. Obviously we don’t agree about everything 100% of the time, but we’re both on board with our long term goals. And that does mean that there’s no place for lying about money–even little white lies. People, please stop hiding stuff from your partner. It’s not cool.

    • retirebyforty January 11, 2017, 8:18 am

      $9,000 is pretty good compare to some other weddings I’ve been to. 🙂
      I don’t mind spending that much to celebrate our 20th anniversary. That’s a great accomplishment, right?
      Yes, it’s better to be open and work together to accomplish your goals. Hiding things from your partner will only hurt your relationship.

  • Mike H. January 11, 2017, 7:24 am

    As a single guy, I’ve been able to watch from the outside while my friends run the gamut of decisions: one friend actively hides investment accounts from his wife because she apparently can’t be trusted to know that they have money. Another friend’s theory is that if you do not combine all your finances, you aren’t really married – but he and his wife don’t do a lot of retirement savings, either.

    I have my opinions. But it seems like one dynamic has shifted: there can’t be one person who takes care of the money, and one person who knows nothing about it. Financial literacy is extremely important to every individual, married or not.

    • retirebyforty January 12, 2017, 7:34 am

      Yikes! That’s not good. You’re learning some great lessons, though.
      You’re right. It’s better to work on your finance as a team. Even if one person isn’t interested, they still need to at least know what’s going on.

  • Smart Provisions January 11, 2017, 7:49 am

    Great tips, Joe.

    Another good one is to learn how to have great and fun cheap dates, like a walk in the park, hiking, going to volunteer at food banks or animal shelters, etc.

    • retirebyforty January 12, 2017, 7:33 am

      Exactly! Fun cheap activities are just as entertaining as expensive ones. We love to do all these things and our city have a ton of free activities in the summer.

  • David Michael January 11, 2017, 8:39 am

    It’s boggles my imagination that young couples today are spending $30,000 and up for a extravagant wedding. That plus college debt really makes the first decade of marriage challenging, especially when the kids come along. However, having said that, my daughter did a lovely wedding and fortunately, parents of both groom and bride chipped in to reduce major expenses. They had good jobs so everyone paid into a $20,000 wedding.

    I do remember my second marriage that my wife and I held in our backyard. It was a blast with about 80 guests, and we designed it ourselves. I believe it cost about $1000 or less. However, we did make one huge mistake…since we were older and most were close friends, we suggested each person contribute to a potluck and forget the gifts. Well…not so great an idea as we ran out of food, and ended up with some last minute preparations. I strongly suggest a good caterer for a back yard or in-house wedding.

    I agree with you Joe, have a fun honeymoon, and start saving for a house and retirement the very first year.

    • retirebyforty January 12, 2017, 7:36 am

      Your second marriage sounds like my kind of wedding. That’s what I want to do for our 20th anniversary. We’ll try to get a big house in Santa Barbara for a week and invite our close friends and families. Bring your own sleeping bags. 🙂

  • Mr. Tako @ Mr. Tako Escapes January 11, 2017, 9:12 am

    Great list Joe. The only one I might add is “Making the wrong friends”.

    If a young couple makes the wrong friends (i.e. spendy friends) they’ll probably end up spending more, going out to expensive restaurants and entertainment.

    We have some spendy friends, and I actually hate hanging out with them. They’re answer to everything is to just spend money.

    • Mr. All Things Money January 11, 2017, 7:27 pm

      Oh spendy friends are such a pain, they want you to become like them and not think about saving money. I used to get all kind of snarky comments from such friends, now I am retired and enjoying my life while they are still working to pay off that big mortgage and luxury car.

    • Mike H. January 12, 2017, 11:19 am

      A spendy city is even worse. Where I live, I swear either everyone makes at least 50% more than I do, or they spend like they make 50% more than I do.

  • Financial Panther January 11, 2017, 11:57 am

    Avoiding lifestyle inflation is the big one. You start seeing the money roll in and then it’s just so hard to avoid the expensive house and nice car. Then you’re stuck.

    Most people could probably do perfectly fine living on one income, for example, and investing the entirety of the second. That’s likely the plan for our household. Just imagine what could be done if you’re investing the entirety of one partner’s paycheck!

    • retirebyforty January 12, 2017, 7:38 am

      We’ve been living on one paycheck for over a decade now. It’s a great way to put money aside for investment. We didn’t feel deprived at all because we put saving first and we’re used to it. Thanks for the comment.

  • Stockbeard January 11, 2017, 1:09 pm

    Sadly, my wedding was on the expensive side ($15’000 with 80 attendees). I don’t regret it, we had a blast, and I think I would do it again if I were to go back in time. It’s easy for me to say though: the attendees paid half of it, and my parent basically paid the other half (that was their gift).
    Interesting how I managed to forget about this huge expense so far, and am realizing just now how expensive it was. My parents were able to afford it, but I’m now kind of ashamed to realized that I definitely had a subsidized lifestyle back then…

    • retirebyforty January 12, 2017, 7:41 am

      $15k is still a lot cheaper than today. I like Asian style wedding where the attendees help with some money. It’s much easier on the young couple to distribute the cost a bit.
      I wonder how much a wedding will cost in 20 years. I’m not sure if I’d be willing to pay for the whole thing when my son get married. Even half would be a ton of money to us. Maybe we’ll be wealthy by then. 🙂

  • Wes @ TPOHappiness January 11, 2017, 1:21 pm

    I just want to help highlight that the life insurance costs are much lower when acquiring a policy when young. Even just a couple years in your 20s can make a big difference in long term premiums.

