By: Joseph Goldy, CFP®
“It’s money. I remember it from when I was single.”
- Billy Crystal
Whether you are newlyweds or simply choosing to join forces financially with the love of your life, there are some essential issues couples will need to discuss.
If conversations around money, budgeting, spending habits, and goals are avoided, it could have disastrous consequences. According to an American Institute of CPAs poll, 7 in 10 married or cohabitating Americans have had a disagreement with their partner about finances in the past year. Making matters worse, just 56% of married or cohabitating Americans said they were comfortable discussing finances with their partners.
Here are a few tips for next time you and your partner decide to discuss money
Listening
From my experience working with couples, just being a good listener is critical when discussing finances. Even when you disagree about your partner’s views on investing or budgeting, being patient and hearing their viewpoint is essential.
Framing these conversations beforehand helps. It’s not about agreeing on everything; you both will not. It is more about understanding the other person’s point of view and their perception of money.
The goal is simply to get a clear picture of the other person’s feelings toward spending and saving early on, so you avoid surprises later. I would imagine the previously mentioned statistics are accurate because many people feel defensive when discussing money with their partners. Being a good listener will help.
Discussing Life Goals
Andrew T. Gardener, CFP®, and Matthew Berti, CFP® wrote an excellent article on the CFP website Letsmakeaplan.org, mentioning big questions about longer-term life goals. According to the authors, some of the questions couples should be asking include:
Do you wish to have children? How many?
What are your expectations around vacations?
Where do you want to live?
Do you expect both of you to work, or just one of you?
Are we going to have separate or joint accounts?
These are helpful questions to discuss with your partner as early as possible to uncover their beliefs and expectations around money. A couple’s life stage will typically dictate the topics for discussion. A couple in their 20’s will be asking different questions and have other concerns versus a couple in their 60’s.
Automate
Automate as much as possible. The idea is to set up as many bills as possible on auto-payment to ensure they are always paid on time. Paying bills late, especially credit cards, auto loans, and mortgage payments, will quickly harm your credit score. Most companies offer an auto-pay option so take advantage of that if you’re not already.
To maximize auto-payment of regular bills even further, you can use a credit card that pays rewards. Paying recurring monthly expenses with a cashback or travel rewards credit card can provide a bonus for doing something you have to do anyway.
For example, some typical monthly bills may include:
$130 – Cell phones
$150 – Electric bill
$500 – Groceries
$100 – Cable
$200 – Dining out
These expenses alone would total $13,000 annually, so a credit card that pays 2% cashback would pay you $260 a year – like getting your Amazon Prime and Netflix memberships for free. The more regular, recurring expenses you pay by credit card every month, the greater the cashback or travel rewards may be. (Thepointsguys.com is an excellent resource to help you maximize your rewards.)
This strategy only works for those paying off their balances in full every month. Discretionary spending left unchecked on credit cards can quickly spiral out of control and cause much more harm than good.
Automating savings is smart as well. You are paying yourself first by setting aside savings for an emergency fund and longer-term goals before any other discretionary spending. Two of the most powerful actions a young couple can take when starting are 1) beginning an investment plan early and 2) setting up a systematic plan for savings. Studies have shown that a systematic savings plan is one of the most significant determinants of long-term investing success.
No matter what life stage you’re in, making sure you’re both kept in the loop with your overall financial picture is critical. At Highland, we emphasize both people being a part of any financial conversation so that everyone knows precisely what is happening and why from a financial standpoint.
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.