Marriage and money go hand in hand. Ideally, married couples will make decisions that benefit both parties, many of those involving financial concerns. With this in mind, it is important for married couples to practice sound money management. The decisions that you make regarding your finances can affect your marriage in a positive or negative way. This is the most compelling reason for managing your money. Married couples face a plethora of challenges when it comes to managing money. For some, this is the first time they have had to be responsible with money. In the past, they may have lived with their parents, or a spendthrift attitude was acceptable because responsibilities were few. Now, they may have children from a previous marriage, or both partners are working and have substantial income; decisions in any case affect the family’s livelihood. This can add additional stress on the couple if they are not in agreement on how money should be managed. Stress can be associated with indecisiveness, fear, or anger in financial decision-making. The fear may come from feeling vulnerable and unprotected, as if any decision made will lead to a disaster. Indecisiveness often results from being unsure about what the best decision may be. People with different views will become frustrated at each other and angry with the situation despite their beliefs. All of these situations are harmful to a marriage and can be alleviated with sound communication and a clear plan of action in managing money.
Importance of Money Management in a Marriage
Many studies have shown that the number one cause of arguments in marriages today is money. It is the opinion of the writer that it is not money that is the root of all evil in a marriage but instead the misunderstanding on how to manage it. Money is considered an essential tool in life; it is a unit of account, a medium of exchange, and a store of value and in today’s word, it is freely earned. People go to work each day and are paid in money so to be told they cannot use that money how they please is a hard thing to swallow. This is the case in many marriages. A wife might see her new curtains as essential, where the husband feels that the money for those curtains could be better spent put away in a savings account. This is where the first of many money-related arguments begin. A couple who are put into a situation where only one person is earning (or perhaps one person is earning more than the other) is faced with two different views on money. Whereas the person earning the money may have the mentality that it is his/her money, the other person may feel that it is the household’s money. This is a very confusing situation and can lead to resentment, as to the right way money should be spent. A lot of the time this will also be the cause of who handles the money and payment of bills and taxes.
The average marriage in today’s society is decreasing rapidly. Why is this happening? Well, a large part of it is one of the most important things in life: financial security. Many marriages are ending in divorce today due to financial troubles. In these economic times, no one is immune to financial troubles and it’s for this reason why it is even more important for a couple to know how to manage their money effectively. A marriage in which no thought is given to finances is like going on a long journey with no thought of what route to take. It could be an interesting journey but is more likely to be stressful, has a higher chance of breaking down, and might never reach its destination. This is exactly what a marriage is like without an effective financial plan. So why is financial planning so important to a marriage? This is what the rest of this article will talk about.
Challenges Faced in Managing Finances Together
The newlyweds and others who have been married for only a few years naturally find money a common source of problem. Two distinct personalities with different family backgrounds, value system, and ways of dealing with problem and pressures will naturally have differences in viewpoint on handling things including financial matters. Majority of the money quarrels result from opposing values. One is a saver and the other is a spender. Like it or not, using money to indicate love is common in our culture. A husband who spends money on his golf game, buys a new part for the car, or has a few drinks with members of his platoon often does this to get away from the family and avoid a conflict with his wife. A wife spending money for a new dress or a new decorative piece for the house might be doing this to give a feeling of love to her husband by creating a more pleasant home environment, which has been a topic of argument between the two. Usually, each partner unknowingly condemns the other’s way of doing it. The price tag approach of the savers and the relationship to status and self-esteem needs of the spenders cause verbal wars between the couple because the savers have security as their main goal in life and find that financial irresponsibility is the biggest threat to this goal. Another cause of financial disagreements that lead to a ‘cold war’ between husband and wife is lack of ability. If this is an overspending or mismanagement, savers who later detract from the family resources feel guilt and failure. And the irony of all this is earning the respect and a higher paying government job. This issue has not only led to arguments but to cases of the wife taking over family finances without telling the husband and the husband taking overdraft to pay off debts incurred from a house loan and hiding it from his wife. People’s debts occur mainly because of management of family resources and it is unsure whether the spender and saver had considered the family’s best interest at heart. This type of situation is mostly seen in military government servants in government quarters. Due to a big difference in allowance between him and his fellow, they do not decide to rent a house in fear it would still be a burden to the family.
