Forget sex and the mother-in-law. When it comes to the real reasons couples fight, money is undoubtedly the biggest relationship wrecker of all. Let’s face it – managing our own money is hard enough. Throw another person into the fiscal equation, and managing the joint finances can become nothing short of an emotional obstacle course. Even after years of marriage, money can be one of those topics that couples simply avoid talking about altogether. A bit like the “elephant in the living room” analogy – it’s big, it’s there, it’s taking up a lot of space, it’s causing a lot of problems, but we’ll both just pretend we didn’t notice it!
Research shows that money is undoubtedly the number one reason that couples fight, and that 70% of couples only talk about money once a week. The problem with money in the context of a love relationship is that both partners tend to broach the topic of money emotionally rather than strategically. And when emotions run high, people tend to make foolish fiscal mistakes. In our experience of providing lifestyle financial planning advice to couples, we encourage our clients to approach the family finances as if they were running a business. We encourage them to see themselves as the joint CFO of their home and to take their money matters seriously – together! Placing a business metaphor into the context of a relationship tends to make people more methodical and strategic about planning their wealth.
Although it’s safe to say that managing your money and finances jointly is never going to be easy, knowing the potential pitfalls that you may face in your relationship provides a clear advantage to any couple out there. In our years of counselling couples on their finances, here are the 15 top money mistakes that we believe couples make:
- Not talking about money: Before we can even begin to address the other 14 money mistakes that are regularly made by couples, we need to overcome our fear of talking to our partner about money. There may be strong feelings of hurt, guilt, fear, distrust or maybe just sheer disinterest in the topic of money, but it doesn’t remove the responsibility that the two of you have to discuss your finances together. Our advice is to set aside a formal time where the two of you can meet about your finances. If you feel that the two of you are not able to discuss money matters without the meeting ending up in a furious row, then ask your financial planner to mediate the meeting. If necessary, draw up an agenda of all the issues you’d like to talk about and then go through the agenda systematically.
- Not merging your finances: Now I’m not for one minute suggesting that you operate one joint cheque account and credit card. Most people enjoy the financial freedom of having their own personal cheque account and credit card, and rightly so. However, I am suggesting that at least one a month the two of you go through your bank statements together so that you both know exactly what is going on between your various accounts. If the two you were running a business, you would want to review your various business accounts at the end of every month, right? So, why on earth would it be different when you’re running your home? Not having full disclosure to each other’s bank accounts will only result in you each operating in sheer financial ignorance. And, despite what some people say, ignorance is not bliss – especially when it comes to money. To run an effective, joint household (family business!) you need to talk to each other, share information and think strategically. Which brings me on to the next common mistake that couples make…
- Not having a budget: Having addressed the need for a budget in my previous blog (Braving the Budget), I don’t want to belabour the point here. I’ll reiterate the point, though – if governments, companies, churches, charities and clubs all operate perfectly respectable and sound budgets, why do so many couples believe that they don’t need to run a household budget? Not having a budget means not knowing how much you spend. And not knowing how much you spend means you don’t know how much money’s going to be left at the end of each month. This problem is dramatically compounded when you’re dealing with two incomes, two sets of expenditure and two or more bank accounts. The result could mean a doubly devastating surprise for each of you at the end of the month.
- Putting one person in charge of money: In many relationships, there’s one partner who’s more interested in the financial matters of the family while the other partner is happy to leave the financial management to the ‘financial partner’. While this solution may work for some couples, we strongly recommend against it. Our experience shows that, over a period of time, the financial spouse feels isolated, anxious and stressed at having to assume full responsibility for the finances. He or she can also feel resentful towards the other partner for not playing a role in managing the money and for (in many cases) having no regard for the severity of money matters. Another inevitable result is that the non-financial spouse lacks a clear understanding of the joint finances, the importance of sticking to a budget or the reason for limiting expenditure. The situation where one spouse manages the money often leads to a relationship war – financial controller versus happy spender, cautious counter versus carefree consumer. This creates a dangerous imbalance in a relationship that is intended to be a sum of two equal parts. A fiscal recipe for financial disaster.
