Ask an Advisor: How a 24-Year-Old Married Couple Can Strike a Balance Between Short-Term Saving and Long-Term Financial Security?

Q: How a 24-Year-Old Married Couple Can Strike a Balance Between Short-Term Saving and Long-Term Financial Security?

Balancing saving for short-term goals while planning for long-term financial security is a crucial responsibility for young married couples to undertake early in the marriage. Finding the right balance ensures that your immediate needs are met while simultaneously building a foundation for a secure future.

In this article, we will explore effective strategies to managing debt, building an emergency fund, the importance of setting goals, and other financial planning techniques.

Understanding Financial Priorities

Before diving into specific strategies, both partners need to assess your current financial situation. This involves understanding how your current income, expenses, debts, and savings rate impact one another. Knowing where you are starting from financially will help you to better prioritize your goals and make informed decisions. Remember, not everyone has the same relationship with money, and you may not agree completely with your partner initially. This is yet another reason as to why this exercise is so important prior to doing a deep dive.

Pay Down Debt

The Impact of Debt on Wealth Building

Carrying debt can hinder your ability to save and invest for the future and is the largest expense holding Americans back from wealth building. By reducing debt early, you will free up more money for savings and investments overall, allowing your wealth to grow with less friction over time. Start by listing all your debts, including credit cards, student loans, and any other liabilities. Prioritize paying off high-interest debts first, as these can quickly become even greater burdens that can quickly get out of control.

Building a Fully Funded Emergency Fund

Importance of Emergency Funds:

An emergency fund acts as a financial safety net, providing funds for unexpected expenses such as medical emergencies, car repairs, or job loss. This fund helps you avoid taking on new debt when faced with unforeseen costs. Aim to save three to six months’ worth of living expenses in your emergency fund. The exact amount will depend on various personal financial matters but aims to provide a comfortable cushion to manage most emergencies without derailing your larger financial goals.

Complexities of Life and Unexpected Expenses

As life progresses, financial responsibilities tend to become more complex. Homeownership, children, and supporting aging parents can introduce significant and unpredictable expenses. A fully funded, dare I say over-funded, emergency fund is essential to navigate these complexities without compromising your financial stability.

Set Plenty of Goals

Using Goals as Mile Markers

Setting goals is vital for any measurable level of financial success. Having the ability to celebrate small wins along the way will help keep you motivated and on track. Use these milestones to measure progress and adjust your plans as necessary. Achieving smaller goals will provide a sense of accomplishment and encourage continued effort towards larger goals.

Short-Term vs. Long-Term Goal Examples:

Some common short-term goals include saving for a vacation or a down payment on a car, while long-term goals could involve saving for retirement, children’s education, or purchasing a home. This is the most personal aspect of financial planning but setting specific, measurable goals make all the difference in the results you achieve.

Focus on Savings Rate Over Rate of Return

At the beginning of your financial journey, the most controllable factor is your savings rate. The amount you save regularly has a more significant impact on your future wealth than the rate of return on those savings. The market will go through numerous cycles over your working years. Since you cannot control these cycles, focus on saving consistently. Over time, the power of compounding will further enhance your savings.

Tax-Optimized Savings and Growth Strategy

Understanding Tax Benefits:

Utilizing tax-advantaged accounts can enhance your savings. Accounts such as 401(k)s and IRAs and their Roth counterparts offer significant tax benefits that can help your savings grow more efficiently. If available, contribute to your employer-sponsored 401(k) to take advantage of any matching contributions. Employer-sponsored plans currently have higher contribution limits than IRAs, which allow you to save more. However, this is not always the best option as not all employer-sponsored plans have an optimal fund selection.

Health Savings Accounts (HSAs):

If you have a high-deductible health plan, an HSA can be a powerful savings tool that is underutilized. Your contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

Importance of Financial Education

Continual learning is vital for financial success. Stay informed about personal finance and investment strategies through books, courses, and reputable online resources.

Seeking Professional Financial Advice

Many times, professional advice is invaluable. A financial advisor can provide personalized strategies and insights, helping you make informed decisions for your specific situation.

Regularly Reviewing and Adjusting Your Plan

By regularly reviewing your progress and adjusting your goals as needed, you will remain in control of your financial plan rather than the plan controlling you. Life circumstances and priorities can change, and your financial plan should adapt accordingly.

Handling Variables:

Managing Lifestyle Inflation

As your income increases, it is tempting to spend more. However, prioritizing savings over lifestyle inflation can significantly enhance your financial security. Even if you only save a percentage of your raises, it is yet another opportunity to let the magic of compounding returns work in your favor.

Planning for Major Life Events

Preparing for Parenthood Financially

Raising children is expensive. Ideally, you want to start saving for their education and other needs early. Consider setting up an education savings account (such as a 529 plan) to benefit from tax advantages.

Support of Aging Parents

As your parents age, you might want to provide a level of financial support. If this is a goal of yours, plan for these potential costs by including them in your financial strategy.

Investing in Your Future Self

Just because you graduate college does not mean that learning stops. Investing in your continuing education increases your earning potential.

Building Multiple Income Streams

Diversifying your income through side hustles or passive income sources can provide additional financial security and potentially additional tax advantages. Explore opportunities like freelance work, rental properties, or investing in dividend-paying stocks.

Build a Strong Financial Foundation Together

Collaborating on your financial plan with your spouse as a team strengthens your financial foundation. Shared goals and mutual support are essential for achieving financial success as a couple. Open and honest communication about finances helps avoid misunderstandings and conflicts. Discuss your financial goals, spending habits, and any concerns openly with your partner. Create a joint budget to track your income and expenses. A well-planned budget ensures that both partners are on the same page. This is not to say that both partners need to be equally as active in the management of finances (as it rarely turns out to be) but both parties should remain well informed as to what is happening.

Balancing short-term savings with long-term financial planning is essential for young married couples. By prioritizing debt repayment, building an emergency fund, setting and achieving goals, focusing on your savings rate, and implementing tax-optimized strategies, you can secure your financial future. Stay flexible, communicate openly, and continually educate yourself to navigate the complexities of life and achieve financial stability.

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This article was originally published on Wealthtender and is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions. Wealthtender earns money from financial professionals, which creates a conflict of interest when these professionals are featured in articles over others. Read the Wealthtender editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.

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