Conflict and Compromise: How Each of You Behaves With Money

Below are a few questions for you to pose to one another. Each one concerns a different, common "money personality" type. Listen quietly to your spouse or partner’s answers, and take note of where you are the same or different. There are no right or wrong answers. The point is to understand where the other person is coming from.

"The more couples discuss things and try to understand each other’s perspective, the more they respect each other," said Bill Ramsay, a financial planner in Raleigh, North Carolina, in talking to Kathy. "The more they respect each other, the better their relationship works and the better their finances tend to go."

Eventually, your discussions and the exercises throughout this book may lead each of you to change some of your behavior around money. But don’t expect overnight transformations or fundamental switches. For example, even if one of you knows you overspend on gifts for others, recognizing that fact isn’t likely to change an underlying impulse to gift-give. Any joint plan that you come up with will stand the greatest chance of success if it takes both of your beliefs and quirks into account, perhaps finding new ways to accomplish the same goals.

["Marriage Concerns" Graphic] omitted for online sample chapter.

Question 1: Do you like thinking about money?

For some people, budgeting, saving, figuring out tax loopholes, and otherwise playing with money is actually fun. These folks are likely to study their bank statements for errors, scan the personal finance magazines, and follow the investment news. Other people couldn’t care less. As long as the checks don’t bounce, they’ll choose to wash the windows and scrub the bathroom sink before opening a bank statement.

If neither of you really finds the subject of money interesting, give yourself big points for picking up this book. You’re on your way to discovering that, dry as the subject may seem to you, it’s intimately connected to things you care passionately about: your home, your leisure time, your children, and your future. And it’s easier to learn the basics— just enough to make intelligent decisions with—than you think.

If one of you is more money-conscious than the other, that person is likely to feel like the sole occupant of the moral high ground. But before getting into an argument about it, try for a workaround. Assign the money-conscious half of the couple any relevant household tasks, such as balancing the checkbook and choosing investments, and give the other one some equally time-consuming jobs to do.

Of course, we don’t want to let the money-unconscious one of you off the hook entirely. If your behavior ends up hurting the very life goals and plans that you’ll eventually agree on—for example, you can’t be bothered to save credit card receipts, which drives your partner crazy and messes up your monthly spending goals—some changes are in order. Instead of punishing yourself, try to put some fun into the tasks that you hate, or even bribe yourself with a reward for every receipt you successfully bring home (chocolate kisses—or the real thing). Eventually, you’ll get on board.

["Money & Relationships" Graphic] omitted for online sample chapter.

You also want to avoid giving too much control to one half of the couple. As Elizabeth Jetton, a financial planner in Atlanta, told Kathy, "You don’t get to bow out of being involved. One of you may be better at handling the big picture, but you have to agree this is your goal."

Both of you should maintain a broad understanding of your combined assets and debts, and of how your money is being spent and invested. Knowledge at some point turns into control, so find some relatively painless way for the disinterested partner to stay clued in. Some couples schedule a regular candlelit dinner, then pull out the relevant financial statements and get down to serious discussion.

Tip: Women, watch out for falling into old stereotypes. Kathy has found that, "In most relationships, men still oversee investments and take charge of most financial decisions. But there’s a practical reason for women to get involved: They typically live longer than men. Divorce, too, tends to thrust financial responsibility suddenly onto women’s shoulders."

Question 2: If you won $1,000, would you save or spend it?

This one is pretty simple. The world is divided into people who hoard money and those who eagerly spend it, varying only by degree. Whether you’re more of a hoarder or a spender can sometimes be predicted by your childhood experience. People who grew up poor may be more careful about saving, as a hedge against later hard times. Then again, some of them are so happy when they finally get their hands on some money that they spend it right away. (We never said money psychology wasn’t complicated stuff.)

The advantage to being part of a couple is that you can rescue each other from leaning toward extremes in spending or saving. One way is to keep your eyes on mutually held life goals. For example, a knee-jerk hoarder might admit that it’s worth keeping your relationship strong with the occasional night out, and a profligate spender might nevertheless be willing to save for a retirement home on the beach. By creating a plan that encompasses your current, joint spending goals and your dreams of a good life now and later (which we’ll show you how to do in Chapter 2), you can balance out conflicting tendencies.

["If you had an extra $1000 to spend, what would you do with the money?" Graphic] omitted for online sample chapter.

Question 3: Would you invest in my brother’s "sure-fire" new business?

A big part of people’s financial behavior comes from their willingness to take risks. And this, in turn, comes right from their internal levels of fear. These internal patterns are so fundamental, even physiological, that trying to talk someone into different behavior would probably be futile. Urging a non-risk-taker into high-rolling financial behavior, for example, would probably yield nothing more than sweaty palms and a speedy heart rate, even as it might be a source of grand excitement to a risk taker.

If you and your spouse or partner have different comfort levels when it comes to risk, try setting reasonable boundaries. For example, you might designate a limited portion of your income for the risk-taker to invest freely (short of taking it to the race tracks or Vegas). When things work out, the non-risk-taker is likely to be delighted, even impressed, by the other one’s willingness to go out on a limb. When they don’t, you’ll at least both know that you planned for this possibility, and had set aside an amount you could afford to lose.

Question 4: Does being part of a couple mean merging financial lives?

This question probably wasn’t on anyone’s mind a hundred years ago. Everyone-knows-who usually earned and managed all of the money. But now, you can throw all such assumptions out the window—or try to, if one of you has different beliefs than the other.

You’ve probably already noticed that living as a couple comes with many financial advantages. You need to buy only one house, one toaster, and maybe even one car. In April, you need to fill out only one tax return.