    Don’t wait too long to get coverage!

    • retirebyforty January 12, 2017, 7:42 am

      That’s a great point. It’s better to get life insurance when you’re young especially if you have a kid. Waiting until you’re older and less healthy will be more expensive. Definitely before 40.

  • Joe January 11, 2017, 5:36 pm

    Hi Joe, what happened to that big house you bought out of college? Do you still own it? It was probably a good investment…

    • retirebyforty January 12, 2017, 7:43 am

      We turned it into a rental and sold it in 2014. We used the money to buy our duplex. It was a good investment because we’re lucky that we live in a good real estate market.

  • Mr. All Things Money January 11, 2017, 7:21 pm

    I think it’s really important to have financial affinity in a marriage as financial issues or bickering can lead to unhappiness or worse a divorce. I read somewhere, financial problems and related stress is number one cause of divorce in the US.

    I am very lucky as I have married someone very frugal. Like you, we have been together almost 18 years and I can’t think of any time we fought over money.

    • retirebyforty January 12, 2017, 7:44 am

      Congratulations! Are you going to have a big 20th anniversary celebration? 🙂 I need to start planning soon.

  • Go Finance Yourself! January 12, 2017, 5:13 am

    The cost of a wedding today is crazy! We didn’t have a super expensive wedding 10 years ago, but it still cost a pretty penny. We had an awesome time and so did our guests, but we always say if we could do it over again, we’d just have a small destination wedding and keep costs low. Spending that kind of cash on a wedding is just crazy!

    Avoiding lifestyle inflation is something we’ve been good at. We still live in our first house, a 3 bed one bath starter home. I still drive the same car I did 10 years ago. We spend more on experiences (going to Hawaii this summer!), but we don’t really care about accumulating stuff. That really is one of the keys to becoming financially independent. Keep your lifestyle the same and let your savings grow as your income grows.

    • retirebyforty January 12, 2017, 7:47 am

      A small destination wedding sounds great. I’d prefer that to a big wedding at home.
      Nice job avoiding lifestyle inflation. That’s a huge stumble for most people.

  • Sylvia @Professional Girl on the Go January 12, 2017, 9:31 am

    We have been married for 6 months next week and I didn’t want to spend a lot on our wedding. We ended up spending about $5K and received $7K in in monetary gifts (my parents gifted the honeymoon accommodations), so we used the cash for our emergency fund.
    P.S. These are great points to focus on because all of these things have popped up in the last 6 months.

  • Jay @ ITF January 12, 2017, 5:43 pm

    It’s crazy how common these mistakes are – but also, how so much societal pressure exists to conform to them. On the other hand, if you can capitalize on these big wins there’s a lot of small stuff you won’t need to worry about. Especially when it comes to saving and investing: if you can form good habits early on, you can be set-up for a lifetime of success.

  • Fiscally Free January 12, 2017, 8:25 pm

    My wife and I are also lucky to have similar financial views.

    I am also blown away by the price of the average wedding. We had an incredible wedding and we didn’t bankrupt ourselves. One of my first posts was actually about wedding spending. You can check it out here: http://www.fiscallyfree.com/2016/04/how-to-throw-awesome-wedding-without.html

  • Tawcan January 13, 2017, 12:16 pm

    Man don’t get Mr started on how much people spend for their weddings. As a wedding photographer this is great because I can charge good amount of money. But from a personal finance point of view it makes no sense.

    If we managed to get married 3 times for less than $9000 I think you can easily lower the wedding cost.

    • retirebyforty January 14, 2017, 11:08 am

      Married 3 times? I hope that’s just different locations for families. 🙂 $9k is pretty good for 3 weddings.

  • Mike January 13, 2017, 8:14 pm

    Lifestyle inflation is the one that we’re ALWAYS fighting. It’s hardest right after our friends get a new car or a bigger TV. I’m driving a 12 year old Caravan and watching a stupid 32 inch. We have to sit down every few months and remind ourselves what our priorities are as a couple.

    Great article!

    • retirebyforty January 14, 2017, 11:13 am

      Keep at it! 32 inch TV isn’t bad, right? Someday it will break and you’ll have to get a nicer TV. 🙂

  • Steven February 5, 2017, 5:22 am

    Great post. These mistakes all come forth from not being aligned in terms of financial goals with your “To be”. The stigma on talking about money is so big that it is such a difficult thing to discuss when you are dating. It seems completely not done to discuss money during the courtship period. And as a couple decides to settle, only than do we talk about money. If you are lucky, you are on the same page. If you are unlucky, the discussion all to often gets tense, so you avoid it and hope love will conquer all.

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