8 Ways to Help Couples Overcome Money Conflicts
Later this week I am heading to California to attend my baby sister Ellen’s wedding. –She is the youngest of 7 of us, and without giving away her age, she has been “out on her own” for over a decade, but yes, I still call her my BABY sister. I am sure it will be all hearts and flowers for her and her new husband, at least until Monday rolls around and they get back to the rest of their lives together. But let’s face it, any couple that has been together for any length of time -even in the strongest of marriages, will eventually have a disagreement about how to manage finances as a couple. So here is my best advice for Ellen and Mark –and anyone else taking the plunge…
8 Secrets to Help Sweethearts Overcome Cash Conflicts:
· Communicate! Check whatever baggage you have at the door, and talk openly with your partner about the reasons behind your differences. Separate your “money selves” from your “sweetheart selves.” Remember that it was love — not money — that brought you together in the first place. If you spouse makes a spending “mistake”, resist the urge to unload on them, but focus on how to best handle the setback together; –No secret credit cards or “offshore” accounts
· Count it. Track household income and expenses over the course of a month. Better yet, use a software program like Quicken or Money to manage/track all your finances. Develop a budget and track your spending against it so if you over-spend, you know how to reel it in. Also, decide together how both of you will contribute to household expenses. Even if one person is the primary bill payer, the other spouse needs to have an idea of what's going on
· Build an emergency fund. It is a good idea to create an emergency fund that equals three to six months of living expenses. If you are able, put part of that money in a Roth Individual Retirement Account (IRA). It will save on taxes and any money contributed can be taken out at any time without a penalty
· Find common ground. Instead of dwelling on your differences over money, identify the expectations and aspirations — buying a vacation home, sending a child to college, etc. — you share with your spouse. Let those goals guide your financial decisions and behavior. You have to have all the same goals but it's important to get buy in from each other on your hopes and dreams and have a shared vision of what’s
· Save for your home. Begin saving for a 20 percent down payment on a home, and don't get overextended. As a rule of thumb, the home to be purchased should not be worth more than two to two and one-half times annual combined income. I also warn clients about the variable rate trap that stung so many people in recent years. If you plan on spending a lifetime in the house, don’t sign up for a mortgage that will adjust in 5 or 7. If you can’t afford the payments at a typically higher 15 or 30 year rate, think about a smaller house.
· Save for your retirement. Save 10 percent of annual income, which includes contributing to retirement plans. They offer tax savings and, if your employer matches the savings, faster growth.
· It is OK to agree to disagree. On certain points, some couples may never agree. What’s important is settling on a money management approach that accommodates the saver’s priorities as well as the spender’s. One approach that some financial planners recommend is to give each spouse a budgeted allotment and the discretion to spend it or save it, as they see fit.
· Enlist an professional. You and your loved one’s finances are very important, and you should trust them only to an experienced and trusted financial planner. No one is better qualified to help couples work through money issues, set goals and put a plan in place for attaining them. –If your older brother is not a Certified Financial Planner®, you can contact me, or find one in your area by going to http://www.napfa.org/index.asp
John A. Davidson, CPA, CFP®
john@kyleshill.com
John Davidson is a Certified Financial Planner®, and owner of KylesHill Group in Columbus Ohio, providing Comprehensive, Fee-only personal financial planning to business owners, individuals and couples.
8 Secrets to Help Sweethearts Overcome Cash Conflicts:
· Communicate! Check whatever baggage you have at the door, and talk openly with your partner about the reasons behind your differences. Separate your “money selves” from your “sweetheart selves.” Remember that it was love — not money — that brought you together in the first place. If you spouse makes a spending “mistake”, resist the urge to unload on them, but focus on how to best handle the setback together; –No secret credit cards or “offshore” accounts
· Count it. Track household income and expenses over the course of a month. Better yet, use a software program like Quicken or Money to manage/track all your finances. Develop a budget and track your spending against it so if you over-spend, you know how to reel it in. Also, decide together how both of you will contribute to household expenses. Even if one person is the primary bill payer, the other spouse needs to have an idea of what's going on
· Build an emergency fund. It is a good idea to create an emergency fund that equals three to six months of living expenses. If you are able, put part of that money in a Roth Individual Retirement Account (IRA). It will save on taxes and any money contributed can be taken out at any time without a penalty
· Find common ground. Instead of dwelling on your differences over money, identify the expectations and aspirations — buying a vacation home, sending a child to college, etc. — you share with your spouse. Let those goals guide your financial decisions and behavior. You have to have all the same goals but it's important to get buy in from each other on your hopes and dreams and have a shared vision of what’s
· Save for your home. Begin saving for a 20 percent down payment on a home, and don't get overextended. As a rule of thumb, the home to be purchased should not be worth more than two to two and one-half times annual combined income. I also warn clients about the variable rate trap that stung so many people in recent years. If you plan on spending a lifetime in the house, don’t sign up for a mortgage that will adjust in 5 or 7. If you can’t afford the payments at a typically higher 15 or 30 year rate, think about a smaller house.
· Save for your retirement. Save 10 percent of annual income, which includes contributing to retirement plans. They offer tax savings and, if your employer matches the savings, faster growth.
· It is OK to agree to disagree. On certain points, some couples may never agree. What’s important is settling on a money management approach that accommodates the saver’s priorities as well as the spender’s. One approach that some financial planners recommend is to give each spouse a budgeted allotment and the discretion to spend it or save it, as they see fit.
· Enlist an professional. You and your loved one’s finances are very important, and you should trust them only to an experienced and trusted financial planner. No one is better qualified to help couples work through money issues, set goals and put a plan in place for attaining them. –If your older brother is not a Certified Financial Planner®, you can contact me, or find one in your area by going to http://www.napfa.org/index.asp
John A. Davidson, CPA, CFP®
john@kyleshill.com
John Davidson is a Certified Financial Planner®, and owner of KylesHill Group in Columbus Ohio, providing Comprehensive, Fee-only personal financial planning to business owners, individuals and couples.