Finances for Couples

When a couple begins to look more seriously at one another as a lifetime partner, it is time to talk about many topics. Finance is just one of them.

From how one spends to how one saves, there are many areas of finance which need to be discussed and negotiated before those 'I Do's are said.

SPENDING

One IRS study cited the number one cause of financial failure as the "Inability to delay gratification".

According to Jeanne M. Hogarth, author of Financial Fitness, Shape Up Your Spending (Prepared for Cornell University), there are five money-spender types:

Type 1 sees money as a symbol of security and spends only for what they need.

Type 2 uses money to buy status or prestige items. They want 'the best'.

Type 3 may be self-indulgent, and spends as a means of satisfying their need for immediate gratification.

Type 4 believes money helps a person fulfill himself or herself. They believe money can't buy happiness and that children should not learn to put a monetary value on everything.

Type 5 is not concerned about money and doesn't keep track of their spending.

Determining which type each of you are can help you to formulate a strategy for your spending and saving which both of you can feel good about.

SAVING & INVESTING

Interest can work against you. . .or for you. Albert Einstein said of compound interest that it was the greatest invention he had ever seen; and Mayer Amschel Rothschild, founder of one of the world's greatest banking dynasties, called it the eighth wonder of the world.

A few great tips about saving and investing may be found on this Financial Fitness Tip Sheet. There is enough space on the bottom of it to add any additional tips you may know or discover along the way.

Whatever you do, it is crucial that you have a saving and investing plan for emergencies, financial goals, and retirement.

Compound interest is a great tool for maximizing your savings efforts. A chart and scenario from cbkidder.com illustrates this very well. The scenario presented is as follows, "Take a simple example. Suppose your parents had deposited $1,000 on the day you were born. Let's assume a modest 6% rate of return. If you left the account untouched until you turned 65, that $1,000 would have become almost $49,000 - without your ever having added another penny!" The sooner you begin saving the better off you will be, even if you hit hard times along the way and can't always contribute.

DECISION-MAKING

Many studies indicate that money issues are the number one cause of divorce. Openly and honestly communicating and negotiating money matters before marriage will help protect your marriage from this problem.

One very effective strategy many couples utilize is to budget out a set amount of 'fun money' for each partner, each payday/month. This money is the sole property of the partner it goes to. They do not need to tell each other what they do with it, explain or justify their use of it, etc. It is totally their money to do with what they want.

Another great tool is the 'Unilateral Expenditure Limit'. This is a mutually-decided limit on how much money can be spent by one partner without consulting the other partner in advance. For some budgets, $20 may be the reasonable limit. For others it may be several hundred or even several thousand dollars. It is important to note that this money is the available money for spending in the budget. It cannot be taken from bill payment funds, or savings.

Whether the decision is made for one partner to take care of paying the bills or for both to do it together, it is imperative that both partners have full access to all financial information at all times. Many divorces occur when one partner has all the financially power and knowledge, while the other is left in the dark and financially dependent. Keep all records, receipts, bills, statements, ledgers, up-to-date and in a place where both partners may review them at any time.

FINANCIAL GOALS

A 1953 survey of the graduating class of Yale University showed that only 3% of the graduates had written detailed financial plans for the rest of their lives. These plans included how they were going to achieve those goals. Twenty years later, those same individuals were located and resurveyed. That 3% who had plans and goals was worth more financially than the other 97% of the class COMBINED. Planning your financial future, with details as to how to achieve your goals, is clearly a wise step.

In setting your goals, be sure to make detailed statements of what each goal is and how to achieve it. Writing it all down and keeping it in a place where it can be easily accessed is a necessary part of achieving the desired goals. You may want to use a pre-formatted form such as a Financial Goals Sheet in order to organize your thoughts and goals more easily.

Some goals will be short-term (within 12 months), while others will be much longer term (such as retirement planning). These goals may be adjusted as life circumstances change and as other goals are reached.

THE BUDGET

A preliminary step in planning out a budget once finances and expenses are combined is to fill out a Basic Monthly Expense Form. This will allow you, as a couple to carefully assess what your expenses are, where too much money is being spent, and where more needs to be allocated. This will also tell you if you have sufficient funds to cover your combined expenses or not.

Once this step is completed, a monthly budget may be constructed with all new data and decisions included in the plan you will be following each month, once married. The article Budgeting Basics highlights some of the basic steps in setting up a month-to-month budget and provides links to several sources of further information such as pre-made budgeting forms and credit card comparisons. Also covered are money-saving tips, and ideas about financial record keeping.

PARTING WORDS

Remember most of all that you love one another and this is just one of many things you will get to tackle together in the years to come. Embrace the opportunity you have to now be part of a team, and always keep those channels of honest, open communication open. Finding each other and getting to this point was the hard part. The rest is just remembering the love and commitment you have for each other in all that life brings.

Congratulations on your future of bliss, which is starting off on a great foot by planning out your financial future together!