But that doesn’t mean you need to merge all parts of your finances. Plenty of couples keep separate bank accounts for their separate incomes, or maintain their own credit cards. We know one couple that shares a credit card, but goes through the receipts to identify which purchases were purely personal, then pays for those separately, with checks from their separate bank accounts. Couples that take such measures often note that they reduce arguments, particularly if one tends to disapprove of the other’s spending habits.

Merging all your financial matters is okay, too. But if one of you would rather merge your finances and the other one is opposed, look for ways to compromise. You might, for example, create a joint bank account into which each of you makes agreed-upon contributions from your separate accounts, then use this to pay joint and household expenses. Or if one of you wants to spend on the occasional luxury without the other one’s judgment, that one could have a separate credit card, and agree to limit luxury purchases to a set amount. Some couples simply agree that you must consult the other before making any purchase greater than $500.

It’s Not Just the Money: Agreeing on Your Life Goals

Think back to when you were first dating, and sat under a moonlit sky sharing your hopes and dreams for the future. (Violins, please.) Lately, however, you may have been too busy chauffeuring the kids to soccer practice or trying to catch up on sleep to follow up on those discussions. If so, now is a good time to bring them back. Every aspect of your life’s plans—children, career, where you live, and when and where you retire—has a financial element to it. So let’s make sure the two of you have your goals clear in your mind, and then we’ll talk in later chapters about how you can meet these goals.

Here are some key areas to talk over:

• If you’re thinking about having children, how many do you want?
• Are you happy with your current jobs or daily activities, or is it time for a career change?
• Would either of you like to increase or reduce your work hours?
• Are you settled on where you live, or might you move to a different city or buy your first house?
• If you already own a home, do you hope to buy a larger one later, or one in a better neighborhood?
• What changes can you reasonably predict in the coming years—for example, an elderly parent coming to live with you?
• What are your hopes for your children’s education? Are you happy with the public schools, or is moving or sending your kids to private schools your best bet?
• Are there other significant expenses or purchases you’d like to plan for in the coming months and years, such as a vacation home?
• At what age would you like to retire? Do you want to move when you retire?
• When will enough be enough—that is, at what point can you declare your lives financially stable and materially sufficient, and perhaps cut back on work or financial worry?

After you’ve talked, slept on any new ideas, and talked again, write up a list or a short description of your key goals. For example, this might look like:

["Luxury isn’t just about expensive things" Graphic] omitted for online sample chapter.

Don’t be afraid of major changes. The first step toward doing the impossible is talking about it. And if your children are grown or nearly so, don’t forget to talk about any big changes with them. You don’t want to be like the family we know where the son assumed he’d take over the family farm—until he returned from college on vacation to discover that his family had sold it and was moving to a condo in Florida.

Depending on your children’s ages, you might want to get them actively involved in some of your goal planning, perhaps after you’ve drafted an initial list yourselves. Their input, or at least a sense of having been heard, will be particularly important with goals that directly concern them—for example, if you plan to move to a different neighborhood in order to be in a better school district. And if they feel they’ve been made a part of the family’s decision making, they’ll be more likely to cooperate in your efforts, for example, to save up for a new car.

Does talking about retirement feel premature to you now? It shouldn’t. You don’t have to plan your retirement in detail, but knowing what you’re aiming at—and making sure the two of you are aiming at the same target—will help guide your current financial decisions. It will also set you apart from the approximately one third of married couples surveyed by Fidelity (the mutual fund/financial services company) who gave completely different answers regarding what age they planned to retire at, their expected lifestyle in retirement, and whether they planned to keep working after retirement. If you’re dreaming of retiring at age 62 and moving to a castle in Scotland, not knowing that your spouse plans to start a microbrewery in your garage at age 65 and never retire, some discussion is in order!

["Generation X’s top financial goals" Graphic] omitted for online sample chapter.

Isn’t There a Right Way for Everyone?

Despite what some "experts" may try to tell you, there’s no one-size-fits-all life plan, money philosophy, budget, or investment strategy. But there are certain themes you’ll see throughout this book, which we’ve learned from financial experts and ordinary people over the years. Here’s a summary:

Introduction

Here’s a little experiment to try on your friends: Ask what words or thoughts come into their heads when they hear the word "money." Their answers are likely to range from "freedom" to "dirty word" to "something I need more of."

You’ll soon realize that people’s associations with money go far beyond the green stuff in their wallets. How people acquire, use, and spend money reflects a whole realm of deeply held values and habits. Different (and equally well-intentioned) people might believe, for example, that it’s their duty to consume minimal resources and give lots to good causes, or to earn a lot to support a family, or to spend a lot to boost small businesses and the local economy.

What about you and your spouse or partner? Are you on the same wavelength when it comes to money? For many couples, financial matters are the number one source of conflict. As Kathy says, "Money is a touchy subject. It might mean financial freedom to one member of a couple— the one who runs out to put a down payment on that spiffy Porsche Boxster the moment the year-end bonus arrives. And it can mean security to the other partner—the one who pulls as much money as possible from each paycheck and directs it into a savings or investment account."

Whether or not money is a source of conflict in your house, sorting out your respective beliefs about it is an important first step to any financial planning. Your whole life and future are inextricably wrapped up in how you handle and approach money. This chapter will help the two of you by:

• providing a conversational structure to help you uncover and understand each of your beliefs
• suggesting a framework to arrive at your family’s life goals related to money, and
• proposing a happy medium toward which you might work.

Tip: Single parent? Read this chapter anyway. The issues we raise are critical to think through, even if you’re doing the thinking on your own.