BY BAILEY CAPRI SMITH
Finances can be a difficult subject, especially for young couples and newlyweds. But Daniel Greiner, finance professor at the IU Kelley School of Business, says early financial planning is crucial. A good start, he says, is to begin building enough savings for at least a 15 percent down payment on a house. Here are four suggestions to build wealth and manage risk exposure during the first five to ten years of a relationship.
1. Rent or Buy?
Renting a home, condominium, or apartment for the first three to five years is more prudent than buying, Greiner says. “Home ownership brings tax breaks, but it also leads to significant risk if you buy too early and have a low down payment. Ownership can also mean a lot of maintenance costs that can overwhelm any good tax breaks.”
Likewise, he says, lease payments on a car can be $100 lower than for car loan payments. But, Greiner adds, “The hardest part is to put all the money saved from renting a place and leasing a car into an investment account.”
2. Stock and Bond Investment
What should you do with your savings? Greiner’s plan for young couples seeking to invest is simple: “Create a diverse portfolio with a low-fee index fund, such as Vanguard. Put about 65 percent of your money in stocks, 35 percent in bonds.” Don’t over-manage your investments at this point, he says. Instead, put your time and effort into advancing your career in its early stages.
3. Insurance and Risk
When shopping for renter’s and car insurance, look at more than price, Greiner says. “Is the company going to act quickly when your car gets stolen?”
Greiner suggests that in addition to health-care insurance, strongly consider disability insurance. As someone recently hit by a health issue that left him unable to work for a year, he says, “I’m so glad I bought disability insurance. It was a huge help for my family.”
4. Debt Management
When entering a marriage, debt is often involved—college loans being part of the package. “Refinance those loans using 20- or 30-year terms,” says Greiner. “Your monthly payment will go down and open up more money to place into investments.” He adds that debt is okay as long as it’s managed and there is a steady investment plan to complement it.
Eventually, says Greiner, your savings and investments will allow you to place that 15 to 20 percent down payment on your first home. This step may not seem important, but it actually puts a firm foundation under your financial future and gives you more options to build wealth as you go forward. When it comes to organizing your financial lives, “there’s an attitude you’ve got to bring to it,” Greiner laughs. This includes being honest with your partner about your financial situation and always reading the fine print when it comes to financial matters.