Whether you are in a committed relationship, engaged, newly married, or a veteran spouse you probably have experienced at least some tension around money in your relationship. I think we all know this: money wrecks more relationships than any other single issue! A good, healthy financial partnership will support your love relationship. While divorce can be among the most ruinous financial moves anyone can make, shared financial goals and a coordinated financial program can create huge success and lasting satisfaction. No issue is as vital to your future happiness as how you’ll handle your finances. Let’s look at how to create an analytical framework to help you organize, analyze and talk about your money.
Many times one person in a relationship will say “I think we should buy a house” and the other person will say “I think we should wait.” Or they have different ideas about the size of house they think they can afford, or the ‘right’ amount of financing. Neither has any facts or analysis to back up their opinion. By developing an analytical framework for looking at a financial decision, the couple can together use that analysis to make a decision that they can both support enthusiastically. Here is how it works:
- When creating an analytical framework, use real numbers wherever possible.
- Separate the process of a) gathering information from b) organizing information and from c) analyzing that information to make financial decisions. If you are gathering information and you are trying to analyze it at the same time, your mind will play tricks on you. Get the information onto paper (spreadsheet, word doc) first, then organize it, and then sit down together to talk about what it means. Even after an analysis is prepared, you may identify areas where you will need to gather additional facts.
- The types of financial information you want are similar to the information commonly used in a business or project management context: a balance sheet, cash flow (spending and savings) statement, and goal statements. Use the “now” information to compare “what if” scenarios for buying a house, saving for a major purchase, or increasing 401k contributions.
- If numbers make your eyes roll into the back of your head, use pictures (think about it).
It’s your life – any system that works for you both is ok. What is most important for you is that the system you adopt ‘works’ and that both of you have the sense that it is fair.
Managing finances ‘separately’ vs. ‘together’ is something every couple has to work out. The biggest advantage to keeping finances separate is independence. As long as everything is paid, you don’t have to justify personal purchases. But keeping finances divided is harder on couples; it separates them in many ways. Instead of communicating and working toward a common goal, it’s like the other person’s finances are secret. Like many multiple choice questions, the best answer is the long one – some combination of “Mine,” “Yours” and “Ours” works best.
Sit down and organize your household and personal expenses into categories and use separate bank accounts for each. Once you have had the discussion and made these decisions, let them go and let the system work for a period of time. Check in every few months and adjust as needed. Implementing any money management system means not having to constantly discuss money issues. This, all by itself, can be a big relief!
Here are two examples of the kind of financial information you will want to gather before you sit down to discuss, analyze and make financial decisions. The first is an ‘Asset and Liabilities Report’ that is a useful snapshot of your current financial position. The second is a ‘Cash Flow’ report giving you a snapshot of what is coming in and what is going out, including taxes and savings. A more detailed look at spending, for example, can be created as another useful, but separate, report.
The specific approach you choose to organize your finances and make financial decisions together as a couple is not nearly as imperative as using accurate information and having open and honest communication about it. Whatever you decide to do together, you will have forged a team approach to financial matters. You will be building a strong foundation for your future happiness together.