- Not dealing with debt: An unintentional, but often inevitable, result of putting one person in charge of family finances is that the other partner tends to rack up the debt. If you’re not in charge of the money and you don’t have a budget, then incurring unmanageable debt is not too difficult to accomplish, even for the inexperienced spender. In our experience, many spouses have quite diverse feelings towards debt – with one spouse being adversely opposed to debt of any form, whilst the other spouse is comfortable with a large level of debt provided that they afford the minimum monthly payments. The diametrically opposite attitudes towards debt is often the cause of intense emotions and reactions within the relationship. While some may find it difficult to comprehend, many people suffer from a very real anxiety of living in debt. For the financially astute (often the partner in charge of finances), who understand how rapidly debt can accumulate and interest can compound, developing a fear of debt is not entirely unfounded. Our advice is to make a joint strategic decision on how the two of you intend to deal with debt. Agree on a level of debt that you are both comfortable with, and then respect the decision by exceeding the debt boundaries. Respecting and adhering to joint financial decisions goes to the very heart of your love relationship, which is mutual trust and honesty.
- Hiding expenses: There’s no quicker way to pull the rug of trust out from your relationship than to hide purchases from your partner. Besides for the financial implications for your household or family, the damage that can be caused by hiding expenditure from your partner is often insurmountable. Once again, I’m going to use the business analogy here (simply because it works so well). If one of your business partners took money out of the business bank account to secretly purchase rugby tickets for his family, how would you feel? Betrayed, dishonoured, disrespected, cheated? Ofcourse you would! Similarly, using money from your family finances to secretly purchase something for yourself would naturally upset your partner (if or when they find out). Financial implications aside, the secrecy, dishonesty and betrayal will impact your relationship more than any purchase could ever be worth.
- Taking unilateral purchasing decisions: Something that tends to occur more frequently when couples don’t talk about money is that one partner makes big purchases without consulting his spouse. We’ve counselled many an angry husband or wife who is furious at their partner for buying a motorbike, boat, plot of land or new car without first being consulted. This kind of behaviour often happens where household finances are not considered jointly, or where a “what’s mine is mine, what’s yours is yours” attitude prevails in the relationship. However, if you consider yourselves equal partners in your relationship, if you share common lifestyle dreams and you are planning your financial futures together, then making large purchases without consulting your spouse is never advisable. Unilateral purchases can derail your financial futures as well as have devastating effects on the lifestyle you currently enjoy. Your partner deserves to be included in the decision-making process.
- Lending money in secret: I dealt with this matter somewhat in my previous blog called ‘Lend or lose?‘. Loaning money to a friend can seriously impact your immediate cashflow situation. If you lend money to a friend without advising your partner, you leave your partner in a financially exposed position – which he knows nothing about! Even if he thinks lending money to your friend is a bad idea, the least you can do is let him know about the loan so he can be prepared for any financial implications that might flow from your decision.
- Buying matching toys: Where couples are at fiscal war with each other, it often happens that one partner feels that he has the ‘right’ to whatever the other partner has. If one partner feels that they need to upgrade their vehicle, many times the other partner feels a sense of injustice – why should he have a new car when I have to drive my same old car? This kind of behaviour only serves to compound the monetary woes and increase the fiscal friction in the relationship. By planning your finances, the two of you can put strategic plans which will allow you to map your large purchases over time. Generally, the best way to deal with large purchases is to stagger them. You may decide that your vehicle can last another year, whereas your husband’s vehicle is out of motor plan and an upgrade now is the wisest course of action.
