“From hidden debt to secret expenditures, lying about finances can cause a marriage to go into default.”
Kimberly Foss, CFP
The US divorce rate among young people under 30 years has been dropping to below 50% since the early 1990s. However, that may be deceiving. Millennial couples are marrying later and arming themselves with prenuptial agreements.
Total divorce rates may be higher, closer to 53%, according to a study by sociology professor Philip Cohen. Older couples are quitting their marriages more than previously.
Money is the number one trouble spot among couples according to 35% of people surveyed in the SunTrust Bank study. Most conflicts about finances are the driving force in most divorces. Couples talking to each other in making smart financial decisions may reduce some of the strain these topics may cause.
In its Love and Money survey, TD Bank found that 90% of respondents who say they are in happy relationships discuss money at least once a month. It is always better to address these problems head-on rather than procrastinating over financial decisions. Bad financial habits may be costly by not confronting the piling up of higher-cost debt or overspending.
Related Post: 11 Ways To Avoid Costly Procrastination
Financial Attitudes May Be Visible Early On
When couples start dating, they may gain some visibility into each other’s attitudes about saving and spending habits. Once couples become more seriously involved, they should have more in-depth conversations about money to gauge each others’ financial goals. They should communicate their perspectives on financial planning with honesty and respect.
It is awkward to talk with your partner about money if you never have. If you are moving to the serious couple stage, you need a way to get started. Ramit Sethi, a legendary personal finance expert (in all areas), developed “The Definitive Script…” He provides helpful word-for-word phrases for you to use. Frankly, it works for us, after 30+ years of marriage!
First Money Fight May Illuminate Your Differences
Learning how to talk to each other is essential as you contemplate tying the knot. You may get an early view of your financial differences once you decide to get married. You may have different opinions about what kind of wedding you want to have. Should you marry at City Hall (about 3-4% of couples do) or have a lavish wedding.
The Wedding: City Hall or Grand Affair
If you choose the latter, hopefully, you are on the same page. Make sure you do your research and are ready for the high costs. The average amount spent on a traditional American wedding is $35,439. However, geographic locations differ. Expensive weddings could go higher; they cost $75,000 or more in New York and San Francisco.
How the engaged couple handles this monumental event may tell volumes about how close their relationship with money may be. If they agree on the venue together, that is a significant first step. An expensive wedding may put a big dent in savings for couples if they pick up the tab, or perhaps they can get help.
Their weak money management skills challenge highly educated professionals like doctors and lawyers. My husband, Craig, an attorney, has often had difficulty with finances. He frequently laughs, saying that he went to law school instead of business school like I did.
Finances have been a difficult topic for our household. Once my husband embarked on his legal practice several years ago, I never had a good handle on what he earned regularly. It was understandable in the early years as his practice was going through typical growing pains and his income was minimal. Also, clients don’t pay as regularly as they probably should.
The problem was that Craig never made me fully aware of how tough things were. Truthfully, I was wantonly oblivious and focused on my own career which demanded long hours of 6-7 days and heavy traveling. We probably missed some bills as Craig was the bill payer.
Fortunately, I was doing quite well on Wall Street. Ultimately, we were able to pay bills. However, as time went on, my husband still didn’t share his income or was relatively vague. He is not alone in hiding information from me. Eventually, I always find out about the financial damage. It causes enormous stress in our lives.
A Financial Planner Helped Us
Among the biggest mistakes, I have made is not being persistent about knowing what he earned. Like others, he has a less predictable income, so he had some valid reasons. We benefited when we worked with a financial planner, and Craig was far more open.
Circumstances change, and you and your significant other always need to update each other. As those of you who have children know, our financial lives get more complicated when your family expands. So, folks, be open and honest with each other.
Financial Infidelity Seems To Be Growing
Many people who succeed in their careers have had trouble handling their finances and may cover up some of their actions. They may hide large purchases they have made, have credit cards or a loan they didn’t tell their partner. This is known as financial infidelity, which occurs when couples are secretive about money stashed away or having debt accounts hidden away. They lie to each other about financial transactions. It leads to stress, anger, broken relationships, potentially bankruptcies, and/or divorce.
