Before getting married, did you and your spouse talk about money? If you answered “no,” you’re similar to many couples who avoided (and still avoid) this topic. But if you think about it, what do you and your spouse typically fight about …. is it money? Unfortunately, money ends up being the topic most couples fight about, especially when money is tight. So how can you stop avoiding this topic and make it right?
Here are 3 steps to get you moving in the right direction:
1. List financial goals
No, you don’t have to have a stressful sit down for this one. Make it fun. Ask your spouse, “if we had 3 million dollars, how would you spend it?” (Depending on your financial situation, you may need to increase or decrease the amount of your imaginary money.) This activity is a brainstorming session — refrain from criticizing. Write down what your spouse rattles off — buy a bigger house, pay for children’s college, travel when kids go off to college, buy a beach home etc.
2. Identify common goals
From this list, identify common goals by checking the items you would also like to buy with your imaginary money. Also, take time to add to the list any goals you feel should be a priority. For example if your spouse didn’t mention paying off credit card debt, then by all means add it to the list. Another item to add is establishing an emergency fund – your “rainy day” fund. Historically, emergency funds represented between 3 and 6 months of expenses. This fund is typically used if someone loses their job. Given today’s economy, it takes longer than 6 months to find a job. Therefore, an emergency fund needs to represent between 9 and 12 months of expenses. Click here to read our blog about emergency funds.
3. Prioritize goals
Make two copies of your shared financial goals, one for yourself the other one for your spouse. Each person then ranks each goal based on their opinion of the priority. The goal ranked as “1” is the top priority – meaning if you could only spend money on one item what would it be? Now compare your list. You’ll see easily where you and your spouse differ in spending money. For example, your spouse may rank paying for kids’ college education as #3; whereas, you rank it as #5.
Now, it’s going to get serious. There’s no imaginary money to spend but you have a list of shared financial goals with different priorities. Your objective is to have the same goals as your spouse in your top five – you don’t have to have the same rank order for each goal but your top five goals should include the same goals your spouse has in their top five. To get to this point, you’ll need to discuss your rationale for ranking your goals. Look at the purpose of the goal, the amount and how long it would take to save for that goal. Some goals may be automatically eliminated since you’re now dealing with real money. For example, you may have listed to buy a Lamborghini; but realistically, there is no way you could afford spending over $300,000 on a car – well at least not at this juncture in time.
In order to succeed in this step, set ground rules for your discussion to include but not be limited to the following:
1- Allow each person to voice their opinion without interruption and truly listen to each other (remember, you’re in this relationship for the long-term).
2- Add humor when possible (humor has a way of diffusing tension).
3- Take a break from the discussion if it gets unproductive (i.e., if the discussion gets too heated).
If you successfully achieve the above steps – and we recognize #3 will take the most effort – then you and your spouse will have a shared vision on how to spend money. You will share the same five financial goals. With a shared vision, now you’re ready to develop a plan to achieve these goals.
Feel free to contact us if you need help working through any of the above steps.
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Her firm bridges the gap between financial planning and coaching. As a Transition Consultant, she offers sage advice in all aspects of life – financial, personal and professional. Niv does not manage money and does not sell financial products. Her services include spending plan development, divorce financial review, life strategy and professional progression. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me’.”