Financial Heart to Heart for Couples

Hey, what's up, everyone; Henry here from Disruptive Money Management, and we have a fantastic episode today about financial mindfulness. Financial independence may be something we strive for, but financial mindfulness is mentally preparing ourselves to get there. Whether we are saving for retirement and trying to retire early or just getting rid of bad debt, we must actively envision what we are trying to accomplish. In that regard, I consider financial mindfulness one of the critical components of financial independence.

This episode, in particular, is for those that are working to build financial habits with another person. You know what I'm talking about. I'm talking about the previously single people who are now getting serious with a partner. The happily engaged couple planning their wedding. The newlyweds working out their future together, and even those who have been in a relationship but just need to get on the same page regarding finances. So for all of the movers and shakers out there who are coming together, this is for you.

Setting the foundation of financial mindfulness with your partner early on can drastically reduce stress surrounding money matters.

Having the conversation on finances isn't exactly easy, and in my experience working with young couples, it isn't often a subject that is touched upon. And look, I get it, you're better wanting to spend your time on romance rather than reflecting on FICO scores. Not to mention, it's not a subject that you can just bring up without things getting awkward. I mean, should you ask your significant other how much they have in the savings account before or after getting engaged?

Having an in-depth understanding of one another's financial situation makes for a stronger relationship. Whether we like to believe it or not, money is a primary driver of so many aspects of our lives. Money affords us the life that we dream of. Money complicates things. When we don't have enough, we stress over not having enough of it. When we finally have saved enough, we stress over how we can lose it all and dread the day of going back to not having enough.

If you believe money can be complicated, you're not alone. In a recent survey by SunTrust Bank, 35% of respondents stated that finances are the leading cause of stress in their relationship. The thing is, folks, money is not easy to talk about. There is no right or wrong answer to one's financial situation or the financial decisions a person makes; financial decisions are all about personal values.

While our education system may be effective at preparing us for our jobs, the preparation for financial matters is less than adequate.

The way we were raised could be how we internalize money factors. As we were growing up, money factors at home and how our parents dealt with money is very likely a key contributor to how we think about money. If growing up, your family did not have a lot of money, it could very quickly make you frugal by nature, or if your parents were spendthrifts, it could also mentally cause you to become spendthrifts yourself.

From a very early age, family and society were already shaping our perceptions and reflections on money. The truth is that how we perceive money could have already been imprinted on us way before we even came of age to earn any money. That's right. You heard me right; your perception of how to spend, save, and invest could have been subconsciously predetermined for you just based on the people with whom you interact through the years.

Money brings not only dreams and feelings of safety but also insecurities, secrecies, and scrutiny. Individually, we hardly want to think about it, so it should come as no surprise that money is an even more complex subject to broach with a significant other.

But, for all the couples out there, financial independence is not a solo event. As the old saying goes, it takes two to tango, and so too does financial independence for couples. If you start yourself off on the path with the right questions and understanding, the conversations around money don't have to be a stressor. I mean, won't that be a wonderful thing? To communicate with your partner on money matters and not feel like you need to shut down the conversation as quickly as possible?

When I first met my wife, we both had differing views on money. Talking about things like income and savings and debt was not a comfortable conversation. Even when we were planning our wedding, the question surrounding budget and cost was often done quickly and not really with proper thought. We just wanted to get past the conversation, if you know what I mean.

We have since come a long way and can communicate about money in an intentional, agreeable, and reflective practice of our shared values surrounding money. That's right! Not the values imprinted on us from our family. But values we created together after years of living together and after having understood what money matters are for the both of us.

So with that being said, let's dive right into the top five most essential items to discuss with your partner as you set forth on financial independence together.

#1 Credit Score

The first item on the list is that significant number that defines our life. It's the number we're all curious about but don't feel comfortable asking, right? It's like, I want to know your number, but I don't know how I'll feel if it's higher than mine, so maybe we shouldn't share each other's numbers. And if one number is dramatically lower than the other, then well, there's a bit of shame involved that needs to get past and explanations to be said.

That's right; you know what I'm talking about. It's our three-digit FICO!

How we utilize our credit early on can have long-term impacts on our FICO scores.

Our three-digit FICO credit score is the most important number to focus on during our adult years. It's almost as if you go from caring about your SAT and ACT scores while in high school to caring about your FICO score in your college years and working years. The FICO score is the rating provided by Experian, Equifax, and TransUnion on how lendable you are based on your past financial behaviors.

It considers your credit history, open credit sources, derogative factors such as missed payments, foreclosures, and even remarks by landlords and creditors.

How is this so important? The FICO credit score is what makes or breaks a home loan. Not having a minimum score of 620 could disqualify you from getting a loan, and having a low score such as that number could result in higher interest rates. Not having a high enough score could prevent a person from getting into a new vehicle unless paying all cash, and even then, it could push the monthly payments to incredibly high numbers.

All of these items could become financial stressors for the individual and the couple as they come together. I mean, let's face it if you're going down that path of marriage, moving in together, and sharing finances. Then it is only a matter of time before you contemplate purchasing a home together, and both individuals' credit scores will play a factor in how much you can borrow for that home and how much that loan will cost you.

Understanding each other's credit scores is crucial because you don't want to fly with blinders on. The last thing you want is to get to the point where you want to buy a home together and realize one of the individual's credit scores is down the toilet, and you're now scrambling to figure out what to do. Believe me that is not a happy feeling and definitely can cause a lot of relationship stress.

If you know what the respective scores are, you know what you're dealing with. If both scores are great, then fantastic! But more often than not, I run into couples where one of the scores is less than stellar, and if you catch it early on, you can very quickly work on fixing it so that it is where you need it to be when you need to a get loan.

