A couple’s seven-step guide to reducing financial stress
A leading cause for divorce is disagreements concerning financial matters. When a couple has different financial backgrounds and different opinions on spending, saving and investing, financial stress can occur. Here are seven steps that you and your partner can use to reduce financial tension and help your relationship thrive.
1) Understanding each other’s financial goals. It is easy to assume that your own financial goals are the same as your partners. Unfortunately, this is almost never the case. Your financial advisor can act as an intermediary to define common goals and identify areas in which your goals differ. Goals to be addressed include current spending versus savings, your children’s college education and retirement expenses. A realistic appraisal must be made of whether current income, expenses and savings will achieve the mutual financial goals.
2) Understanding each other’s financial fears. Most partners have different financial fears. Fears can include job loss, investment risk, financial advisor competence and concern over having (or not having) a budget and/or a financial plan. For many people, their greatest fear is running out of money before they die. Open and honest discussions of financial fears requires that both parties carefully listen to and respect the other’s fears, even when they may appear “irrational.”
3) Can you work together on financial issues? Once a couple understands each other’s financial goals and fears, they can often work as a team to meet their combined goals. Our next four points assume this outcome. If working together is not possible, accept this reality and develop a strategy that allows each partner the flexibility to meet their individual financial goals. This approach will likely require the support of a competent financial advisor who can serve as a financial intermediary when disagreements occur. For the individual approach to succeed, compromise is critical. Neither party can “win” or “lose.”
4) Develop a comprehensive financial plan. Once couples have agreed upon their joint financial goals, it is important to develop a written financial plan that describes what each must do to meet these goals. The plan should also address each partner’s financial fears and the steps that will be taken to minimize these fears. A comprehensive financial plan will include a detailed implementation schedule that provides each step required to execute the plan. Both partners must commit to doing their respective parts in implementing the financial plan.
5) Commit to working together. Couples often have one partner who is much more interested in financial issues. Once the initial financial plan is developed and implemented, no significant changes to financial goals, investment approaches, spending or saving should be made unilaterally. Both partners need equal input and consensus must be reached before any significant changes to the plan are made.
6) Establish a system to resolve financial disputes. There will be inevitable disagreements concerning goals, investments, spending, savings and the amount of risk that is mutually acceptable. If a mutually trusted, qualified financial planner has provided the initial financial plan, this person can help arbitrate these financial disagreements. An experienced Certified Financial PlannerTM (CFP®) should have both the training and expertise to provide a non biased analysis, comparing each partner’s approach.
7) Stay focused on your financial goals. Markets will go down, your employment may end, unexpected expenses will occur and some investments will fail. Short term setbacks should not alter your long term financial goals. When financial setbacks occur, re-examine your financial plan to determine if these setbacks will materially affect your long term financial goals. If so, consider alternative strategies to help get your plan back on track. Resist drastic measures such as converting all of your assets to cash. A temporary setback should not derail a well constructed long term financial plan. Take corrective actions as necessary, but resist the urge to panic and make drastic changes to your finances or investments.
Couples face many hurdles in pursuing a successful relationship. Minimizing disagreements on financial issues allows them to spend more energy on activities that can strengthen their ties. Implementing these seven steps will reduce financial tension by clearly defining your mutual financial goals and providing a pathway to meet these goals.