How should couples start the conversation about shared financial goals?
I like to start with a question – “what’s your first memory of money?” It’s amazing to see the range of emotions that arise from this simple question. Oftentimes people are fighting old battles of their parents and carrying around emotional baggage that doesn’t even belong to them.
Once you know their history with money, the obvious next question is, “what do you want your money to do for you?” Are you looking for peace of mind, security, greater wealth compared to your friends or family? Do you prefer to travel or material things – that’s a big one, and there’s no right answer.
The point is to build a framework for understanding both partners’ feelings and expectations when it comes to money. Believe me, they’ll have plenty of opportunities to discuss the day to day issues – braces or a Disney cruise, saving for retirement or college, etc. Those conversations will be more productive if you have that original framework of understanding.
1. What are some financial planning tips for couples?
I think it’s important for couples to pre-commit to a general goal for saving. Can you both agree to save 10% or 12% of your total income in good and not so good times? Say it out loud to each other and write it down. An early saving habit can make a huge difference in your life choices and overall happiness many years later. Conversely, struggling to pay the bills with nothing in your savings account can drain the energy and time that should be going to your spouse and kids.
Couples should try to talk at least once each year about their total financial picture – without interruptions. I’m not talking about having a conversation on the way to a volleyball tournament or at the kitchen table while the kids are running around. Carve out an hour or two of quiet time and talk about your plans for the next 12 months and 3 years. Give each spouse some homework before you talk – check on your various types of insurance, look at your portfolio, talk about your wills and check to see how much you spent and saved the prior 12 months.
2. Should people wait to get married until they are both debt free?
That’s great in theory, but not so easy in practice. Students exiting college have far more debt than they did when I was in school decades ago. People are also marrying later in life now, so they may be in their 30’s and already have houses, cars, etc. Those large purchases usually come with some debt attached.
We often hear the message that debt is bad, but I don’t necessarily agree 100% of the time. Access to financing allows people to spread their consumption over their lifetime, and from an economic perspective that can be a good thing. Your greatest earning potential will likely occur 20 or 25 years after your initial need for those first big purchases like a car or house. Debt allows you to make those large investments earlier in your career.
Consumer debt, however, is a menace. Using your credit cards for consumption purchases like shopping, eating out and travel could significantly limit your ability to do those things in future years.
It’s important to know what kind of debt your mate brings to the relationship. Is it consumer debt, or is it debt from a responsible car or house? I qualify the car purchase with “responsible” because it doesn’t make sense to be driving a luxury car when you’re living on an entry-level salary.
In my book Wealthfulness, I talk about something called conspicuous consumption. If you’re trying to make a statement or get noticed with your purchases, that’s conspicuous consumption, and you should be able to afford those things without using credit cards to get them.
3. Should couples combine finances?
There is no single answer to this one. I’ve seen couples who’ve been married 30+ years and keep everything separate. I’ve also met with lots of couples who combined everything before they were married. Anecdotally, I’d say we see more young couples choosing not to blend their finances nowadays.
With internet banking and modern financial tools, it really shouldn’t matter. Every couple will be unique; find a system that works best for the two of you.
4. How should couples decide who pays for what?
Again, I don’t think there is a single answer to this question either. I’ve seen couples split everything right down the middle and just about every other type of arrangement. Some split the big bills like the house, cars and college debt, while others divide the responsibility by what they brought into the marriage.
You can also split the bills based on your relative earnings or when you get paid. Like I said, there are many, many ways to handle the bills. But here’s the test I think any strategy should be required to pass – do both parties feel it’s fair and does it avoid putting unequal stress on one spouse?
5. How can couples handle a financial dispute in a relationship?
I can offer some general advice based on my personal experience and what I’ve seen with clients over the last 20 years. You must find a way to acknowledge and appreciate your spouse’s perspective. The disagreements I’ve seen are usually about the level of risk each spouse wants in their portfolio, i.e. how much stock vs. bonds. Some people are natural risk takers and others are not. Having a financial planner facilitate the discussion often helps couples find a happy middle ground.
Money discussions often include a lot of emotional baggage. Having a third party, whether it’s a counselor or a financial advisor, can lead to the acknowledgement and appreciation of each viewpoint that’s so important to a healthy discussion.
6. How should couples plan for retirement together? (And when?)
We have a very simple answer to that question for every client we meet with: the sooner you start planning for retirement the better. You can never start too early. Case in point, I regularly nag my 18-year old daughter to get more money invested in her Roth IRA. She’s not going to use that money for 45 years!
Whether you are 18, 28 or 58, start working on your financial future. You can find plenty of tools on the internet that will help you estimate what you’ll need in retirement but be careful. Most of the tools are simplistic and many make assumptions I wouldn’t always agree with. The biggest problem is those tools are too general for your specific situation.
We are building out our website, Wealthfulness, as a resource for consumers who are trying to improve their financial literacy, and we intend to keep the information fresh and timely. You’ll find links to our favorite online tools and other resources, FAQs, and regularly posted articles on specific issues. We also have a section called Investing 101, which gives visitors a basic understanding of terms and concepts they’ll need as they build their financial literacy.
Honestly, it’s very rare in the financial planning world to see young couples who are interested in planning for their retirement. And by young, I mean anyone under the age of 50. One of the principal goals for my book and for the website is to push that age range lower by a decade. I would love to see a time in the near future when the average age of someone looking for financial planning advice is 40 instead of 55.25442