A New Way For Couples to Manage Their Finances in 2014
December 30, 2013The holidays present numerous financial challenges, not to mention the positive and negative stress associated with spending some quality time with friends and family. (Insert your own mental image of Cousin Eddie from Christmas Vacation here.) Generosity is a wonderful characteristic to possess, but if left without monitoring, it can lead to overspending and debt. Additionally, travel costs can be expensive if you hit the road or the occasionally friendly skies to be with family. There is a well documented outbreak of financial stress and regret that occurs every January in our consumer-driven culture when the reality of holiday spending arrives in the form of a credit card statement.
Once the holiday hangover goes away, the financial reality of planning for the new year while paying off debt from the previous year becomes the next big challenge. In many households, the holidays are a time to complete some important financial planning activities such as last minute tax planning, annual portfolio re-balancing, and performing an annual investment review. But despite the personal satisfaction that I get as a financial planner guiding others through these vital steps, I have to acknowledge that not everyone has a comprehensive financial plan and it’s easy to let procrastination rule the day. Many people don’t even have a list of goals written down on the back of a cocktail napkin. What’s worse is that for couples who have a history of money squabbles, the simple idea of a “money talk” isn’t a fun topic to address.
All couples argue to a certain degree. It is often cited that money arguments are one of the leading predictors of divorce. In fact, recent research conducted by Sonya Britt (who is also my major professor at Kansas State University) and her colleagues revealed that a strong association exists between money arguments and divorce. This relationship can be found across all ages and income levels. Managing ones personal finances is difficult enough but managing them together as a couple can be even more stressful if you don’t have a system in place that works. Here are some potentially new ways to approach managing your finances in the new year as a couple:
Set meaningful life goals. The financial aspect of our lives is important but money is merely a tool to help us reach more meaningful pursuits. Setting SMART goals across all areas of your life adds more purpose to the financial planning process and helps align your money with life goals. Couples can also use the goals discussion to help find those common areas of agreement to work together.
Know your money story. Whether we realize it or not, we all have what Dr. Brad Klontz (another K-State professor) refers to as money scripts that guide our important financial decisions. Some common money beliefs include money vigilance, money avoidance, money status, and money worship. All of these primarily unconscious beliefs, with the exception of money vigilance, can lead to destructive financial behaviors.
Take some time to assess where your money belief system originated. What are some of your earliest experiences related to money? How did your parents and other family members approach financial matters?
Set regular money dates with some mutually beneficial rules of engagement. This used to be something that my wife and I did early in our relationship when we decided to start working together on a financial life plan we could agree on. But here’s the problem…we got complacent recently and those money talks started happening less frequently. Fortunately, we are still in a good place with retirement planning and college saving goals, but there is always that nagging feeling we could be doing better to save more and give more to others so we have gone back to money dates to stop those money leaks.
The key here is to have a specific day of the week on the calendar and spend about 10-15 minutes talking about your personal spending plan and tracking your progress. Even if you are the one paying the bills and the other person is the investment guru or tax planner, you still need to take time to know the basics of what the other is up to (without feeling like you have to be the expert). If this money talks initially sounds more like punishment than a romantic meeting of the minds, set some ground rules up front about what you can and cannot discuss. This isn’t the time to argue about those post-holiday shopping sprees or bring up those brand new kayaks he brought home over eight years ago when you were pregnant without any hint or consultation (yes dear, I am still sorry about that one).
Budget the right way by focusing on the things that matter the most. It is essential to plan for the future using the past as your guide rather than a barrier to success. One of the biggest budgeting mistakes that I see people make is they spend too much time dwelling on what has already happened rather than planning for the future. It is also important to eliminate those behavioral mistakes such as procrastination and loss aversion that can get in our way.
Counter these by automating your finances. 401(k) plans help people save for retirement through the ease of payroll deductions. The same is true with other important employee benefits that serve as savings vehicles such as HSAs and FSAs. You can also automate your finances through auto-rebalancing features in retirement plans and contribution rate escalation features to help you increase savings over time. When it comes to managing day-to-day finances, simplify your debt and other bill payments with automatic payments and use online tools such as mint.com to set up important reminders. You can even build up that emergency fund or save for other goals automatically using systematic transfers to savings accounts and sites like SmartyPig can help you track your progress while providing an extra boost to your savings.
So focus on the things that matter the most to you like saving, investing, giving, or paying off debt and try to put your plan on cruise control with your co-pilot (rather than an annoying back seat driver). It’s never easy to break old habits, especially when money is involved. But if you and your loved one are looking to break away from making the same money mistakes that most normal people make, it may be time to shake things up a little bit in the new year. Whatever your financial plans may be for the coming year, I wish you all the best!