Marriage is one of the most defining moments in a couple’s life, and like any major milestone it should not be entered into lightly. While inevitably some marriages simply do not last it is important to understand that some of those marital hurdles can be overcome with patience, compromise, and above all communication.
According to a 2013 study published by HHS Public Access, 50% of remarrying divorced couples who were interviewed reported that their financial problems were a major cause of their divorce. This study is startling in that financial problems are more common than domestic violence (40%), substance abuse (33.3%), or cheating (31.3%). Only falling short to a lack of commitment (70.6%) and too much conflict and arguing (53.8%).
I want to take some time today to share my personal experiences and those that I have seen through serving my clients for the past few years in order to help you keep your household engaged and financially healthy.
Our Story:
From a financial and personal perspective, 2013-15 were a rough couple of years for my wife and I. We had moved across the country, away from both of our families, for me to take an entry-level job in the financial industry and my wife found work at a mortgage call center which she hated.
To add additional stress, during this time I continued working full time while completing my MBA, obtained my Series 7 and 63 licenses, and continued to get my CFPⓇ designation. Between the two of us, we had taken on $98,000 in student loans in pursuing education, with most of it being mine, and the income we made barely made a dent in our debts.
The Initial Plan:
At first, we lived in a small 600 square feet apartment with our dog. The apartment was in a good location and the monthly rent was at a great price. In my mind, we had it all planned out! We would continue to stay at a cheap apartment for 4-5 years so we could build our emergency fund and get out of debt. We would then save up for a down payment on a house while also saving for retirement.
The Reality:
The apartment did not have a washer and dryer. This forced my wife and I to take the laundry one block over to a local laundromat at least once a week. This experience was unpleasantly repeated until she demanded that we move. This question of laundry turned out to be one of our biggest fights as a couple. In reality, this fight was more about how we were both frustrated with our current situation rather than just how the laundry chore was inconvenient.
Reflecting back on this and being open and honest, here I was, a knowledgeable financial professional, and I was failing to make my wife a part of the planning process and failing to prioritize her lifestyle goals equally to my debt reduction goals. In addition, we were also both individually putting our extra cash flow towards what we valued as the most important and not committing to our combined goals resulting in slower progress.
Financial Planning With Your Spouse:
As I’ve continued to do planning over the years, some of my favorite clients are couples. 
Often this is the first time they have really sat down and had a money conversation around where they are and where they want to be. These conversations tend to hit important topics of how they want to live today and what they hope for in the future.
From my perspective, I can hear the pain points and tension that can surface during these conversations. Finding a way to work through and listen to each other is easier said than done. Below is my best advice from both my personal journey and from working with couples.
1 – Define Needs Versus Wants Together Rather Than Apart:
One of the best ways to get on the same financial page is to come to an agreed-upon definition of what is a need versus a want. It is very important to remember that wants are not always a bad thing. At the same time, you need to prioritize daily wants as they often tend to directly affect what long term goals you will accomplish. Some of the best things in life are those spontaneous daily wants!
A big source of conflict is when spouses’ definition of a need is significantly different from each other. For example, if one spouse’s definition of a need is spending $10,000 a year on travel for vacation while the other spouse sees that as a luxury. There will often be conflict around their spending when there is stress around daily bills.
Start out with defining essential needs. This gets both parties on the same page and then move forward to figure out what is budgetarily acceptable for daily living and fun spending items. A good way to do this is to build a budget together. There are great resources out there for the do-it-yourselfer like Mint.com. In addition, Nerdwallet has composed an article that looks at some of the best budgeting tools out there.
2 – Setting Up Bank Accounts to Run the Household Budget While Maintaining Individual Flexibility:
When it comes to running the household budget, it is important to set out a partnership model. Each party needs to understand what is going on for the household. At the same time, it is important to keep some level of individualism.
Getting a gift for a significant other just does not feel the same if it comes from the
family’s vacation fund versus your extra personal spending. Below I have outlined two different ways to structure your bank accounts with your significant other to better reflect “together money” versus “personal spending money”.
The first method is to have a main checking account where income comes in and monthly bills are paid. Then pay yourself first, by putting funds in your savings accounts based on the goals you are striving to reach such as building up an emergency fund or saving for fun future spending such as a trip. After you have put in the desired savings, put the agreed-upon amount for your checking accounts for daily spending.
Below is another way to set up your bank accounts in a manner that maintains more independence but still allows you to work together. In this structure, two-income sources come in, one to each spouse’s checking account. You divide up the monthly bills and pay it from the checking accounts individually. Then put agreed upon amounts based on the budget into building up the emergency fund (if needed), fun account, and other life goals savings. Leave some funds left in the checking accounts for the spouse’s daily spending.
Both of these options are great structures to start out with and build upon. Think of trying one or the other and adding little quirks that are specific for your family situation as you continue to practice budgeting together. In addition, in each of these structures, the spouses will need to understand the budget and spending limits.
If you are just starting off your financial journey together, you may also want to consider exploring a few simpler options. One option is to go for the envelope method. There are also great apps such as HoneyDue available for those more into using technology. Always remember that there is no perfect budgeting tool or method except the one you both agree works best for your relationship.
3 – Get Equally Excited About Your Spouse’s Goals:
Agreeing on everything is difficult or next to impossible even when you are madly in love. Often couples have competing goals on what is most important to them. For example, you may want to travel to Europe and “the other person” wants to save to buy a house.
With a limited amount of income, splitting funds between goals can result in slower progress that feels as if you are making no progress at all. This is why it is important to decide together and get equally excited about your significant other’s goals! Often committing to a spouse’s goal by putting extra cash flow helps the household reach that goal and next goals faster. It also demonstrates that you are listening and caring by putting your partner’s needs and desires first. As you have financial success with your partner’s goals it results in more buy-in and cooperation. In this way, getting what your partner wants can help you get what you want faster as well.
A common concern from getting excited about your partner’s goals is when their goals are not in the family’s best financial interest. A common example is when saving for a down payment on a house is considered more important than saving for an emergency fund. Many new couples save up for a 3% down payment for a First Time Home Loan through the Federal Housing Administration loan program. They save enough for the 3% down to use all of it for the down payment and leave no additional savings. This is great if nothing goes wrong for the next 30 years of the remaining mortgage. However, if a chronic case of leaky pipes, overdue repairs (since this is a fixer-upper after all), broken washers occurs, you may be in for some new credit card debt.
This is where it is important for a couple to understand that achieving key financial milestones results in more flexibility to enjoy future life goals. Additionally, it is a balance between these important financial goals for the future while enjoying today as well. Speaking with a financial planner or coach can help you navigate these decisions.
Our Journey:
My wife and I are not prime examples of how money and relationships work. Instead, we struggled with communication, listening, and getting on the same page. That being said, we have found that working through our struggles has been much better than ignoring them. We have continued to take things one step at a time.
To fast forward a little in our journey and show our sacrifices that we made along the way, we shifted our focus
to buying a house as a higher priority. We automated savings for retirement, built a small emergency fund and paid down a good amount of our student loans. With new job opportunities and increased income, we started saving for a down payment to get out of the apartment at a faster pace.
We are happy to report that after all our hard work, it took us just under three years to get a house and get out of that apartment. After we moved, it took another year and three months to finish the final amount of the $98,000 in student loan debt. In looking back on our journey, I wanted to provide our perspective to others and I hope this was helpful in directing other couples towards taking key action steps in reaching their financial goals.
Best,
James Hargrave
Director of Financial Planning
