If you and your significant other don’t always see eye-to-eye when it comes to finances, you’re not alone. When it comes to spending, investing, and planning, quite often couples are more divided than united.
According to a recent study by Sun Trust Bank, 35 percent of married couples reported that money was the primary cause of stress in their relationships.[i] And in a 2017 survey on divorce and debt by Magnify Money, 21 percent of respondents indicated that money was the reason for their divorce. More money can mean more problems, according to this report. Of those making $100,000 or more, an even greater number of those surveyed (33 percent) cited money as the leading cause of the breakup.[ii]
Whether you and your spouse are currently wrestling with financial decisions or haven’t given planning much thought, the good news is that you can create a more harmonious financial life as a couple. One of the best places to start is by taking a look at how you currently manage money together. Here are a few of the common red flags we often encounter when working with couples:
CFO versus Bookkeeper
One partner has an eye on the overall financial picture but has little awareness of day-to-day spending. In contrast, the other spouse pays the bills but knows little about the couple’s overall financial situation.
The Out-of-Touch Couple
In this situation, often one or both spouses are high income earners. Neither one is worried about making ends meet. It’s quite the opposite in fact. Their lifestyle becomes more and more expensive as they continue to earn more. And because they have enough to cover the bills, they aren’t in tune with how much they’re spending or whether they’ll have enough financial assets to maintain their lifestyle in retirement.
The Caretaker and the “Cared-For”
One partner takes care of all money matters, including bill paying and investing. The money-managing spouse may enjoy this role and/or see it as a way to take care of the other spouse. The other spouse may be fine with this arrangement or may feel anxious about not knowing more about the financial details. If the financially savvy spouse passes away first, the surviving spouse who is not familiar with the couple’s finances will need to assume that responsibility quickly, which is often a difficult, arduous task.
If one of these money dynamics sounds familiar, or if you have other challenges when it comes to managing money as a couple, it is a good idea to understand the three main financial areas where couples often get tripped up. We present these potential conflict zones as goals to pursue, with tips about how to avoid pitfalls in pursuing them. By following these suggestions, you and your spouse can get and stay on the same financial page.
Goal #1: Getting on the Same Page About Spending
Where Couples Sometimes Struggle
Often one spouse is the “spender” in the relationship, which can sometimes lead to resentment from the other spouse. The spending spouses may look for ways to hide their spending habits from their mates to avoid disagreements. When one or both individuals are heavy spenders and light savers, the couple can run into issues when it comes to achieving their financial goals.
Spending Tip #1: Create a Budget
One of the most powerful tools a couple has at their disposal is the family budget. While many people have a general idea of their primary bills like the mortgage, car payments and utilities, it’s not uncommon for one or both spouses to be less familiar with discretionary spending on everything from dining out to buying clothes to spending on birthday gifts.
With new financial planning clients, we often start off by having them track and categorize expenses. Sometimes it’s helpful if each partner does this separately, but it can also be done jointly. This exercise can be validating for couples with a high awareness of their spending patterns. With others, it can shed significant insight about where their money is going each month. For these couples, it can help them do three things:
- Increase savings. If a couple is having trouble saving for significant goals like college or retirement, budgeting sheds a bright light on ways they can save more.
- Reduce debt. When you retire, the last thing you want is to have significant debt. A budget puts that debt front and center, so you can make a plan for how to tackle it now, so it can be greatly reduced or eliminated before you retire
- Modify spending now. Understanding where your money goes is helpful in many ways, especially for retirement planning. For many couples, their “paycheck” during retirement will be the income their retirement savings can generate, along with withdrawals of those savings themselves. By modifying your spending in anticipation of retirement, you may find you can live on less, and therefore need less money to fund your golden years.
Spending Tip #2: His and Her Buckets
Another way we help get couples with budgeting is by encouraging partners to create “his” and “her” buckets for discretionary spending each month. Neither one is obligated to provide a detailed report to the other person about how this money is spent. In this way, the couple has accounted for personal spending money in their overall budget, and each person has freedom around how they choose to spend their portion of that discretionary money.
Goal #2: Getting on the Same Page About Planning
Where Couples Sometimes Struggle
When it comes to setting goals, we find the amount of planning couples have done varies widely. Some partners have differing goals around things like purchasing a home, saving for college or planning for retirement. Or, as in the scenarios described earlier, one partner may have set goals without consulting the other, or they may have set broad goals together, but one partner is in the dark about the details.
It’s also not uncommon for couples to have no clear financial goals. Some just choose to “wing it” and assume they’ll figure out how to pay for college or retirement when the time comes. Other couples have goals and savings but no idea whether their goals are attainable.
