Did you know that married couples who invest together are more likely to achieve their financial goals? A study by Fidelity found this to be the case, and it makes sense. Having your partner by your side makes achieving your goals much more motivating. If you’re newly married or looking to start investing as a team, you’re in the right place. Below, you’ll find the roadmap to achieve this, along with relevant resources for a deeper dive into each section. Soon, you’ll have everything you need to master the basics of wealth creation as a couple.
Understanding your financial goals together
Step one is always knowing what exactly your target is. Before diving into investments for wealth-building, start with creating a shared understanding of your financial goals as a couple. So, let’s align your objectives and set the stage for successful investing.
1. Set short, medium, and long-term goals
- Short-term: This includes vacations, a new car, or home renovations.
- Medium-term: These goals are further out in time and include saving for a down payment on a house or starting a family.
- Long-term: These are your big-picture goals, including retirement, planning for your children’s education, or buying your dream home.
2. Communicate clearly and regularly
- Money dates: Schedule monthly financial check-ins. Money Dates are a great way to stay on the same financial page together.
- Budgeting apps: Use budgeting apps like YNAB to keep track of your cash flow.
- Manage changes: Discuss any changes in goals or priorities as they arise.
3. Agree on risk tolerance
- Online tools: Use online risk assessment tools to determine your unique risk appetite.
- Learn each other’s risk comfort: Understand each other’s comfort with risk to better understand each other’s decision-making.
- Balance: Balance your portfolio according to both risk appetites.
Building a budget and emergency fund
These are two key ingredients for building a solid foundation for your financial plan. Here’s how to get started.
1. Create a joint budget
- Make a list of all your sources of income and expenses.
- Identify areas to cut back and save more.
- Use a budgeting tool like YNAB or Mint to track your money.
2. Establish an emergency fund
- Aim to save 3-6 months’ worth of essential expenses.
- Keep it in a high-yield savings account so you’re beating inflation.
- Automate transfers to build it steadily and make it consistent.
3. Review and adjust regularly
- Monitor your budget during your monthly money date.
- Adjust for changes like income shifts or new expenses.
- Celebrate small milestones to stay motivated and reward your wins.
Choose the right investment accounts
Different goals require different investment accounts. Here’s a breakdown of the most popular options.
1. Retirement accounts
- 401(k): Employer-sponsored, often with matching contributions.
- IRA: Individual Retirement Accounts with tax advantages.
- Roth IRA: Contributions are post-tax, but withdrawals are tax-free in retirement.
2. Taxable investment accounts
- There are no contribution limits.
- They have greater flexibility in withdrawals.
- They are most useful for medium to long-term goals not covered by retirement accounts.
3. Education savings accounts
- 529 Plans: Tax-advantaged accounts for education expenses.
- Coverdell ESAs: Another option for education savings with broader investment choices.
Matching your investment accounts to your goals will ensure you’re making the most of the tax benefits available to you and help your money grow most efficiently.
Diversifying your portfolio
Diversification is key to managing risk and ensuring steady growth. In fact, it was one of the first principles I learned at University while studying finance. Below is an overview of building a diversified portfolio, and you can learn more about investing here.
1. Stocks: hold a piece of a company
- Individual Stocks: High potential returns but higher risk.
- ETFs and Index Funds: My personal favorite. These spread the risk across many companies. For example, the S&P 500.
- Dividend Stocks: Consider dividend-paying stocks for regular income if that is your goal.
2. Bonds: hold a debt of a company or government
- Government Bonds: Low risk, lower returns.
- Corporate Bonds: Higher risk but potentially higher returns.
- You can hold these through ETFs and Index Funds also.
3. Alternative Investments
- Real Estate: Investing in physical properties isn’t an option for everyone, which is where REITs or Real Estate Investment Trusts come in useful.
- Commodities: Assets such as gold, silver, or other tangible assets.
- Cryptocurrency: High risk and, as we’ve seen, high volatility, but can diversify your portfolio.
A diversified portfolio balances risk and reward, providing long-term stability and growth potential. Just remember, before investing your money, invest in your financial education first! You can find out how here.
Frequently Asked Questions (FAQs) about investing as a couple
Investing as a couple can be confusing. Here are some more FAQs answered below.
Q: How much should we invest each month?
A: This varies for each of you, but a good benchmark is to aim for 15-20% of your combined income, but adjust this based on your financial situation and goals. For example, if your combined income is $200,000 per year, you would want to invest 20% of that annually ($40,000).
Q: Is it better to pay off debt or invest?
A: High-interest debt should be prioritized. Once that’s under control, balance between debt repayment and investing. Get the list of what steps to take in what order here.
Q: Can we start investing with a small amount of money?
A: Absolutely! Many platforms allow you to invest with as little as $1; however, with fees, it might be best to save your first $100 to start.
Q: What if we have different risk tolerances?
A: Find a middle ground and diversify your portfolio to balance both of your comfort levels. Alternatively, you may choose to keep individual investment portfolios, which also work. Find out whether merging finances or keeping them separate is best for you here.
Q: Where can I learn more about investing?
A: For a deeper understanding of how to invest, check out this article: Investment Advice for Beginners from a Financial Planner
What’s next for us?
Investing as a married couple can be a rewarding journey that strengthens both your financial future and your relationship. Just remember, to avoid major pitfalls and losses, be sure to invest in your financial education before you start investing your money. It will save you a lot of time and money in the long run and ensure a smoother journey for both your relationship and finances.
Laura Tynan is the founder of The Witch of Wall Street, a personal finance and investing community, where women are shown how to manage, multiply and manifest money, using simple strategies. Laura holds a BSc Hons in Finance, is a Chartered Accountant, and is certified in EFT Tapping, Breathwork, and RRT. She has been recognized by the Financial Times as a Top 20 Future Female Leader and by Yahoo! Finance as a Global Champion of Women in Business. She is a multi-award-winning speaker who has spoken at, and been featured in, Forbes. Laura hosts The Witch of Wall Street podcast and is the author of the personal finance and investing book for women, by the same name, which is available now on Amazon.
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