Hi I’m Mary from Simply Forties! I write a blog about being a female in her 40s, finances, grown children, relationships, the environment, and everything else people think about. Stop by and say Hello!
How to Avoid Some of the Biggest Mistakes a Couple Makes
1. Having a 30-year mortgage
The amount of interest you pay over the course of a 30-year mortgage is staggering. A $250,000, 30-year mortgage at 8% would end up costing you $660,240! Tax write-off you say? On average, for every $100,000 in mortgage interest you pay, your tax bill will be reduced by $28,500 (28.5% being the federal tax bracket of the average citizen). Is it really worth it to spend $100,000 for a $28,500 tax write-off? If you are house shopping, look at 15-year mortgages, you will build equity quickly and waste less money on interest. If you already have a 30-year mortgage start paying an additional 10% every month, telling the bank to apply that 10% against your principal. You will end up paying off your mortgage years earlier with this simple strategy. Keep a close eye on your statements to ensure your payments are applied correctly.
(I believe that 30 year fixed are often the only way couples can avoid a home in many areas. However, perhaps waiting to put down 20% would be an excellent way to prevent buying too much house. According to lending standards, I could afford maybe $240k on a 15 year mortgage, ouch. That’s after 20% DP).
2. Not taking credit-card debt seriously
Carrying credit card debt is stressful. If one person is constantly running up debt while the other person is struggling to keep the financial ship afloat, the anxiety can ruin the relationship. If both people are running up debt, the stress and anxiety will mount even faster. That anxiety will never go away until the debt is paid off. Ensure you are both aware of your entire financial situation. You should also both know if there are any black marks on the other’s credit report. You do not want to find this information out when you are sitting in your mortgage broker’s office being denied a loan.
(I agree, but maybe it’s more the difference in money values that makes it stressful than just debt.)
3. Not starting a college-savings plan soon enough
Remember, your retirement fund comes first! You will do your children no favors if you ruin yourself to fund their college education. After you have put aside at least 10% of your income, fund a college-savings plan. Start a 529 plan when your children are born. If you think you cannot squeeze any more money out of your budget for a 529 plan, think about trying to squeeze out several thousand dollars every year to pay for college when the time comes. You can choose to make payments into a 529 plan and earn interest now or you can pay interest on college loans later. Which makes more sense?
(Save what you can. Starting out there are so many other things to save for like retirement and the house you want to live in! There’s always loans for college but none for retirement.)
4. Not teaching your kids about money
If you don’t teach your kids about money, how will they learn? We know they don’t teach financial responsibility in public school. Off they will go to college, financially unprepared, where they will be inundated by credit card offers and, before you know it, they will be drowning in debt. Do it early, do it often; teach your children about money!
(Should they teach finances in school? I think yes because some parents are so clueless that while school isn’t the best place, it might be the only place some kids learn things.)
5. Not figuring out who is responsible for what
When you decide to combine households you may think the best way to handle your finances is obvious. Unfortunately, if you’ve not talked about it beforehand, you may discover that your partner has a completely different idea on how it should work. Will you have your own accounts plus a joint account from which to pay the bills or will everything go into the same pot? Who will actually sit down and pay the bills? How will you deal with the financial obligations you each brought into the relationship? What about fun money? Will you set a dollar amount over which neither partner can go without talking it over? Have a discussion and come to an agreement regarding how money will be handled in your household and you will save yourself a lot of trouble!
Arguing about money is one of the primary reasons relationships fail. Be open and honest and work together to build a strong financial future.
(Thank you Mary for an awesome guest post about a couple’s finances. Take some time and check out her blog!)
6 responses so far ↓
1 fengshui // Dec 23, 2008 at 7:41 pm
Regarding the 15 year versus 30 year mortgage advice, my hubby and I believe that it is smart to pay a mortgage off well before the 30 year mark, but we wanted the 30 year mortgage to be listed on our credit reports. The payment was significantly lower than the 15 year payment and I didn’t want it showing up as an obligation to make a $1700 payment per month instead of the $1200 that we pay now, just in case something happened, and we we only HAVE to make $1200 and not $1700. For now, I’m making the equivalent of one extra payment per year, because we’re tyring to beef up our EF, as well as get rid of what cc debt we have left. I think that a 15 year mortgage is appropriate for people who have no other debt than mortgage debt….