Strategies for Effective Money Management
Encourage an honest and comfortable environment to talk about money. Using words that are not threatening and accepting that mistakes will be made will promote an atmosphere for positive problem solving. Schedule regular times to discuss your financial goals in a relaxed environment. You could do this over a dinner date, putting the kids to bed and opening a bottle of wine, or going for a walk together. Make sure you do it at a time that is most relaxed and comfortable for both of you. Avoid discussing anything to do with money if it creates or has created a negative conflict between the two of you. Take a break and come back to it after an hour or the next day.
Effective money management between married couples comes from smart strategies that require open communication, shared dreams and financial goals, and a plan to keep the finances on track. You can develop your own money management plan by using some of the ideas here as a springboard into a plan that works best for you and your spouse. The key is to make it work and if it doesn’t first, change the plan until you find something that works.
Open and Honest Communication about Finances
The following is a guide Masters Financial Planning have put together, to assist you in effectively communicating with your spouse in regards to money. – Schedule regular money meetings to talk about your financial objectives, opportunities, problems and spending. – Listen to your partner’s opinions and be prepared to compromise. If their point of view differs from yours, take the time to reflect on it so that you are able to avoid any conflicts in the future. – Be honest. Share your values and attitudes towards the financial planning process, be truthful about your spending habits, debts and obligations and disclose any agreements or financial arrangements that could affect your joint financial situation. – Educate yourself and your partner about financial matters. The more you know and understand about your financial situation, the more confident and in control you will feel, and the more likely you will be able to make informed decisions.
Mention the cliche, “Money has a way of coming between couples” and from almost any married couple, you’ll find that to be a true statement. So just how can money be the currency that brings you closer together, rather than to drive a wedge between the two of you? One of the most effective ways of achieving this is to have open and honest communication with your spouse when it comes to your finances. This is because any disagreements about money will see an increase in tension within your relationship and can often affect other areas such as family life and even your health. It’s important to deal with any financial issues sooner rather than later, to avoid making them become a larger issue beyond repair.
Setting Shared Financial Goals
Bear in mind that a budget is a tool to help you achieve your goals, so it’s important that they are known and that the budget is referred to often to ensure that you are on track. Tuning your goals may become necessary if it becomes apparent that they are unrealistic, if your or your partner’s attitude towards them changes, or if there is a significant change in your financial situation. In any case, the key is to make these decisions together and it is important to be flexible.
Sharing common goals for the way you want to spend and save your income is the key to good money management. As discussed in chapter one, achieving financial security is the first rung on the investment ladder. With this achievement in mind, there are several things the two of you might want to save for: a first home, your children’s education, a family business, or retirement. It often takes a few years to achieve these types of goals. Longer-term goals often have a priority attached to them, so it’s a good idea to talk about these and make sure you agree on the priority of each goal. Writing them down is not essential, but it is the best way to ensure that both of you have a clear understanding of the goals and are both committed to them. If you do, it is important to be specific with the dollar amounts involved and the time frame you wish to achieve each goal.
Creating a Budget and Tracking Expenses
Gather a notebook, calculator, and your bills, or use a financial software package (such as Quicken or Microsoft Money) together to make the process of creating the budget as painless as possible. Use the Income and Expense Worksheet included in this guide to work out the details of who owes what and when. Start by making a list of your income. Go from paycheck to paycheck if necessary, filling in the income that each individual brings in. Add these figures to find the total monthly income. If it isn’t enough to pay your monthly bills, you will need to adjust the budget accordingly, finding ways to cut expenses or increasing your income.
To start, keeping a gentle attitude, set aside some time for you and your spouse to build the budget together. It can typically be done in one sitting, but it may be necessary to develop a few drafts over a period of time. This is an important step to take so that both individuals feel as though they each have a say in the budget decisions. A budget that is forced upon one spouse by the other with no questions asked is not likely to be successful. It should function as a tool to help you arrive at common financial goals and things you want to fulfill in the future. Complete a budget worksheet.
A budget is a plan for how you are going to spend your money. It is an important tool for comprehensive money management because it helps couples to prioritize expenses, forgo unnecessary purchases, and find patterns of overspending. Any money management plan would be incomplete without a detailed budget. The following are steps for building a realistic budget that will be effective for the two of you.
