By Frank Boucher, CEBS, CFP®
Talked about money yet?
Money and a failure to talk about it is a surefire danger signal that your new marriage is at risk of having an unhappy ending. Reasons for divorce statistics are fuzzy at best but money and communication seem to find their way into the top five reasons on just about every survey.
If a first marriage ended in a divorce, there’s a good chance that money was part of the problem. Couples who don’t want history to repeat itself need to be proactive when it comes to clarifying the financial aspects of the relationship.
A remarriage is full of interesting money issues – with many of them interesting for all the wrong reasons. For example:
- One spouse may have bad credit or excessive debt.
- One spouse pays or receives alimony or child support.
- Both spouses bring different amounts of income and assets to the marriage.
- Each spouse has a different attitude toward money.
- Each spouse has different financial goals.
Any or all of these money-related issues can affect the financial health - and possibly the health of the entire relationship - of a remarrying couple. Since money and communication are top marriage-breaking issues, here’s a blueprint for tackling both.
Step 1: Lay the Ground Rules for a Money Talk
Do It Now. Don’t wait until a problem shows up, such as an empty checkbook, an unexpected bill, a late payment or a surprise major purchase. These things can drive emotions to the boiling point and the money “conversation” turns into the “blame game” – which is counterproductive and harmful to your relationship.
Don’t Hold Back. Lay it all out there – the good, bad, and ugly. What is your income? What is your spouse’s? What are the assets? Where are the debts? If there are skeletons in the closet, this is the time to flush them out.
Come Prepared. Both you and your spouse can obtain a free copy of your individual credit report from www.annualcreditreport.com.
Schedule An Appropriate Time. This has to be a collaborative project so pick a time and place that’s mutually agreeable. In the middle of watching a football game or right when you get in the door from a long commute would not be the best time, as you’ll need full focus. Send the kids away and turn off the TV, phones, and anything else that might cause a distraction. Put on some soft music, get something to drink (No alcohol please!) and go to work.
Be Respectful. Everybody has different attitudes about money and many of them were imbedded when they were children. What may seem completely outrageous to one makes perfect sense to another. Men and women tend to think differently about money and they tend to have different spending needs. For example, a woman’s wardrobe and personal care needs are normally more expensive than a man’s. Understand it, accept it, and prepare to compromise. No one said the money question was easy to work through.
Actively Participate. Since both parties have a vested interest in this, both parties need to participate. “Whatever you say” and “If that’s what you want” are not okay: voice your honest opinion. Also, avoid the opting-out response of “I don’t understand finances.” Sure you do – this isn’t high finance. It’s a simple equation: money in, money out.
Communicate Effectively. No one likes a know-it-all, so running out a bunch of spreadsheets in front of a partner whose eyes are glazing over could be counterproductive and cause resentment. Find a common speaking ground.
Step 2: Prepare a Spending Plan
Budgets aren’t diets. They are proactive spending plans that help ensure resources are going to the right place. Think about expenses in terms of four different areas: fixed, quasi discretionary, fully discretionary, and goals.
Fixed. These are the expenses where there is no wiggle room, such as mortgage payments, rent, child support, alimony, and other loans. Generally, they are cast in stone and must be paid.
Quasi Discretionary. These are necessary expenses but they have some wiggle room. These include groceries, clothing, personal care items, and utilities. Smart shopping can reduce these expenses, freeing up funds for more interesting things.
Fully Discretionary. Vacations, dining out, entertainment and hobbies fall into this category. Don’t overlook them. People need to relax, and completely eliminating these costs will undoubtedly result in frustration and resentment.
Goals. This is a tough one. Almost everybody agrees on paying bills, eating, personal hygiene, and clothing, but the discussion on longer-term goals can uncover individual wants and desires across a broad range of options:
- Save for retirement or college for the kids?
- Buy a new car or remodel the kitchen?
- Vacation at Disney World or visit the parents?
This is where emotions can really get in the way. Couples who struggle to reconcile these areas themselves should consider seeing a pro. Financial planners have sophisticated software that can model any number of scenarios, illustrating the outcomes of various spending plans. Also, they can offer objective advice as they are not emotionally engaged in their clients’ financial situation.
Find one that charges fees and doesn’t sell investments. The National Association of Personal Financial Advisers (NAPFA – www.napfa.org) and the Garrett Planning Network (www.garrettplanningnetwork.com) have financial planner search capabilities. (Full disclosure – I am a member of both organizations.)
Allot an Allowance. It’s not just for kids. How about Mom and Dad? Money is power and denying power creates resentment. Think about budgeting a weekly amount that each can spend with no questions asked. Agree on how much and what household expenses, if any, must be paid from each allowance. For example, Dad’s allowance may cover auto expenses but everything else is his. Mom may have to buy groceries from her allowance. The amounts do not have to - and probably shouldn’t - be the same.
Consider Separate Accounts. Separate bank accounts can really help when used to isolate expenses. For example, one account may be used for fixed and household expenses and another used to fund goals. Investment accounts will be necessary for goals such as retirement and education funding.
Implement the Spending Plan. It’s time to put the spending plan in place. Obviously, the fixed and quasi discretionary expenses need to be paid and hopefully, there is money left over to fund the other expenses as well.
There are some nice resources that can help track expenses and fund goals:
- A website called Simple Planning (www.simpleplanning.com) offers an EXCEL based series of worksheets that can be purchased for $9.95.
- In the old days, people maintained their budgets by putting money in envelopes. When the envelope was empty, the spending stopped. Go to www.mvelopes.com for online software that features virtual envelopes to help manage household expenses and goals.
- A fairly new website, www.mint.com, is receiving rave reviews as a money management resource.
Review, Review, Review. Budgets and financial plans live, breathe and change constantly. Incomes change, as well as expenses and goals. Review finances regularly and prepare to be flexible to keep up with these changes. Also, keep in mind that like many things in life, finances are not always fair and sometimes, somebody has to give in for the greater family good.
What’s Next? Setting up a spending plan is just the beginning of the financial journey. Retirement and estate planning are on the horizon, as well as investing, insurance, long term care and who knows what else. Income, debts and goals will change along with life circumstances, and spending plans will change as well. Start your journey on the right path with a sound, mutually agreed-upon plan and enjoy the ride.
Frank Boucher, CEBS, CFP® is the owner of Boucher Financial Planning Services in Reston, Virginia.
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