Financial Planning for Couples

Marriage Finances

Financial planning plays a critical role in maintaining a healthy and harmonious relationship. However, it's no secret that money matters can often become a source of disagreement and tension for couples. In this article, I explore some common financial planning issues faced by couples, including disagreements managing their investments, spending, and budgeting. I also discuss some strategies and approaches to resolving these issues and fostering financial agreement within the relationship.

Differing Financial Goals

One of the primary sources of disagreement for couples is having different financial goals. Each person in the relationship may have varying priorities, such as saving for retirement, buying a home, starting a business, or pursuing personal interests. These conflicting goals can create tension and make it challenging to establish a unified financial plan. If one person wants to save aggressively for retirement, while the other wants to purchase a giant boat for family vacations, it can be difficult to form a consensus.

Resolution: To address this issue, couples should engage in open and honest communication about their financial aspirations. Regular discussions can help identify common ground, prioritize goals, and create a joint financial plan that reflects shared values and objectives. Compromise and flexibility are key in finding a balance between individual aspirations and shared financial goals. I recommend splitting money into buckets to work towards separate goals, some of which are joint, and others which might be individual.

Disparate Spending Habits

Differences in spending habits can lead to conflict within any relationship, but particularly in a marriage where finances are combined. One partner may be more inclined towards saving, while the other may have a more relaxed approach to spending. This discrepancy can lead to financial strain and resentment. The situation that I most commonly see is that one person is a saver, the other is a spender, and the saver feels like they are losing out when it comes time for purchasing necessities. The saver tends to be the only one with money available when the house needs a roof, the car breaks down, or when unexpected medical costs are incurred. The spender gets to enjoy their day-to-day purchases, but the saver doesn’t, which causes major conflict.

Resolution: Couples should strive for transparency and develop a budget together that reflects their combined income, expenses, and savings goals. Establishing clear spending limits and allocating discretionary funds can help accommodate both partners' preferences. Regularly reviewing the budget and discussing any concerns or adjustments can foster financial understanding and compromise. Couples will need to decide if they are combining their accounts or keeping them separate. Couples with similar goals and habits are probably best suited to combine their assets, while it might be less stressful for those with disparate plans to keep their spending isolated. However, there still needs to be transparency. So even if the accounts are not joined, the balances (including credit cards) need to be clearly visible to both people in the relationship.

Unequal Contribution to Finances

Unequal financial contributions can cause friction within a relationship. If one partner earns significantly more or has different financial responsibilities, it can lead to a perceived lack of fairness and imbalance in decision-making. Large power imbalances where one person always has final say on spending can be exhausting for the lower earner, as they feel like they need to constantly “ask for permission” to enjoy their life.

Resolution: It is crucial to view financial contributions as a collective effort rather than a competition. Open and non-judgmental communication is key to addressing any resentment or feelings of inequality. Couples should consider implementing a proportional budget system or exploring alternative ways to contribute, such as taking on additional household responsibilities or pursuing shared financial goals together. I believe that financial contributions should be proportional to income, particularly if the couple is married.

Conflicting Investment Strategies

Divergent investment strategies can create conflicts and disagreements, particularly when couples have varying risk tolerances or conflicting approaches to long-term financial planning. Most commonly one spouse is an aggressive investor that is comfortable with risk, while the other tends towards conserving and protecting their assets.

Resolution: Couples should approach investment discussions with an open mind and a willingness to understand each other's perspectives. Seeking professional financial advice can be beneficial in finding common ground and designing an investment strategy that aligns with shared goals. A balanced and diversified portfolio that considers both partners' risk tolerance can help mitigate disagreements and build financial security. Household level portfolios are often a compromise, and reflect a ratio of riskier assets (stocks, real estate) and safer assets (bonds, CD’s etc.) that is somewhere in between everyone’s personal preference.

Lack of Financial Communication

One of the fundamental issues in financial planning for couples is a lack of communication. Failure to discuss financial matters openly and honestly can lead to misunderstandings, secrecy, and financial mismanagement. Often during my career as a financial planner I’ve had discussions with couples where one person did not have details about the extent of the debt held secretly by the other person. Most commonly this is credit card or student loan debt.

Resolution: Regular financial conversations should be a priority for couples. Establishing designated times to discuss finances, at the end of the month for example, can create a regular space for open dialogue. It is crucial to actively listen, express concerns, and work together to find solutions. Additionally, consider involving a financial planner (CFP® of course) who can facilitate discussions and provide expert guidance.

Should one person be family CFO?

Many couples tend to depend on one person to navigate most of their finances, and this type of arrangement has both pros and cons. “Division of labor” in a household can be a great way for couples to work together to manage their lives. However, if one person is expected to take responsibility for most financial decisions, that can lead to resentment. It can be difficult if one person plays the role of the “bad guy” and monitors spending while the other person is always getting their plans shut down. If one person is managing budgeting and spending, it might be a good idea to have the other handling investments or insurance policies, so at least they have some role in household financial planning.

It is very common that one spouse manages all the finances, and the other spouse is left in a difficult position if the other passes away. I recommend that all households keep a central portal or listing of all financial assets and accounts, and contact information for all the companies involved.

Conclusion:

Addressing financial planning issues within a relationship requires patience, understanding, and a commitment to open communication. By recognizing and acknowledging the common sources of disagreement, couples can work together to establish shared goals, develop effective budgets, and make informed financial decisions. The key to successfully working with a partner on financial planning is always compromise and a shared vision for financial goals.