So often I get questions about how to navigate the financial waters of a committed relationship. Here is some information to that end that I hope helps navigate those waters.
How should couples start the conversation about shared financial goals?
Start with the question – “What’s your first memory of money?”
It’s amazing to see the range of emotions that arise from this simple question. Often 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 underlying understanding of what their money framework is.
1. Talk about your financial goals
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 in their couples retreat 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 then long term for 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. Be aware of each other’s debt
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.
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.
I hope this has been helpful to you as Part 1 of the series of couples financial goals. Be sure to tune in next week for part two of this series.
Thank You and God Bless,
Vik Nathan