February is all about love and relationships. Open communication is key to creating great relationships. What I have found is that too many couples avoid having important money conversations until it is too late so …
Continuing with this month’s L.O.V.E. theme, we are going to put money up front and on the table. Susan from Gainesville, Georgia, sent us her money question:
“My fiancé and I have different ideas about money.
What should I do?”
Susan, I am so glad you brought this up because many of the things that seem petty or trivial now will bother you later. And the big things you might be too afraid to bring up now do need to be talked about before they cause the big problems down the road!
Money related issues are the #1 cause
cited for divorce and break ups!
Don’t give money the power to silence you. Take the lead and take care of your relationship by scheduling time for the following 5 Conversations About Money. Make a date of it – either over dinner or a cup of coffee – and plan to have one conversation every week.
At the end of the six weeks, you and your partner will have made two of the most important investments you can ever make: in your relationship and in your financial future!
Begin with Money Conversation #1: Where are we now?
We all have financial goals. Do you know what yours are? Are they the same as your partner? Start by looking at where you both are right now with regards to your finances. Just having this one conversation alone will put you ahead of 90% of your peers!
- Create two important financial documents: the income statement and the balance sheet. You’ll need a separate sheet of paper for each, and you’ll want to begin with two columns.
- In the first column record what is coming in: all sources of money, including the regular paycheck, a monthly average of any freelance or seasonal work, and any other income streams.
- In the second column record what is going out – the expenses and bills you pay. These include fixed expenses such as the rent and miscellaneous expenses such as going out to dinner, dry cleaning, and gifts.
- Your balance sheet also has two columns and can be divided simply as What we Owe and What we Own.
- In the first column, list all loans including the mortgage or rent, credit card debt, and student loans
- In the second column, list all property including things that might still have a mortgage or outstanding loan.
The difference between the two columns gives you an idea of your net worth. This picture will change over time as you make payments and increase the principal on what you own.
Remember it’s all relative! The couple that has $500,000 coming in and $550,000 going out is not as rich as the couple with $60,000 coming in and $40,000 going out.
Money Conversation #2: What I want, what you want,
and what really works.
When it comes to couples and money, different people will have different ideas and goals. Now that you have a clear picture of where you are, ask each other, where would you like to go? Find out now so you can decide on a middle ground you are both comfortable with before things build up.
- Talk about 1 year, 3 year, and 10 year goals.
- Identify what can be done on a daily basis to move towards these goals. For example, if you’d both like to own a home in 5 years, one of you might focus on putting in over-time to increase income. The other might focus on paying down debt.
- You don’t always need to increase your income in order to start saving. Take a look at the expenses on your income sheet that are not fixed – those expenses you can control. Most people can find a way to set aside at least $10 a month. Once you start doing that, you’ll find the number starts to grow.
Money Conversation #3: What Are Our Risks?
Your chances of success increase by the amount of risk you are able to reduce. Read that again, because it goes against what most of us are used to hearing. Most couples make the mistake of investing their money first before taking care of the areas where they may be vulnerable. Ask yourself:
- If one or both of us suddenly lost our jobs, do we have reserve funds?
- Are we protected against disability?
- Are we prepared for the possibility of premature death?
- In the case of a lawsuit, what do we stand to lose and are we protected?
I always tell couples that you need to be prepared for both cases: the fact that you could live to be 100, or the fact that you could step outside and get hit by a bus today.
Money Conversation #4: Money Beliefs
It’s not uncommon for couples to have very different views on money. Take a look at how each of you talk and think about finances.
- Does money grow on trees?
- Is it the root of all evil?
- Does high risk equal high return?
Since you’re both talking about it, seek to understand where your partner is coming from. How they grew up thinking about money can help explain differences that may otherwise only show up when there is a problem.
Money Conversation #5: Final Wishes
This is not an easy subject to bring up, but because of my own personal experience with it, I encourage all my clients to be prepared for the inevitable. Ask yourself, if something were to happen to one of you today, would the other know what to do?
- Do you know how to retrieve important documents?
- Have you learned the names and location of investment accounts?
- Do you understand what is in the will?
Talking about your partner’s final wishes now will give you both peace of mind later. You both want to do right by each other, and avoid unnecessary stress.
Talking about money doesn’t have to be stressful or unpleasant!
If you have these conversations up front, before the big problems show up, it can even be enjoyable and rewarding. Setting aside the time to ask and answer the hard questions now is an investment in hard/easy and in the RichLife you are building together.
Put it on the calendar today and make it a date!
What is the biggest obstacle you and your partner have when it comes to money? Now is the perfect time to face those money problems and send in your questions. I want to hear from you!