2 Meg // Dec 24, 2008 at 1:50 pm
I totally disagree that the number one “mistake” couples make is getting a 30 year mortgage. First, $100,000 in interest over 30 years is not that much, especially after you account for inflation. Second, there is nothing wrong with a 30 year mortgage and a bigger mistake would be never planning to own a home in my opinion. But third and most importantly, they can be a VERY good investment decision, especially in times like these.
Today you can lock in a 30 year fixed rate mortgage at 5% or even less if you have great credit and income. Even BEFORE you account for the tax rates, that is almost guaranteed to be a lower rate than inflation will average over the next 30 years. You’d almost be a fool NOT to lock in. You can always pay extra if you want to and can afford to in order to pay it off early. Also, you are barely compensated more at all for choosing a 15 year mortgage – they are currently almost equal to 30 yr mortgages as far as the rate goes.
Also, I totally disagree with number 3. Not starting a college fund soon enough is one of the top mistakes couples make? Um, how about not starting to save for RETIREMENT soon enough?
3 LivingAlmostLarge // Dec 31, 2008 at 7:14 pm
30 year kept mortgage can be dirt cheap compared to renting. Rent goes up but in 30 years a mortgage stays cheap.
And yep, I agree about college and retirement, hence I think no college savings until retirement is done.
4 SimplyForties // Jan 1, 2009 at 10:48 pm
@fengshui – If you are disciplined, having a 30-year mortgage and paying extra on it makes a lot of sense and is probably the perfect compromise. Especially now, when we are all hanging on to our cash! I have a 20-year mortgage but also live in a place where my housing dollars stretch pretty far.
@Meg – I don’t think I’ll ever be in a place to think $100,000 is not a lot of money. I’m happy for you that you are! We certainly can only do what we can afford.
I probably should have divided #3 up into two parts. I agree about the retirement fund, which is why the very first sentence in that paragraph regards funding your retirement first. I guess I was thinking that retirement savings would have already started before children came along. Also a lot of people’s retirement savings are bundled in with their job benefits whereas 529 funds tend to be completely voluntary and, therefore, people are more likely to opt out of them.
Thanks for the great observations and thanks to LAL for letting me sit in!
5 fengshui // Jan 2, 2009 at 12:33 pm
“I guess I was thinking that retirement savings would have already started before children came along”
Well, this is the idea…. Although I think that now, with losses, I have less than $20k in my retirement. DH still has yet to start saving for retirment and he is 31. This is HIS goal for 2009…. OPEN A ROTH. But considering I only started investing a few years ago (through my job)….. I’m 32, and got a late start on the budgeting/ saving/ being frugal “thing”….. unfortunately. However, better late than never. I would like to have MUCH more in savings and retirement before a baby comes, but unfortunately for women, fertility doesn’t last forever, so we will have to make due with what we have. We do plan on funding both a 527, and our retirements. I am hoping our many years in college will pay off with much larger salaries than we had in our 20’s. My recent job interviews tell me that I made the right decsion…..
Too bad in my 20’s, I spent my money on so many, many spring breaks and vacations(courtesy of my visa card), and designer clothes (also courtesy of my visa card)…. I should have saved that money instead. But, I do have many wonderful memories. Oh well. You live and learn.
6 LivingAlmostLarge // Jan 4, 2009 at 3:12 pm
Simpyforties, I think that most people don’t have retirement started before kids. Most don’t get serious until they have a kid. Anyone who does and has retirement savings before kids I think is gravvy.
And thus why so many feel retirement savings by far outweighs college. Because it’s ridiculous to even consider college savings when they haven’t started or have only a minimum in retirement savings.
Also I agree that $100k interest sounds like a lot but when the average homes is $600k+ it’s not a lot in the grand scheme of things.
Remember home mortgages are fixed unlike rents. Also it gets cheaper as you income hopefully increases and inflation occurs.
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