Thursday, May 2, 2013

Having the “money talk” with your significant other or spouse

I’ve worked with several couples and have spoken with enough friends who are in serious relationships to realize one common denominator across the board: couples simply don’t talk about their finances.  Most just assume their money problems and retirement goals will simply work out on its own.

I’ve noticed that people in general would rather talk about anything than their finances.  People would rather talk about their sex lives, medical conditions, and family problems than share how much debt they have.  Talking about money seems to be the most taboo topic out there.  I imagine it’s because practically everyone has debt. 

I’ve worked with some husbands who have hidden debts away from their wives, only to find out that their wives were also hiding away their own debts. 

I know a girl in a serious relationship with her boyfriend.  They eat at trendy restaurants almost daily, sometimes multiple times a day (brunch, dinner, then a visit to the café for coffee and dessert.  They love to “check-in” at many trendy establishments and announce their whereabouts to their Facebook world.  One of their goals is to become yelp elites.  When I asked her how they are living so lavishly, she responded: “He pays for everything.  I don’t know how he affords it.  I think his family is rich.”

One of my colleagues tells me how difficult it is to save when her husband “loves to go shopping for new clothes.”  When she asked her husband how much he spent on his last shopping trip, he simply replied: “I don’t know, I threw away the receipt.”

Couples often find that their individual attitudes about money are completely different.  One person may be an avid saver while the other one has no shame in squandering their money on cars, electronics, luxury goods, and furniture.  Or worse, both individuals may be “brand-whores” who buy everything they want, even if it means going into debt and secretly living paycheck to paycheck.  (I'm clownin' on brand whores because I used to be one - I still enjoy many name brands, but I have toned it down significantly)

I've read and heard that most couples usually first deal with their finances after they are engaged or married.  Some of what they learn about each other can be shocking.  
I’m happy to share that my wife and I have sat down and discussed our finances numerous times.  Talking about ways to optimize spending, saving, and investing has been one of the most fascinating topics to discuss.  I am blessed to have found a partner that also wants to relentlessly improve our finances together.    

It wasn’t easy to get to where we are now.  It took a lot of communication and compromise.

Let me share with you my best advice on having the “money talk” with your significant other

1.  Talk about the numbers  
You won’t know how wealthy (or poor) the two of you are until you “bare it all” completely. Seeing all the numbers before you both will help you see the big picture.  

Go over the numbers in detail.  How much money do you have in your checking, savings, retirement, and taxable accounts?  Do you even have retirement or investment accounts? How much debt do you have with student loans, auto loans, or credit card balances?  For some, this can be the most difficult thing to do.  But refusing this step will only delay working on a solution together.  Simply not talking about any potential money problems will not make them go away.

2.  Learn from your mistakes (and the mistakes of others)  
The past is behind us.  Openly discuss any financial mistakes that you’ve made and get over it.  Be respectful and fair to each other.  Making mistakes gives us opportunities to learn from them.  Better yet, talk about the financial mistakes of others, learn from them, and do not plan on making the same errors. 

3.  Come up with some common goals
The biggest thing that helped both of us work together was to set some common goals.    It was about us now and not just me. It’s no longer your debt, it’s now our debt. 

Our biggest current goals include:
  • Cutting costs on dining out.
  • Maxing out our Roth IRAs
  • Maxing out our 401Ks 
  • Not having to depend on a nanny, babysitter, daycare to take care of any child(ren) we have. 

Your goals may be completely different than ours, but it's important to set some goals you both want to strive for.

4.  Create a plan to achieve your goals
Now that you have both created joint goals, how will you achieve financial success?  Sacrifices may need to be made here but in simplest terms: spend less and earn / save  / invest more.  Automating your finances is a big step, but you can also get creative with other ideas.

These are our plans to achieve our goals:
  • By eating out a lot less, we've adopted a more healthy diet: including eating less meat and much more fruits and vegetables.  It's surprisingly easy to get in the habit of making lunch and dinner
  • We can easily max out our Roth IRAs by dollar cost averaging
  • It will take a while to max out our 401Ks, but we will get there, 1% at a time
  • Who better to take care of your own children than their own mother?  My wife is exploring different ideas on working from home, working part time, or not working at all until our child(ren) start school

5.  Regularly talk about your finances  
It's good to check on your progress and talk about the numbers routinely.  The wife and I sit down once a month to check up on our finances.  We make sure everything is on track, optimizing different things along the way.  The important thing is making sure we are patient with each other.  Permanent change doesn't happen over night; each of you should come to your own realizations about money without feeling pressured or persuaded.  

In just the last year, I’ve seen both of our attitudes about money change drastically…for the better.  Our attitudes about money have matured a great deal.  Saving and investing more doesn't mean that you have to be a cheapass; it’s simply about adjusting your priorities and attitudes about money. 

We are on track to save 50% of each of our incomes within the next year, hopefully more.   This is something that neither of us could have imagined doing last year. 

Some of the biggest changes we’ve done include:
  • Paying our bills as soon as we receive them
  • Cooking dinner almost every night at home.  My wife prepares the delicious meals and I do the dishes
  • Canceling subscription television and switching to a pay per view approach like amazon videos
  • Bringing lunch to the office everyday (unless there is a company lunch)
  • Saving gas by carpooling and grouping errands into one trip instead of multiple short trips
  • Conserving electricity using extra blankets when it gets cold at night and using a fan when it gets too hot.  Our average electricity bill over the last 6 months has been less than $31 a month in our 2500+ ft2 home (more on this later)
  • Buying in bulk when we go to Costco.  We will buy a year’s worth of items such as floss, toothbrushes, toothpaste, and toilet paper all at once

The first step to achieving financial success with your partner is to openly talk about money.  This will set you both on a path to financial independence.  The best part of us saving and investing more is that it really hasn’t reduced our quality of life.  In fact, constantly striving to optimize our finances together has improved our life dramatically and brought us much closer.  It has been challenging at times, but it has also been surprisingly fun seeing how relentlessly we can cut costs.

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