- Not having an emergency fund: Every good financial plan will include a recommendation for an Emergency Fund. Why? Because life is what happens to you while you’re making financial plans! An Emergency Fund is there to tide you and your family over when life deals you some financial knocks. Having to fly to visit a sick parent, replacing an expensive vehicle part or paying for an unplanned sports tour – these expenses can break the budget if you don’t have a few thousand Rand tucked away in an Emergency Fund. Financial planning is about planning for the expected and the unexpected!
- Being under-insured: Many couples fool themselves into thinking that death, disability and dreaded disease are disasters that happen to other people. We have met many clients who, while on track for a well-funded retirement, have had their financial futures destroyed because they refuse to pay for insurance. While you are young and healthy, your greatest asset is your ability to generate an income. If you cannot earn an income, you may effectively be financially destroyed – it’s that simple. Insure your earning ability and make sure your spouse has enough capital to survive on if you’re not around.
- Not having a financial plan: Companies have business plans, governments have plans for their countries, churches have plans to grow their congregations, and charities have plans to reach their goals. Similarly, you are your partner should have a joint financial plan to map your financial futures. If you’re committed to staying together and you’re planning a long-term future together, then your financial plan should support and facilitate these intentions. There’s absolutely no point of one partner doing his retirement planning, while the other partner neglects hers. Our advice is that both of you sit down with your financial planner and develop a financial plan that (a) covers your risk protection (death, disability, dreaded disease), (b) plans your retirement, (c) provides for other investment needs (e.g. education funding), (d) makes provision for an emergency fund, (e) manages your Estate costs and taxes, and (f) ensures that you have a valid Will in place. Consider this to be your family’s strategic plan for the future.
- Not funding for retirement: Be careful not to trade living high-life here and now for a cash-strapped retirement, fraught with monetary woes and financially burdened children (and possibly grandchildren). When planning for your retirement, our advice is to begin investing with your very first pay cheque. If you haven’t started funding for your retirement, start today. The cost of delaying funding for your retirement can leave you in a position where you’ve, quite simply, left it too late to do anything about affording a comfortable retirement. Knowing that your retirement years look bleak can put enormous strain on any relationship.
- Not having an ante-nuptial contract: If you do not sign an ante-nuptial contract before getting married, you will automatically be married In Community of Property (see my previous article called ‘You’re getting married how?’). This may not be the most appropriate form of marriage contract, especially if one partner comes into the marriage with a particularly large Estate. We live in a real world where marriages, unfortunately, do break down. Having an ante-nuptial contract in place will protect you, your spouse and your children if your marriage is every dissolved.
- Not having a Will: A common misperception made by couples is their net worth is not sufficient to warrant having a Will. This approach is entirely wrong approach. Every person should have a valid Will. If you die intestate (i.e. without a Will), your Estate will be handed over to the state to wind up. Your Will sets out how your Estate should be divided among the heirs and will help avoid confusion or fighting after your death. If it’s not done properly, and in conjunction with your financial planning goals, problems (such as lack of liquidity) could arise at death. Your death would be traumatic enough for your family, so put a Will in place to make sure they don’t suffer any added stress or burden.
You may have noticed that I’ve tried to put these ‘money mistakes’ into some form of chronological order, because our experience shows that one mistake often flows naturally into the next. For instance, not talking about money tends to lead naturally into not merging your finances. Not assessing your merged finances generally results in you not having a joint household budget. Not having a budget tends to result in one partner taking charge of the finances on his own. If only one partner is responsible for money matters, the chances are that the other partner will incur unwanted debt. When a partner becomes infuriated about debt, the other partner may react by hiding her purchases from her spouse. This friction can lead to each partner being isolated from each other on the topic of finances, which in turn could result in one partner not consulting the other partner when making large purchases. When one partner buys himself a new car, the other partner feels aggrieved and buys herself a new car too. Can you see the pattern of almost self-destructive money mistakes that, simply through lack of communication, can manifest themselves in your love relationship.
If your relationship is important to you, and if you’re serious about your future together – both your emotional and financial future – then sit down together and do something really novel: talk about money!