How to Have The Money Talk

January 30, 2017

Are you in a serious relationship, thinking about moving in together, engaged or even newly married? If you are contemplating sharing a household together now or at some point in the future, there’s no better time than the present to discuss your finances. “Your life partner can be your best financial friend or your worst financial enemy,” according to Financial Finesse CEO and author Liz Davidson. Marriage is an emotional and spiritual partnership, but it’s also a legal financial relationship. Money is the leading cause of stress in relationships, but it doesn’t have to be. The foundation of any successful economic partnership, including living together or marriage, is strong communication with full financial disclosure.

Ground rules

The Money Talk can sometimes bring strong emotions to the surface, so choose a place to have your discussion that will be relaxing and free of distractions to both of you. Choose a pleasant, neutral location where you have sufficient privacy. Keep these ground rules in mind:

Make sure your discussion is scheduled for a time of day that works for both partners. My husband prefers to talk money and night and I prefer the morning. Over time, we’ve learned over time to bring up financial decisions during breaks in the work day, or on weekend days is best if we’ re going to have the most productive conversations.
No alcohol! While a glass of wine could give you courage to disclose your student loan balance, each partner should have their wits about them. It will much easier to listen compassionately without judgment if you are free of cocktails. Feel free to stash a bottle of champagne in the fridge for later to celebrate this milestone in your relationship.
Set a beginning and end time for your discussion. If you don’t finish everything, set up a follow up date.
Don’t judge. Your partner has a different money story and may have different values and financial priorities than you. Refrain from expressing opinions – think of this conversation as an exercise in information-gathering.

What to discuss? Make sure that you’ve covered all your bases:

Tell each other your money stories

How did your parents handle money? What do you think of how they handled their finances? How did that impact you? If you’ve never thought through your money story, the book The Feel Rich Project, by Michael Kay, CFP® has some helpful chapters on how to assess your history.
How would you describe your financial personality? Are you a saver or a spender, or something in between? Do you like to plan carefully, or be more spontaneous? Do you collaborate, or prefer to decide independently? Are you more likely to be meet your own expectations or those of others? Consider using this framework for thinking about how you best create financial habits. If you want to dive deeper into the financial personality question, you can both take an online quiz here or here and compare notes.
What’s the biggest financial success you’ve had? What are the factors which contributed to it?
What’s the biggest financial failure you’ve had? What are the factors which contributed to it?
If you’ve been married or living together before, how did you handle money together? What worked, and what didn’t?

Take inventory – how much to you spend, what do you own and what do you owe?

Now that you’ve reviewed the emotional side of money, it’s time to get practical. Compare notes on your income and expenses:

Income

How much do you each make? Do you expect that to increase, decrease or stay the same in the short term?
Do you have other sources of income, such as rental property, business investments or trust income?

Expenses

How much and what are your “must pay” expenses every month – housing, transportation, insurance, child support, tuition, etc.
Do you track your expenses? What system do you use?

Assets

How much are you saving for retirement as a percentage of your income? How much have you saved so far in retirement accounts, such as 401(k) or 403(b), Roth and traditional IRAs?
If you own your home, what’s it worth approximately?
Do you have an emergency fund? How much do you have in cash reserves?
What other investments do you have?
Do you co-own any of your assets with someone else?

Debt

What is your mortgage balance, rate and remaining years to pay, if you have one?
How many credit cards do you have? Do any of them carry balances that don’t get paid off in full each month? How much?
Do you have outstanding student loans? Are they private or federal loans? Are you current on paying them? Are you in a loan deferral or forbearance period?
If you have non-mortgage debt, do you have a plan for paying it off? By when?

Insurance

Financial wellness means that you are prepared for unexpected and expensive events, such as a major illness or car accident.

Do you have health insurance? What kind of health care benefits are available to you at work?
Do you have short and/or long term disability income insurance?
Discuss your auto insurance. Do you have the bare minimum coverage, or are more fully protected?

Show each other your credit reports

Now comes the hard part. Show each other your credit reports. For many couples, this is the most difficult part of the conversation. Remember, regardless of your credit history, transparency here is an act of love. If you are thinking about spending your lives together you’ll have an economic and financial partnership, not just a romantic one. Full disclosure is essential, especially for engaged and married couples, who will generally be held legally responsible for debts their spouse occurs during the marriage.

Access your free credit reports from the three major credit bureaus at annualcreditreport.com or share your report from any online credit monitoring service you use, such as Credit Karma or Credit Sesame.
Review and discuss any major items, such as bankruptcy, short sales, and a history of significant late payments or charged off accounts. Do you see evidence that your partner has good financial habits, or is working to develop them after a financial mishap?
If one partner has significantly better credit than the other, how will this impact how you manage money together?

What are your financial priorities and long term goals?

Once you’ve tackled the rough part of the conversation, you can head to the fun part! A successful marriage begins with a shared vision. Ask each other:

If everything worked out exactly the way you wanted it to financially for us, what would that look like?
Where do you see us living now? In five years? In retirement?
If we plan to have children, do you think one of us should take a career break to raise them? For how long?
When would you like to be financially independent enough to have the option to retire?
Can you define “financial independence” for me?
What would happen if one of us got sick or laid off? How do you think we should handle it?
If one of you has children from a previous relationship, how do you plan to handle the costs of raising them, including sending them to college? See Financial Planning Tips for New Stepparents for ideas.
If one of you has significant debt, such as credit card balances or student loans, what is your target time to have them paid off completely?

Not a one-time event

Congratulations on getting through your first “Money Talk!” We hope this will be the first of many ongoing conversations about your joint finances. Marriage can teach you a lot about money. Now that you’ve established a foundation of transparency, full disclosure and sharing your visions, set up regular “money meetings” to talk through ongoing financial business. You’ll have a better personal – and financial – relationship for doing that.