Planning Tip #1: Eyes Wide Open
The plain fact is that retirement is ahead, and we have choices around how prepared we want to be for that time in our lives. I can say with certainty that those who don’t plan at all are taking a big gamble on whether they’ll have enough money to fund the retirement lifestyle they want.
Even if your relationship is fraught with financial roadblocks, there is hope. I work with couples every day who become more empowered each time they make decisions and solve problems together as they plan for their future.
Planning Tip #2: Take a Team Approach
If you and your partner have different financial roles in your marriage, planning gives you the opportunity to unite around common goals and take steps to reach them. It also gives a partner with a less-active financial role the opportunity to get caught up. As part of this team approach, it’s important to clearly define the roles each spouse will have going forward. It may be that one partner enjoys taking a more active financial role; if this is the case, it’s important to figure out how to keep the less-active spouse informed about money matters.
Your team approach may also involve an outside team member like a financial planner. Financial planning isn’t second nature to most people, so it often makes sense to bring in a professional to help the couple set goals and build a plan for achieving them.
Goal #3: Getting on the Same Page About Investing
Where Couples Sometimes Struggle
Sometimes partners have different approaches to investing and may not be on the same page when it comes to how much risk they are able and willing to tolerate. One person may be more interested in investments which offer higher potential returns but with higher price volatility, while the other partner would be happy to keep their money in a low-yielding but stable value savings account.
Personal risk tolerances need to be respected. It comes down to helping both parties to understand how investing works, particularly in relation to how soon they will need to access their savings.
Investing Tip #1: Knowledge Is Power
No one sets out to lose money. In fact, everyone is averse to the idea of losing money. But swings in the market, specifically drops, do not necessarily equate to permanent loss. Short term market swings are an inherit part of investing in assets that offer higher expected returns such as equities. If the funds are not needed for an extended period of time, these market changes won’t be material in the long run. Historically, market drops are followed by recoveries, which just take time.
Riding out market volatility requires patience and the ability to wait. You don’t want to be in the position of having to sell an investment to pay for an immediate need. If you know that one or two years from now, you’ll need money to pay for your child’s college education or make a down payment on a house, you probably don’t want to invest that money in stocks. Stock prices are inherently uncertain and subject to short-term swings in value, so there is the risk that when you need to raise cash your stocks could be worth less than what they are worth today. Money you will need in a fairly short period (ie., 6-12 months) should probably be held in cash or cash equivalents, and money that you will need in the next 1-5 years should probably be invested in short-to intermediate-term bonds.
If you don’t need to touch that money for five or more years, however, you can likely ride out any market volatility. History tells us that, on average, it takes roughly 24 months before the market recovers after it has taken a significant downturn (a “bear market” is defined as a decline of 20% or more). If time is on your side, you can weather virtually any storm in the stock market.
It all comes down to having an asset allocation strategy that makes sense based on your objectives, liquidity needs, and time horizon. For most people, this typically includes a mix of lower risk/lower yield investments and stocks that have higher price volatility risk but historically higher returns over time.
Investing Tip #2: Consider His and Her Buckets
Sometimes one spouse prefers much more aggressive investments than the other. In this case, it can help to bucket things out for both parties.
Because a retirement plan tends to include a mix of investments with varying degrees of risk and returns, we can create a more aggressive bucket for Spouse A and more conservative bucket to suit Spouse B. (In reality, both buckets are likely to be part of one larger portfolio; it’s just a matter of optics.) Spouse A can see the potential for high growth in the aggressive bucket. If there’s a big pullback in the market it is not overly stressful for Spouse B, because there is a more conservative pool of investments that’s not as prone to volatility.
I’ll leave you with this one final thought: My dad once told me the secret to all relationships is communication and negotiation, and I believe this is true with financial planning for couples. When both partners can communicate their goals for the future, they’ve taken the first step. Of course, there’s almost always work to be done and couples need to navigate and negotiate along the way. At the end of the day, a couple can end up with a financial strategy they can both embrace and that will take them where they want to go.
The team at the Fiduciary Group helps couples create financial plans and achieve their investment goals. If you’d like to jumpstart your plan or achieve more financial harmony in your relationship, we’re just a phone call away. Please reach out anytime.
This article does not represent a specific investment recommendation. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from The Fiduciary Group which can only be provided through a formal advisory relationship. Clients of the firm who have specific questions should contact their The Fiduciary Group advisor. All other inquiries, including a potential advisory relationship The Fiduciary Group, can be directed here.