Joint and Separate Bank Accounts
Consideration of whether to have joint or separate bank accounts can have a significant impact on couples. There are various reasons why couples decide to have separate accounts, often it is because they feel a need for financial independence. Joint accounts are often considered the ‘best way to go’. Having a joint account simplifies money management to the greatest extent. It can also provide a greater sense of security to one or both partners. More importantly, it encourages open participation of both partners in the financial decision-making process. Joint account holders are equally entitled to the money in the account. Decisions to spend or withdraw money can’t be made without the other knowing because each will have complete awareness of all transactions. This, in turn, helps to reduce conflict over financial matters, as it reduces the chances of either partner making a financial decision that will affect both without the other’s consent. Joint accounts are most advantageous when there is only one income earner.
Resolving Financial Conflicts
This is quite important because traditionally only one spouse will “take control” of the finances and decisions will often be made without knowledge or consent of the other. If you are the one who is more financially savvy, avoid the temptation to take the dominant role. Always remember that it is crucial for both of you to be involved in the decision-making process. You need to foster an environment of collaboration where both of you are openly expressing your opinions and working together to find a solution. The aim is to reach a point where each partner is aware and understands the family’s financial situation and is comfortable with the decisions being made. This does not mean that you both need to do everything together. You might find that dividing some responsibilities can be more efficient. For example, one person manages the investment portfolio, while the other manages day-to-day cash flow and budgeting. However, the decisions regarding the investments and how the money should be budgeted, saved, or spent should always involve open discussion and agreement between both parties.
Compromise and Collaboration
Compromise is essential to the success of any relationship, and money management is no exception. Learning to compromise on financial issues may be harder for some than others. Individual values about money can be deeply ingrained and may have an emotional content that is hard to shake. Take the example of a wife who has always seen credit card debt as an indication of personal failure. Her husband’s more relaxed attitude toward debt, thinking of it as leverage for investment, may be hard for her to accept. Alternatively, he may view her obsession with being debt-free as an inability to make necessary sacrifices today for future gain. Each may see the other’s attitude as fundamentally irresponsible. Resolving these differences comes when both partners learn to respect the other’s opinion and comfort zone about money, and understand that there is more than one ‘right’ way to manage finances. People usually feel more comfortable with what is familiar to them, so sometimes learning to compromise comes with stepping out of one’s own comfort zone for the sake of the other. But it is all too common for one partner to completely control the financial decision making, leaving the other feeling powerless and frustrated. This imbalance of power leads to resentment and friction about money. If they are to pool their finances successfully in the future, then both partners must be involved in the decision-making process. The final decisions made should reflect the input of both, with neither feeling that their views were completely disregarded. “Mutual decision-making and compromise are essential,” says Dr. Robyn. “Couples need to clarify their individual and shared goals, and to work out positions on issues such as savings, lifestyle changes, educational and home investments, children, and retirement.” It is easier to compromise when both clearly understand what is being compromised, so setting specific goals as a couple can certainly help in this process. The goals may change over time, so continual communication on these issues is necessary. One effective tool to ease compromise and decision-making on specific issues is the opening of a joint account from which expenses such as rent, bills, and groceries are paid. This way each partner is contributing equally to a common goal, and it may lessen arguments about who is to pay for what.
Seeking Professional Financial Advice
Sometimes the expertise of a professional financial advisor may be needed. Doing a direct and swift approach in recommending a financial advisor may hurt the feelings of one’s spouse. Thus, it is best to talk about the possibility of seeking some professional help in the near future. This gives the other partner some time to get used to the idea and can agree when he or she is comfortable. When selecting a financial advisor, look for an advisor on a fee-only basis who does not sell financial products. This way, you are getting an advisor who is simply being paid for their advice and is not biased in steering you into buying some investments just to make a commission. Interview a few advisors and do not feel obligated to just go with the first one interviewed. There needs to be a comfort level in discussing your personal financial situation and the advice provided by the advisor. A good place to look for a financial advisor is the National Association of Enrolled Agents (NAEA). An enrolled agent is a type of advisor who is a tax specialist and is backed by the IRS. In conclusion, this step should not be seen as a last ditch effort when the financial situation is in turmoil. It should be seen as a way to further enhance an already solid financial situation. A thoroughly professional assessment of a couple’s finances can yield potential areas where additional wealth can be accumulated. A financial advisor can also provide peace of mind in drawing a clear-cut plan for the future and ensuring that it is attainable.
