This past Valentine's
Day, it's likely that new and old couples spent money on each other, but it's not very
likely that they discussed how that money should be spent.
But a survey on couples and money released last November by Capital One pointed out that younger people (18-34) are more prone to conflicts with their partner about money: 36% disagree once a month or more with their partner. Sixty-five percent of those between ages 18 and 24, and 41% of those between ages 25 and 34, report that they have argued about money during the last 12 months.
Money problems can overwhelm a relationship, particularly a relationship on the verge of marriage or a live-in arrangement. Here are 10 ways your clients can avoid at least some of that conflict:
1.
Agree
that money is something that should be talked about. Not every couple needs a set
date and time for a monthly money meeting—though that might help a lot of
people. The first discussion any couple should have about money should deal
with whether they can talk about it. It might be worth discussing how each
person's parents dealt with money issues and whether those practices
would be worth copying or avoiding. Most important, couples must recognize that
money problems will happen in relationships—it's important to discuss how to
handle disclosure and working things out.
2.
Swap
credit reports.
Before discussing who will pay the energy bill, couples need to know if they
can afford it. Individuals should check all three of their credit reports—from
Experian, Trans Union, and Equifax—on a staggered basis throughout the year to
get an idea of debt amounts and to catch inaccuracies that might surface during
the year. All the heavily advertised "free" credit report services
should be ignored in favor of AnnualCreditReport.com for credit reports that are actually
free. Reports should be swapped when they arrive, and each person's data should
be checked for inaccuracies and changes from the previous reporting period that
might signal an increase in borrowing or the possibility of identity theft. And
again, everything should be talked through.
3.
Discuss
all the past baggage.
If partners have been previously married or in other live-in relationships, there
might be expenses associated with kids or previous debts and bankruptcies to be
considered. If the partners have seen each other's credit reports, that might
also add a few topics for discussion. No one is ready to handle money until
both people understand how both sides have handled it in the past. Money priorities for the kids needs to be discussed, and how
one or both of them will extinguish debt.
4.
Discuss
money dreams.
Part of the reason money discussions can be so stressful for couples is that
most discussions focus on problems. Positive stuff should be talked about
too—like how they're going to afford travel both want to do, how and when
they'll be able to buy a house, future tuition dollars, or how they'll afford
to start a family.
5.
Build
a first budget.
If the couple is moving in together, they need to create a budget.
The first step is tracking current income and spending data for at least three
months and making sure they're noting important expenses coming up in the
future.
6.
Decide how—or whether—they'll merge their money. Being a couple
means building shared financial connections. The extent of those connections is
up to them. They should talk about combined checking and savings accounts and
access to each other's investments. This is a particularly important talk to
have if they're planning to marry. Joint checking
accounts have several advantages—they allow for simplified record-keeping and
greater transparency on what both sides are doing with money. Separate checking
accounts allow for greater independence and individual responsibility over
money.
7. Be very careful about joint credit. There was a time when women couldn't easily get credit and were solely dependent on the credit history of their husbands while their men were alive. And once the male spouse died, so did the wife's credit opportunities. That changed with a broadening-of-lending law in the 1970s, and it's particularly important that both partners establish credit in their own names with a good history of using that credit. Surviving spouses have the freedom to establish credit, but without a solid history, it may be particularly tough to get credit at a time when they really need it. Also, surviving spouses have to pay off outstanding credit held jointly, so it's critical to keep those accounts under control.
8. Consider a prenuptial agreement. If one or both partners or potential spouses have sizable assets or particular priorities about allocating money for specific purposes, charities, or family members, a prenuptial might be worth a discussion. Work with tax, estate, and matrimonial attorneys to work out that agreement in a way that's advantageous to both sides.
9. Talk about long-term savings, investing, and estate issues. Even couples who keep separate finances need to prepare their income and retirement plan together to maximize the money they've worked for. Help couples sort through their goals and what it will take to get there and how a potential inheritance may affect those plans and potential estate issues.
10. Plan for the unexpected. Couples should begin building safety nets from the beginning. Building an emergency cash reserve fund to cover three to six months of living expenses should be a first goal. Then, depending on living circumstances and whether children or significant assets are involved, couples should develop estate plans as early as possible, including wills, powers of attorney, and specific plans to pass or dispose of business assets. A discussion about beneficiary designations on life insurance policies, 401(k) plans, and IRAs is also a must. While worst-case scenarios don't make for the most enjoyable conversations, these discussions are better done before death, illness, or a financial emergency makes such plans essential.
7. Be very careful about joint credit. There was a time when women couldn't easily get credit and were solely dependent on the credit history of their husbands while their men were alive. And once the male spouse died, so did the wife's credit opportunities. That changed with a broadening-of-lending law in the 1970s, and it's particularly important that both partners establish credit in their own names with a good history of using that credit. Surviving spouses have the freedom to establish credit, but without a solid history, it may be particularly tough to get credit at a time when they really need it. Also, surviving spouses have to pay off outstanding credit held jointly, so it's critical to keep those accounts under control.
8. Consider a prenuptial agreement. If one or both partners or potential spouses have sizable assets or particular priorities about allocating money for specific purposes, charities, or family members, a prenuptial might be worth a discussion. Work with tax, estate, and matrimonial attorneys to work out that agreement in a way that's advantageous to both sides.
9. Talk about long-term savings, investing, and estate issues. Even couples who keep separate finances need to prepare their income and retirement plan together to maximize the money they've worked for. Help couples sort through their goals and what it will take to get there and how a potential inheritance may affect those plans and potential estate issues.
10. Plan for the unexpected. Couples should begin building safety nets from the beginning. Building an emergency cash reserve fund to cover three to six months of living expenses should be a first goal. Then, depending on living circumstances and whether children or significant assets are involved, couples should develop estate plans as early as possible, including wills, powers of attorney, and specific plans to pass or dispose of business assets. A discussion about beneficiary designations on life insurance policies, 401(k) plans, and IRAs is also a must. While worst-case scenarios don't make for the most enjoyable conversations, these discussions are better done before death, illness, or a financial emergency makes such plans essential.