Financial infidelity has been on the rise, according to a survey by CreditCards.com. Millennials are nearly twice as likely to hide money or accounts from their partners than previous generations.
Prenuptial agreements, up 62%, have been popular with Millennials, especially women. These agreements are legal documents two people negotiate and sign before they marry. The signed documents cover financial issues and the potential division of assets in the event of divorce.
A Harris Poll done on behalf of the National Endowment For Financial Education (NEFE) reported these findings:
- in 2 out of 5 couples (or 41%), one spouse admitted to financial deception.
- 75% of those surveyed said financial infidelity adversely affected their relationships.
- 36% surveyed believed some aspects of their finances should be private.
- 25% discussed finances with spouse and knew partner would disagree.
- 18% say they lied or hid financial information because they were embarrassed or fearful and didn’t want their spouse to find out.
- 31% of people in another survey by CreditCards.com kept credit cards and other accounts from their partner. Hiding debt is a particularly dangerous deception. The unsuspecting partner may think their household is financially secure when it is not.
- Almost 30% of couples do not know each other’s salaries by a study by PolicyGenius.
8 Ways Couples Should Talk About Money
There are few topics that are more uncomfortable to talk about than money. Sex conversations are comparatively easy. Yet, avoiding the conversation about finances because it is challenging is foolhardy. If you are entering what is hopefully going to be a life long relationship, now is the best time to get started.
1. Have Honest Communications
Early on, you should express your general views early on a range of financial topics without specifics on saving, spending, giving, reducing debt, investing, and retirement. Discussing how your family handled finances may be an excellent place to start. What kind of lifestyle do you want to have?
Remember, if you and your significant other are going to have a long term relationship, there will be plenty of time to get very specific.
Each of you needs a framework to understand your respective money mindsets better. You might consider writing each other a letter as to what is essential to you. Share it and ask questions. It is a meaningful time to say what your significant priorities and learn of your partner’s.
Meeting of the Minds
There must be a meeting of the minds when it comes to values and expectations. You should talk about where you want to live, whether you would prefer buying your own home rather than rent, saving for retirement through work, setting up additional Roth IRA accounts, and setting up a vacation fund.
Most importantly, don’t lie or hide crucial financial information from your spouse because you are embarrassed or fear a potential fight. Face the music by admitting your mistake and ask your spouse for help in understanding the matter.
2. Set Up A Time To Talk About Money
It is a good habit to find a standard time to discuss a range of money issues together. You want to make sure you are on the same page regarding short term financial goals. Those goals may impact your long term plans if you breach your ability to save to buy a home. Also, couples should set aside money for an emergency fund for unexpected costs.
Initially, try to meet weekly to establish this as a regular event. You can call it a “money date” and talk over coffee or dinner. It should be informative and not stressful. You should use this time to get comfortable talking about money issues. One person may be a spendthrift, buying only the highest quality, and the other one is thrifty, often purchasing low quality.
Having a discussion is an excellent way to clear up misunderstandings over one spouse’s purchases while the other person wasn’t happy about the amount spent. We have all been there at one time or another when we couldn’t resist a salesperson’s pitch to us.
Have Monthly Meetings
After the first few weeks, consider a regular monthly meeting convenient to your schedule. Gather financial documents, bank statements, budgets to review together. Both spouses are entitled to know their financial situation clearly and correct any divergence from their goals on a timely basis.
3.Tell Your Spouse What You Earn
Generally, it is a good idea to share your salaries as a combined baseline income. However, one person may have a predictable salary while the other person may depend on annual bonuses, commission, or self-employed, receiving less predictable lump sum payments. You will need to figure out how much you both earn annually.
