By Michael Donahoe
When it comes to financial planning decisions, after entering into a relationship, we need to start making them as a team. That can bring conflict, and we’ve all heard of couples who have split or divorced because of fundamental differences in how they handle money. I’ve advised couples of all types over the years and have found these tips for both younger and more mature couples can help you create a financial plan you’re both comfortable with.
Financial Planning For Younger Couples
Often a young couple moves in together or marries, and then discovers they have different attitudes around money. One spends when the other wants to save, or an organized person finds their beloved lets the bills pile up. Here are some thoughts on how to navigate your finances together in the early years.
· Be patient with each other and work on communicating. We all bring our own history of financial experience to the relationship, shaped by how we grew up and our parents’ attitudes and actions toward money, so recognize that you likely have different values, habits, anxiety levels, and the like. Talk about your attitudes toward money and how it shapes how you view your finances today to help better understand your actions.
· Put your financial routines on autopilot. Today, you can set up your bills to be paid automatically, and have money deposited to savings or retirement accounts on a regular schedule. Determining how much money you want to go where and setting up systems that do that for you will help you both align your spending and saving with your priorities and goals.
· Understand where your money is going. Many of us reach the end of the month and have no money left over. Here are five categories where the bulk of your income will go during your working years:
- Debt service such as a mortgage, student loans, and credit cards
- Risk management, which is typically insurance for home, car, life
- Savings for short-term and long-term goals
- Lifestyle or discretionary spending on trips, eating out, and hobbies
Knowing how much of your money is going to these five major categories is a key step to strengthening your financial well-being. Make deliberate decisions to strike the right balance in how much you’re spending in all of these different areas to give you peace of mind and help move you in the right direction.
· Consider separate bank accounts: Some of my clients have one banking account to pay for routine and predictable household expenses like housing, utilities, and food. This helps avoid commingling funds for bigger, less frequent expenses such as home improvements or vacations. The funds for those expenses can be held in a separate checking or savings account.
Financial Moves For Mature Couples
For more mature couples, financial planning is more about planning for the second half of life than deciding how to pay the bills. Here are the steps I suggest.
· Consider the financial security of your partner: As you’re nearing retirement, think about how you will support yourselves after the paychecks end. Does one of you have a pension you can rely on, or do you need to save more in a retirement fund? Is one of you facing health issues that may become an issue as you age?
· Discuss the important decisions facing you in these areas:
- Pension elections: If you’re eligible for a pension, know that there are options for how you receive the money, including regular payments, a lump sum, or accepting a lower payment so a surviving family member can continue collecting after you pass away.
- Social Security elections: Waiting to claim benefits can increase your monthly payout. Be sure to explore all your options for claiming individually or as part of a couple.
- Long-term care insurance: Though you would purchase this often expensive insurance to cover the cost of extended medical care, the benefit is mostly to protect the financial security of the well spouse.
- When and how to retire: Do you both want to retire at the same time, or does one partner wish to work for more years? Do you want to move to a new location in retirement for lifestyle or family reasons?
Couples And Financial Planning
A trusted financial advisor can help couples make financial decisions they will both be comfortable with. If you’re at that point, let’s find out if we’re a fit. Call us at (207) 775-1151 or email us at firstname.lastname@example.org. Not ready to work with an advisor? You can still get access to our best financial insights and tips by signing up for our valued-packed newsletter.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.