Have you ever heard the statistic that more than 50% of marriages end in divorce due to finances? The majority of respondents said the only thing they knew about their spouse when they got married was their income, according to a recent study from credit bureau Experian. But there is so much more to financial compatibility than how much money you make! You need to factor in spending habits, savings, investment philosophies, financial goals, and plans for the future. Otherwise, you could end up like Katie:
Katie was in her mid-twenties when she got married. She felt like she had the world at her fingertips and had found a partner to share it with. Both Katie and her husband were successful lawyers who could live the lifestyle they had always dreamed of. About five years after being married Katie went to buy a new car. She had been saving for two years but she needed a loan for about $10,000. The car dealer ran her credit and declined the loan. How could this be? She paid her bills on time, had a great salary, and always paid off her credit cards in full every month. To her surprise, her husband had been taking out lines of credit in her name to maintain their lifestyle. He had accumulated $60,000 of debt that was delinquent. He had terrible spending habits that Katie had never discussed with him. If she would have had this conversation up front it could have saved her the heartache and financial burden of this debt.
Having financial conversations with your significant other can be challenging. Here are a few ways to make these conversations fun and light and get the entire family involved.
Understand each other’s financial goals
When you get married you’ve decided that person is your partner in life. However, discussing your future goals has a lot to do with your compatibility. Often this is something that’s not considered. It’s so far out you don’t consider what the future will look like, or communicate your dreams for retirement.
Your goals don’t have to be the same. You may need to do a little compromising. But by working together, you may be able to achieve all your goals. Simply Money Advisors recommends working with a trusted financial planner (preferably a Certified Financial Planner™) to create a personalized financial plan that will include both of your financial objectives for the future.
Discuss big financial decisions
This may seem obvious, but making financial decisions together increases your financial compatibility. Not only do you have to agree with the decisions, but you must plan and budget for the large purchases. Some surprises are nice, but waking up to a Bentley in your driveway could end in financial distress.
Plan for the worst
Simply Money Advisors recommends creating an emergency fund (three to six months of expenses). This allows you to not stress when accidents or unexpected expenses happen. Developing a financial action plan when unexpected situations happen will eliminate some of the stress and help strengthen your partnership.
Get your children involved
Don’t limit your financial planning to your spouse. Encourage your children to get involved and help with the financial process. This will not only bring your family closer, but also inspire financial education. By including the entire family in the financial planning process, you can make sure everyone is on the same page. Here are a few ways to involve the entire family in the planning process:
• Have your children keep track of their own budget
• Encourage your children to help with the important financial decisions and get their opinion
• Review your family’s budget at the end of the month
• Include your children in goal setting, small or large
By including the entire family in the financial planning process, you and your spouse will become closer. You’ll have to work together to lead the family in making smart financial decisions.
Make budgeting fun
Sticking to a budget can be challenging. Why not make it fun for you and your spouse? Set a goal that you can include in your budget and work toward it. For an example, a beach vacation. This will give you something to look forward to. There are countless ways you can put a little extra money aside for this goal. Brainstorm with your spouse and hold each other accountable for the accomplishment of this goal.
The Simply Money Point
Talk to your spouse and make a personalized financial plan for your future. Discuss everything from spending habits to goals for retirement. You want to be sure you understand the entire picture of how your spouse views money and what their money values are. Even if you didn’t have these conversations before you walked down the aisle you can still work together now to compromise and make sure you’re on the path toward a secure and sustainable lifestyle.
Want to learn how our team at Simply Money Advisors can create actionable steps to help you and your family live the way you want, today and tomorrow? We invite you to speak with our team.