Buy living within your means and planning for the future, your chances of building a financially stable home will greatly improve.
By AARON KATSMANDollar bills 370(photo credit: Steve Marcus / Reuters)
I received a lot of flak from my column last week about women taking control of their finances after a divorce. The crux of the complaints centered not on the column itself but rather the timing. “After all, we are in the middle of wedding season; why are you talking about divorce?” was the most common refrain. So to the many readers who voiced their complaints, and especially to my sister who is busy planning for her daughter’s wedding, I offer my apologies and will devote this week’s column to tips for newlyweds.Back in April I penned an article “Financial I do’s for newlyweds,” and I received many calls from parents of children of marriageable age, and newly married couples themselves, asking for meetings to help advise them in setting up their new home in a financially correct fashion. I happily set up meetings with those interested and felt that I should dedicate another article to this topic, with some generally useful tips for the newly married.Plan for disasterHow often do we hear appeals to help support a family where the husband passed away at a young age, and the family is totally broke.While this tragedy pulls at our heartstrings, in many cases it can be avoided. There is nothing farther from a new couple’s mind than planning for the worst-case scenario.With their minds set on building a new home, no one wants to think about the potential death of one of the spouses. Talking about insurance isn’t very exciting, but not talking about it is very dangerous and could lead to bankruptcy.It’s dangerous because if you don’t have the right kind of coverage when disaster strikes, you can be lead into financial ruin.Life insurance The only real reason that you need life insurance is if someone is dependent on the income that you bring home. Children, a spouse, or even an elderly parent – if they depend on you, then you owe it to them to take out a policy. The question I hear frequently regards how large a policy to take. While there are no hard-and-fast rules, I like to use the rule of 20. This says that you take your annual expenses and multiply it buy 20 years. For example if your annual expenses are $30,000, multiply that buy 20 and you get to $600,000. So you would get a life-insurance policy that would pay a $600,000 benefit. The reason I like this rule is that you can set up an investment portfolio that will potentially enable you to generate the income needed without too much capital risk.How much to spend on rentAnother question commonly asked regards how much to spend on either rent or a mortgage. I often see young couples swimming in debt because they are living in apartments way above their means. A general rule is to allocate up to a third of your take-home income to rent or mortgage payments, with the ability to go up to 40 percent. As rent or mortgage payments account for the highest percentage of expenses for a new couple, if you go ahead and rent an apartment that you allocate a high percentage of your income to, there won’t be anything left for other basic needs; i.e., food, utilities, transportation.Stay away from the car It all starts after the wedding. The new couple has a few weeks off and they decide to travel around Israel, and the easiest way is by renting a car. They have a blast with the car and become addicted to it. Then real life sets it and the couple goes back to either walking or taking the bus. A few months later they have a wedding out of town, and they have to take two buses to get to the wedding, it’s raining outside and they get soaked. They fondly remember the convenience of having that rental car, and they decide they are going to buy a new car.Only problem is they don’t have the NIS 100,000, so they take a loan. Ultimately, they are not making enough money to pay off the loan, and they sink further and further into debt.Take stock of your future Sit down with your new spouse and make a list of your short- and long-term goals. Understand your expenses and if you are able to cover them. Then it’s best to sit down with an adviser to help map out a course of action to enable you to reach those goals.Buy living within your means and planning for the future, your chances of building a financially stable home will greatly improve.Mazel tov!aaron@lighthousecapital.co.il Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.
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