The biggest obstacle to marital bliss is lack of financial security and disagreements about money. It has been estimated that financial issues are the driving force in troubled marriages and lead to 90 percent of divorces.
In reality, personal compatibility may be only part of the equation to a happy, healthy marriage; being a strong financial team is equally important. It’s common for people to get married to individuals with different financial habits and life experiences concerning money. So learning to manage your finances together as young marrieds helps to avoid bitterness from festering and instead develops the foundation for a happy, loving relationship.
The place to begin as a young couple is learning and understanding what the other expects regarding the business side of your partnership. We’re talking about stuff like team planning, spending habits, debt accumulation, savings, home- ownership, growing investments for the future, bill paying and record keeping. One of the biggest pitfalls in marriage is to not understand one another’s beliefs and history concerning money and what role each expects to play in the financial business side of the partnership.
The following include ten great money management tips from Money and Marriage by Matt Bell that will help any couple build a stronger foundation to the business side of their marriage:
1 – Identify each other’s “money mindset.” It is important for each of you to understand how the other thinks about money. It can be helpful if you each write a letter describing how your family handled money, what lessons you learned about money by watching your parents as well as in your own life experiences, who you think should control the money, if you want joint or individual checking accounts and credit cards, what you desire regarding home ownership, how much importance you place on savings, what your views are regarding accumulating debt, what type of retirement you would like, how much wealth you would like to acquire, and what you are willing to sacrifice to obtain your financial goals.
2 – Establish a scheduled time for a series of “money talk” dates. To be effective, your money talk date should be out of the house and away from any children. Discuss each other’s letter, ask questions and listen intently to gain insight and understanding about your partner’s money mindset. Remember, no one is right or wrong, but you both need to be honest and respect each other’s viewpoints. As you discuss your financial plan for the future, work out reasonable compromises; both partners need to be on the same page for a financial plan and budget to work. Think “we” – marriage is a business partnership!
3 – Develop a written financial plan. A financial plan is essential to successfully manage a financial household together. Financial planning simply means identifying your future goals, quantifying them in terms of money, and developing a structured path as to how you will, as a team, achieve them. Without a written financial plan in place, the business side of your marriage will be adrift, making it difficult to achieve the security and longer term financial goals you both desire. The financial plan should spell out how much wealth you would like to accumulate in ten year increments, at what age you would like to retire, and how much money you will need for your retirement years. Also include how much money you will need for special purchases like home ownership, college educations, and emergency funds.
As you draft your financial plan together, it is important to be realistic, but at the same time do not be afraid to dream big. If you do not believe something can become true, you will certainly never achieve it. As you write down in monetary terms what you need to achieve, the numbers will appear daunting to you, if not downright impossible. But always remember, wealth is accumulated, and financial goals are accomplished, by people who start with a written plan; they know where they are going financially, they work every day to consistently earn money, and they foster the discipline to save and invest on a monthly basis; their financial goals are imbedded in their minds; they understand the power of compounding small amounts of money consistently over long periods of time.
The challenge, of course, is in determining the career path to generate the income required to achieve your financial goals. Realize it is impossible to stretch yourself outside of your comfort zone if you do not have goals for which to reach; so it always starts with a written financial plan. When you are determined to achieve, and willing to experience some failing experiences along the way, you will eventually discover the career path to get you where you want to go. The secret is to keep moving forward!
4 – Design a budget. Many people think of a budget as a life of restrictions and obsessive frugality. In reality, a budget is really a cash flow plan, the single most powerful financial tool for managing money successfully. Your cash flow plan will really shine when you link it to specific financial goals. Planning and monitoring your cash flow will require both partners to take part in the decision making; to be a team you must work together and share responsibilities equally. Complete the following steps to develop your annual cash flow plan:
- Estimate you current annual income and expenses. If income varies, use a worst case estimate.
- The first step to financial freedom is an emergency fund. If you do not have six months expenses in savings for unexpected loss of income, make this item a priority for your monthly savings.
- Build a retirement fund. Determine how much you need to save each month for your retirement. It is foolish not to take advantage of the maximum allowed tax deferred retirement contributions allowed by the government as well as matching your employer’s contributions.
- Save for housing and college. Determine how much you need to save each month for these items.
- Charitable giving is the most gratifying form of saving. No matter how small the amount, give to your favorite church or charitable organization; charitable giving is a gift of happiness to yourself.
The annual cash flow plan is a tool to help you both work toward accomplishing your longer term financial goals. Once you have written down the numbers for your cash flow plan, many couples will find themselves with a negative cash flow. The challenge in cash flow planning is for the two of you to decide how you will balance your cash flow by increasing income, lowering monthly expenses, while simultaneously contributing money each month toward building your emergency fund, retirement investments, and savings for special purchases. Always pay yourself first with automatic withdrawals from your checking to your savings and investment accounts. The secret is simply to get started with consistent monthly savings deposits, no matter how small the amount.
5 – Discuss bank accounts and credit cards. Using joint accounts provides for financial transparency and fosters teamwork; joint accounts foster oneness, which is the goal. There can be a lot of financial secret keeping with separate checking accounts, which is not good for successful financial management or a relationship. The same thought process applies to credit cards; keep your major card a joint account if it makes sense. One reason to not have a joint credit card is if one of the partners is bringing a poor credit rating to the marriage. It can always be a good practice to keep one individual card for each partner for the purpose of maintaining individual credit rankings.
6 – Choose a bill payer and record keeper. Usually the best partner to do the accounting is the one who is the most organized with paper work, precise, enjoys number crunching, and is responsible to complete tasks on time. Consider the following suggestions:
- Establish expense, asset, and liability accounts for ease of tracking spending and savings.
- Pay all bills frequently or as they come in. Pay off all credit card balances every month.
- Make sure all credit cards flow into the monthly tracking system
7 – Discuss insurance. An emergency fund will protect you against unexpected short term financial problems but insurance is necessary to provide your dependents protection against the bigger, longer term tragedies. The question to consider is how the surviving partner would cope financially if one of the partners were to become disabled or die.
8 – Discuss debt. Living without debt, other than a reasonable home mortgage relative to your income, is the best path to feelings of security and financial freedom. Make it a priority to buy only that which you can pay for immediately and stay out of debt.
9 – Schedule regular money meetings. It is not enough to just make a budget (or cash flow plan); you must track your spending and savings relative to your cash flow plan at the end of every month. The only way to keep moving forward toward your financial goals is to review them often, re-writing your financial strategies when necessary; it is important to periodically make adjustments to the expense, income, savings, and investment sides of the equation. You cannot make the hard decisions required to obtain your financial agenda if you do not keep your written goals fresh in your mind.
10 – Empower each other. Strive for oneness and teamwork in your finances. The control of money and making of financial decisions by just one partner is a sure way to erode love in a marriage; empower each other by planning, communicating, and making all ongoing financial decisions together as a couple. Be honest and open with each other, build trust, work as a team, and learn from one another.
Visit our companion website for free business success information: businessknowledgestrategies.com