Establishing Boundaries and Responsibilities
In order to ensure financial well-being in a relationship, it is important to establish clear boundaries and responsibilities. This is necessary because responsibility confusion often leads to arguments, stress, and debt. To prevent this, spouses should discuss and outline each financially related duty. These duties include budgeting, saving, investing, paying off debts, bill-paying, and purchasing decisions. According to Larson and Gartner, authors of the book “Seven Keys to a Healthy Marriage” (1990), a couple will strengthen the unity of their relationship to the degree that they have a clearly defined sense of togetherness on economic issues: what is our money and what is your money. This statement highlights the importance of understanding the fact that married couples are in a financial partnership together, not a one-man show. Therefore, it is important to set unity-oriented goals and specific responsibilities in order to achieve them. For example, a couple may have a specific savings goal to purchase a home theatre system. In order to achieve this goal, it should be determined how much each spouse needs to contribute to the goal and then a set date to accomplish it by. Failure to reach unity-oriented financial goals often leads to a sense of unfulfillment and/or resentment in the relationship. Finally, all decisions should be made with the intent to benefit the relationship as a whole, meaning that personal impulse buys are generally harmful to the financial well-being of the household.
Long-Term Financial Planning
Saving for Retirement
Guideline 1: Saving for retirement can be a difficult thing for a couple to do between all of the other financial demands of a relationship. Start by developing a retirement plan. Many investment companies and financial institutions offer free retirement planning tools and calculators online. You can estimate how much you will need to retire, and how long your money will last you. They can help you forecast how much you need to save, and in particular, how much to invest each year. As a rule, many financial experts say that you will need about 75-80% of your current annual income to maintain your current lifestyle when you retire. Social Security may not be available to help in the future, so it is important to include it as a part of your savings. There are plenty of tax-advantaged retirement saving options. Whether one of you is the primary breadwinner, or you both work, be sure to take advantage of IRA accounts. For a traditional IRA, a couple can contribute up to a total of $6,000 per year. For Roth IRA accounts, you pay tax on the money before you contribute it to the account, and it grows tax-free. Also, if you are below certain income thresholds, you may be eligible for the Retirement Savings Contribution Credit which will provide a reduction in your income tax for contributions made to IRAs and 401k plans. If at some point you are eligible to convert a traditional IRA to Roth, it could be beneficial given that your tax rate is lower than average or much lower than the rate when you withdraw the money. The Roth will not result in extra tax on Social Security benefits.
Investing for the Future
With a clear goal for the future, investment can help to make it a reality. Let us use an example of a couple with the aim of early retirement to a life of travel. On evaluating the amount of cash required, they estimate that in today’s terms, an around-the-world trip would cost $10,000. They plan to travel when they are 55 years old and estimate an inflation rate of 3%. This would mean that the trip would actually cost $24,000 in 30 years’ time.
Investing is different from saving. Investing is the process of making money on your money. Against the risk of losing some or all of your investment, you can earn more money than if you simply left your funds in a savings account. This method can prove beneficial to longer-term goals by making the money work for you. Be cautious; as the same applies to the risk of loss, investments should never be to the detriment of an adequate emergency fund.
The ultimate long-term goal for every couple is to ensure their future together. Whether it is building the dream home, traveling, or having a solid retirement. For every goal, it usually requires a sum of money to make it a reality. By aligning with a goal, it allows couples to associate a tangible target to the amount of money needed to make it happen.
Creating an Emergency Fund
When an emergency strikes, the difference between the emotionally and financially devastating effects or a temporary inconvenience is readiness. Emergency funds provide a crucial financial safety net. Establishing a separate savings account exclusively with emergency funds is the best way to ensure that these funds will be used for their intended purpose. There are many types of unexpected financial setbacks, from massive car repairs to medical expenses to periods of unemployment. It is suggested that families have between three to six months worth of their expenses saved in their emergency fund, depending on their job security and income level. Those who work on a contractual or freelance basis should aim for having six months worth, while those with more stable employment can aim for three. When in difficult financial situations, it may become very tempting to dip into these funds for non-emergency purposes. As a preventive measure, couples can plan to receive their emergency fund as back up to an eventual emergency liquidation of some of their low-risk investments. In doing so, they can maximize their investment earnings while feeling secure in knowing that the emergency funds are quickly available if needed.