#2 Current Debt Obligations

While on the subject of credit, it is also good to go over current debt obligations. Being open and informed about each other's debt situation is critical because it will allow the both of you to create an action plan on how to have things paid off.

Although debt taken before marriage does not necessarily translate to joint debt obligations, it can be considerable financial stress on the relationship. Knowing each other's outstanding debt, what the payments are and how they affect future transactions like buying a house or a car will ensure that you are not blindsided when that time comes.

#3 Savings Goals and Objectives

You're going to want to discuss each other's savings goals and objectives. As you tie the knot and collectively join together in life, you want to make sure you're both on the same page when it comes to savings goals. Is one person struggling to kickstart their retirement savings? How much has each of you individually saved towards buying a house? Or has only one person saved for a downpayment, and the other just kind of have been sidelining it for a later time?

The last thing you want is animosity because one person dipped into their years of built-up savings accumulated pre-marriage. I hear it frequently, "I paid for the down payment on our house, and instead of helping, he bought a freaking truck!"

#4 Financial Future Together

If you are in a situation where one person hasn't saved while the other has, then set expectations about what the financial future should look like. If you're both earning a similar salary, then it's well and easy to say hey, we're splitting everything down the middle, but more often, this isn't the case. There will be variances in earnings, but if you don't understand that joint income is joint income and is designed to cover shared expenses regardless of how much one person makes over the other, you will run into feelings of unequalness.

Coming together now and setting the foundation for where you are financially together will lead you to the conversation of what the future brings.

Will you have children, and if yes, when? What happens after the child is born? Will both parents be going back to working full-time and hiring a nanny or putting the child in daycare? Or will one person want to take time off from work to ensure the child spends more time with a family member during the early years?

The early years of childhood are critical developmental stages, and it can be hard just to have someone else look after your child. But if one of you decides you want to stay at home, how will the lost earnings affect your household? Can your family withstand a decrease in income?

What about retirement goals? Being on the same page regarding retirement goals will allow you to work together as partners rather than two individuals planning separately and hoping for the best. I can assure you that both being on the same page is a heck of a lot easier than one person wanting to retire early and the other not having a clue of when they'll retire or thinking that perhaps they'll just retire when their parents did.

Just like the other aspects of your relationship, being on the same page when it comes to financial matters is just as critical.

The topic of retirement may not seem very important early on, and it certainly isn't something that appears romantic or dreamy. Still, one person's idea of financial independence could be another's misery. How important is your children's education to the both of you? Not only that, but how is that going to be paid for? Is it going to be funded by student loans, or will you be paying for it out of pocket?

Does one of you have a desire to put your kids through private school and adamantly stand behind that decision? Well, it's good to know about it beforehand so that you're not left scrambling trying to figure out how to pay for it.

Or what about college and how that's going to be paid for? I can tell you that I believe that having student loans isn't necessarily a bad thing. I put myself through college, working nights, weekends, and holidays. There were years of working 35 hour weeks to ensure that I didn't take on an astronomical amount of student debt.

So for me, taking on some student debt helps build character and pushes the individual to make a decision. But then again, tuition cost is getting ever increasingly higher. This is why my wife disagrees with my notion and instead believes that the greatest gift we could give our children is a debt-free college experience. And I get it! Debt related to college is now the second-highest form of debt following housing. The average college graduate comes out with about $50,000 in student debt, and for many individuals, it could be a significant setback to the start of their careers.

More and more Millennials are delaying the purchase of their first home or starting a family because they are so riddled with debt. It also doesn't help that there's so much volatility and uncertainty in the economy. I recently started working with a physician couple in their early thirties, and while both are high earners, they have over $700,000 in student debt!

Being on the same page when it comes to certain financial decisions will make the journey easier. While not all things have to be set in stone, at the very least, decide on how specific financial steps should be handled. Perhaps you both decide that it's wise to knock out one person's debt before deciding to purchase a house or build up a savings nest egg before deciding to have children. While you may not always be able to control what life throws at you, at the very least, you can set a framework around what your future life looks like together and the financial decisions that you both may have to make.

#5 Financial Lifestyle

Lastly, you want to be able, to be honest about each other's financial lifestyle. If one of you always wants to have the latest and greatest tech or enjoys grand vacations, just be sure the other is also on the same page. If one of you is struggling with spending a large amount of money on finer things and prefer a more low-key lifestyle, then you gotta be able to come to terms with it. Like I said, money conversations are one of the biggest reasons why couples fight, and nothing sets another person off more than when they feel they're spending more than their comfort zone.

What I mean is this, perhaps one of you is comfortable with Hyundai payments, and I say that with nothing but admiration for Hyundai. I mean, have you seen the Palisade? There is a reason why dealers can't keep that SUV in stock. But let's say you're comfortable with that, but your partner has more of an appetite for a Mercedes Benz instead. There's nothing wrong with that; they're just more used to the luxury and, frankly, the prestige that comes with it. Maybe swinging an additional $400 a month for the Mercedes isn't going to make or break you guys, but will you feel OK about it? Or were you always more of the mindset that $400 saved here means $400 could be invested elsewhere?

Financial wellness within a couple is the coming of both individual’s ideals and philosophies surrounding money. By intelligently talking through what matters to you, as a couple, you’re better able to break out of the mold that was imprinted on you from before you had the chance to create healthy money habits.

Money isn't the end all be all and by no means am I saying that your differences in money matters will cause strife in your relationship. All I'm saying is that being on a closer page about what money means to you and how you best want to utilize that to achieve your dreams, goals, and aspirations will help unify your relationship with your partner.

Take the time to enjoy your journey together, and believe me this when I tell you, your journey together is much easier when you both understand the reasoning to how you come across your financial decision-making.

And if that doesn't work, you can just do it like how our household is done. I just make money, and my wife controls it.