I’ve written articles on the psychology and mechanics of being a good long-term investor. There are articles on investing in real estate, lowering your taxes and improving your financial decision making. They help you make the best use of money to reach your financial goals. Although knowledge in these areas is important, they all take a back seat to what we’re going to discuss today.
Probably more important than your asset allocation, savings rate, or mortgage is who you become romantically involved with. Your significant other can either be your greatest wealth building asset or your biggest liability.
Divorce or breaking up a long-term relationship is expensive both emotionally and financially. I’ve been there, done that and wish I didn’t have the T-shirt. I feel this gives me pretty good insight into the topic. My hope is to save you a lot of time and headache be relaying the lessons I’ve learned over a number of years.
So, grab that cup of coffee or your drink of choice and let’s chat about money in the context of romantic relationships.
More important than your asset allocation, savings rate, or mortgage is who you become romantically involved with.
Who is this for?
Everyone really. It’s probably best-suited to someone in the process of getting seriously involved.
If you’re already married or in a committed relationship, I still think you’ll be able to get a lot of value. At a minimum you’ll be able to identify some of the mistakes you could be making that’s resulting in your money issues.
It Starts with Communication
According to a study performed by Ramsey Solutions, the number one topic that couples fight about is money. Ironically, it’s also the topic that most people have trouble discussing. I’m not exactly sure why this is the case. Perhaps it’s because we often associate our social status and self-worth with how we manage finances. Money still continues to be a taboo topic and unfortunately this can wreak havoc in finances.
Now I’d love to be able to give you a guideline of “after X number of dates you should start bringing up the money topic”, but that’s pretty difficult to do. “When you start getting serious… When you start talking about a future together…” is probably the best answer I can give.
Once you’ve decided on a time to have the “the talk” there’s no reason to be weird about it. You’ve likely already been having in-depth conversations about other topics. This is just one more thing.
How to Bring Up the Topic
You could open with something like “You know Bill / Becky, I really care about you a lot and the time we spend together has been awesome….” Actually, don’t say that. It’s sounds like an opener to a “It’s not you it’s me” conversation. I’m trying to make this a bit light-hearted because I know for most of you talking about money is about as much fun as getting a root canal.
I’d encourage you to make the conversation as open and non-judgmental as possible. The discussion usually goes better if you share your side first. It shows you’re willing to put yourself in a vulnerable position. Regardless of your financial position, you are being open which goes a long way towards building deeper trust.
Points for Discussion
We’ll discuss 5 areas that paint a pretty good picture of someone’s relationship with money. It’s not meant to be an exhaustive list. I figure that if the two of you are on the same page in these areas, the rest is easy.
Debt
Share any and all debts you have. Student loans, mortgage, credit card, and car loans are among the most common that come to mind. Debt reflects the financial decisions you’ve both made up to this point. It needs to be discussed openly.
Even though your debt technically isn’t their debt and vice versa, it’s still important. What affects you will have an effect on your significant other. If you get married, you get the entire person; not just the parts you like most.
Knowing where you stand, allows you both to know what you’d be signing up for as the relationship moves forward. Be careful with how you respond to what they tell you. You’ve likely done silly things with money yourself at some point along the way. Above all do not adopts an overly critical tone.
Nothing will get you on someone’s bad side faster than harsh criticism. What you’re mainly trying to determine is if they’re willing to be open with you. Debt can be paid off. Financial infidelity on the other hand, is much more difficult to fix.
When you get married, you get the entire person; not just the parts you like most.
Spender or Saver
Are you a saver or a spender? The amount of consumer debt being carried will provide a pretty good answer to this question. Realize that even in a relationship with two savers, there’s always one person that spends more than the other.
What do they spend money on and what percentage of their income do they allocate for spending? What constitutes “a reasonable purchase” will vary from person to person. Their answers will provide insight into what’s important to them.
On the other side of the spectrum, ask yourself if they’re an excessive saver. “Excessive saving” may sound weird, but it really is a thing. Do they penny pinch to point of being cheap? Are you the one always picking up the bill? For me, a person that’s incredibly cheap is just as unattractive as one that spends excessively.
What you both consider reasonable for spending and saving needs to be discussed frankly. There’s really no right or wrong answer. How you feel is how you feel. Knowing each other’s position helps you to make an informed decision about the long term potential of the relationship. From personal experience I can assure you not being on the same page in this area will quickly cause your relationship to take a turn for the worse.
Financial Goals
Do they have any financial goals and if so, what are they? Do they regularly save / invest a portion of their income? You want to dig into this because the answers to these questions will uncover if they really have a plan. It is one thing to say that saving and investing is important to you. It’s completely another to put plans and systems in place to actually do it. Share your financial goals with them and get their input.
When it comes to how money will be invested, it’s important that you’re both onboard with the plan. Everyone has different views around what they consider to be an investment. They might like physical real estate properties as an investment while you prefer stocks and index funds.
Even worse, they might be completely opposed to the idea of investing at all. This may be due to family history or past personal experiences. The only way you’ll find out is to have the conversation.
Family
What was their parents/family history with money? Depending on their culture and upbringing you may have very different views. In certain cultures, it’s common for family members working in the United States to send some of their income overseas. It’s a way for them to support family members living in places with less opportunity.
Is this something you’d be ok with? It’s important to be honest on this one. When I was married this would usually be on the order of several thousand dollars per year. If at a later point you raise issue with this topic you could be branded as not caring about his/her side of the family. You don’t want to get between your significant other and their family. There’s no winning in that situation.
If sending money to family members regularly is going to be a part of your relationship, it would be good to establish guidelines on amounts and frequency. It’s much better to know what you’re signing up for ahead of time.
Lending Money
If a friend, family member, or anyone else asks to borrow money, what is your position? In addition to making it more difficult to reach your financial goals, money loaned to family and friends can cause all types of bad, long term issues. It’s important that you both agree ahead of time on how you’re going to handle this.
The last thing you want is a strained relationship due to a loan. My position is to refrain from lending money to friends or family whenever possible. If they need help to cover some crisis, it’s better to give them the money instead of loaning and expecting repayment. Loaning money results in an unspoken business relationship that inevitably leads to problems.
This topic highlights one of the most important reasons to become wealthy. You gain the ability to help others on a very generous scale. This is much harder to do when you’re broke. Avoid fights by ensuring you and your significant other are on the same page.
Loaning money to friends and family results in an unspoken business relationship that inevitably leads to problems.
A Common Theme
If there’s one theme that’s present throughout our discussion it’s the importance of communication. Talking about money can be tough. It’s a very sensitive topic for most people. But couples that are able to discuss it, can usually talk freely about just about anything.
Though surveys and research say that money is the number 1 reason for break ups and divorce, I disagree with them. Money isn’t truly the problem. The real issue is lack of communication and understanding the other person’s viewpoint. How we use money is one of the most powerful ways to communicate what we’re feeling to the outside world.
How we use money is one of the most powerful ways to communicate what we’re feeling to the outside world.
I’d encourage you to take the points we discussed and perform a deep self-analysis. It’s important that you’re honest with yourself. If you’re highly opposed to debt, so be it. If you love debt, that’s fine too. Know who you are and what’s important to you in order to know what you want and need in a life partner to achieve your financial goals together.
Which of the points hit home for you the most? Have you experienced any of the issues I spoke about in your relationships? Let me know in the comments below!