Whether you are not sharing with your spouse what you earn or hiding debt from your partner, you impair their right to know about these financial issues. Surprisingly, CreditCards.com reported that only 52% of individuals believe their significant other is honest.
For budgeting purposes, you will need to know your household’s combined income. It will be essential to create a monthly household budget to track savings and expenses. You should be working together towards your financial goals. Iron out any fundamental differences. You should also know your net worth, tracking your assets and liabilities.
4. If/When Finances Merge
Among the most challenging decisions for any new couple is whether to combine finances and divide up money responsibilities. There are many tasks to take care of, such as managing money day-to-date and dealing with long-term issues.
Own or Joint Bank Accounts
Traditionally, married couples open joint bank savings and checking accounts. Often, one spouse may earn more than the other.
Increasingly, both spouses earn their income. Both spouses should be responsible for saving and spending in line with their goals. If they were married later in life, they might have accumulated assets and debt, notably a student loan and credit card debt. They may want to protect their individual owners.
Have At Least One Account That Is Yours
For many couples, it makes sense for each person to have their accounts. Each of you may have automatic paycheck deposits and employer-sponsored retirement accounts. It is likely you have respective bills for entertainment, clothing, jewelry that you are paying on your credit card.
You can each allocate a pre-determined percentage for savings to the joint account based on your respective incomes. Joint accounts can be for distributing your income for household savings, investing, routine or monthly fixed expenses.
Some of these savings can be put into the household’s emergency fund for surprise expenses.
5. Divide Financial Responsibilities
You should decide how to share responsibilities for financial tasks. Among the jobs are paying monthly bills, monitoring credit card accounts, establish an emergency fund, paying taxes, charitable giving, reviewing credit reports periodically, and your budget. Determine which one of you is financially more capable for various respective tasks.
Your monthly budget and net worth statements are essential tools. Track your income from all sources, less all fixed and variable costs. Review your discretionary spending and consider limits if you are overspending.
Net worth statements will give you a snapshot of your assets divided into cash, and other financial assets. You want to track your debt amounts from your monthly credit card balances, student loans, mortgage, and car loans. Consider reducing debt to manageable levels, especially any high-cost debt usually from your card balances. Pay these monthly balances in full and zero out that debt.
6. Spend Less Than Your Combined Income
To spend less than you earn is easier said than done. If you are paying more, then you are relying on your credit cards or loans.
Put yourself and your spouse on a limit that you both agree to, which coincides with your targeted budget goals. For example, if your savings target is 10% of combined income, but you are finding it tough, rein in your spending.
Ultimately you want to maximize your saving and investing for greater financial security for your current household and your retirement years.
Related Post: 10 Ways To Better Manage Spending
7. Long Term Financial Planning
You and your significant other need to be on the same page whether you are dealing with day-to-day financial management or long term planning. Any shortfalls in the near term, such as reluctantly high debt, need to be worked to realize your long term goals.
Consider going to a financial advisor or planner to help you develop your plan more aptly and become more successful financially and in your relationship. You and your partner will need to make many complex decisions over the decades that you will be together. A planner can take some of the angst away.
Related Post: How To Choose A Financial Advisor
8. Strengthen Your Financial Skills
Most of us did not have a course in financial literacy in high school. Having necessary financial skills is essential for everyone for day-to-day transactions as well as long-term planning. Take a workshop, read personal finance blogs, listen to podcasts, YouTube videos and TED Talks.
9. Be Happy With Your Partner Or Go For Help
No one enjoys confrontation, particularly about money. However, when we have financial issues we often do. The truth is that our lives revolve around money. Making, spending, saving, borrowing and investing money. We do it together and often apart.
Let’s make a pact to talk about money more freely and discuss financial goals together. You will be happier with your partner if you can plan together. Sometimes you need to go for help financially. If you can’t communicate honestly, consider a marriage counselor.
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How do you talk about money with your spouse or partner? It is difficult for all of us. We can all gain from each other’s insights. Please share your experiences as to what works for you. We would love to hear from you!
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.