Managing your finances on your own is hard enough, let alone working with someone else who has different opinions, financial habits, and ideas about the future. But if you are part of a couple, any financial decisions you make need to be done as a team. If you don’t want your finances to be a breeding ground for conflict, avoid these common mistakes and set a solid foundation for your future.
1. Neglecting To Communicate About Finances
We get it. It’s not always fun to talk about money. But avoiding the conversation completely will only cause more problems down the road. Not only should both partners offer full disclosure of their finances from the get-go regarding spending patterns and upcoming bills, but it’s also important to keep the lines of communication open by having regular money check-ins.
Don’t wait until things get stressful or you hit a financial roadblock. Choose a regular time, weekly or monthly, to talk about your financial situation and make decisions. It’s also important to be preemptive, having discussions to set boundaries and expectations to avoid future problems. In other words, don’t wait until one of you splurges on a new TV or you go over budget on a vacation to set limits on spending.
2. Not Being Intentional
There are times in life when it’s great to be laid back and spontaneous. Dealing with your money is not one of those times. If you don’t have a set plan in place, it will be all too easy to go overspend, get behind on savings, or go into debt. That’s why communication is so important. Sit down with your partner and set some intentional goals for your finances and your future. Then, work together to create a plan to get you from point A to point B. Just like with diet and exercise, accountability can be key to achieving your financial goals. Keep each other on track, encouraging each other, and even celebrating your success along the way.
3. Ignoring Individuality
There are a lot of financial systems and philosophies out there and it’s worth it to take the time to find out what suits each person in your partnership. For example, if one person is conservative with spending while the other is known to be a big spender, a tight budget with no wiggle room or line items for spontaneous spending will make the spender feel stifled, and vice versa. Glean ideas from experts, family members, or friends, but be flexible, allowing yourself to experiment and find a financial framework in which you both can thrive. Don’t be afraid to experiment with different methods of budgeting, saving, or debt payoff, and remember that as life changes, you may need to adapt your finances to your new circumstances.
On that note, budget for pocket money for you and your partner to spend every month on something you love, whether it’s a round of golf, a steak dinner, or a spa treatment.
4. Not Saving Early Enough
There’s a reason you hear a lot about compound interest—it’s powerful! As you build your savings, the interest you gain earns more interest the longer the money sits there. Therefore, the earlier you start saving, the longer time horizon you have for your savings to compound. A common mistake that couples make is starting their savings journey much later than they should have. Even if it is just small amounts of money saved early on, the compounding effect will be worth it in the long run.
For example, if you start saving $400 per month at age 25, you would have $1 million saved by age 65 (assuming a 7% annual investment return). If you don’t start until age 35, you’ll have to save around twice as much to reach $1 million by age 65.
The First Step To Avoiding Mistakes
Financial planning is not always a simple process, especially with multiple people involved. At Pinnacle Family Advisors, we want to help you and your partner by walking you through the challenges of life and acting as your advocate as you pursue your financial goals together. If you know that your relationship and your finances would benefit from the objectivity and experience of a professional, we are here to help. Schedule your complimentary introductory meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar.
Michael Vaughn is a Certified Financial Planner™ (CFP®) and Vice President at Pinnacle Financial Advisors (PFA) with 20 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® designation in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. He and his family attend Hill City Church, where he serves as an elder. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.