Talking Finances Keeps Cupid In Charge On Valentine’s
By PAUL KATZEFF, INVESTOR’S BUSINESS DAILY
Posted 02/04/2011 05:46 PM ET
Valentine’s Day is nearly here. It can be a happy occasion for people who are already married as well as those aspiring toward the altar.
Either way, you hope for an enduring relationship. And one way to boost your prospects is to avoid money disputes.
Couples who disagree about finances once a week are more than 30% likelier to divorce than couples who disagree just a few times a month, according to research by Jeffrey Dew, an assistant professor at Utah State University.
“Stress, tensions and distress lead to breakups,” said Heather Battison, education director of the credit bureau TransUnion.
Discussing finances with your significant other can be scary and awkward, she adds. But being open and honest about your individual finances can help you avoid issues that lead to breakups.
Discussing your financial goals and dreams is key. This is just as important for longtime couples as it is for those in relatively new relationships. That’s because it goes to the heart of what your major spending goals are and how you expect to pay for them. “If you are open about those two things, you can avoid painful misunderstandings down the road,” said John Ulzheimer, president of consumer education for the credit monitoring site SmartCredit.com.
Discussing goals and how to reach them dovetails with additional conversation about the nuts and bolts of reaching goals. How much will each of you contribute? If only you kick in, will you expect your spouse to contribute in some other way? Paying for a larger share of, say, your routine household expenses? Or do you both want a traditional setup, where one spouse is the breadwinner and the other runs the home and watches the kids during the day? “That should be part of an overall family planning talk,” Ulzheimer said.
And couples should discuss how they will cope in worst-case scenarios. If your wife becomes a mother, the family can lose half or more of its income. And your expenses will almost always be higher than you expect. You may need to hire a nanny. What if your child has special needs?
Couples also need to decide in advance whether they will have joint checking, savings and investment accounts. Many couples decide to have joint accounts to pay for household expenses and big-ticket goals, Ulzheimer says. But many people want their own checking account for discretionary spending. If that’s what you and your spouse decide, it’s probably a good idea to figure out two other related points. First, how much is each of you allowed to sock away in your personal account? Second, what’s the maximum you can spend without having to tell your spouse?
What’s the best way to make such decisions? It boils down to one word: negotiate, Ulzheimer says. Several of these decisions require planning. You can’t set goals and personal savings rules until you clarify total household income and expenditures. That means making a budget. Identify your routine ongoing expenses first. That will show how much is left from your income to play with. Then you can figure how much you can afford to earmark for major future goals. Those should include everything from paying for a wedding to building nest eggs for your retirement and Junior’s education, a down payment for a home and buying that fishing boat you want. Almost inevitably, you and your spouse will disagree about some of your goals.
The solution? Again: negotiate.
Some goals may require borrowing money. Before you apply, check your credit report and score. If there are errors or problems, the sooner you know about them the sooner you can do something about it, TransUnion’s Battison notes. Exchanging credit reports and scores is also a good idea early in a relationship ‘ and especially before marriage. It’s a show of good faith. It’s a way of putting all your cards on the table.
One spouse may have serious credit or debt problems, perhaps involving an ex-spouse, Ulzheimer says. Better to find out before the knot is tied. Big enough problems can be marital deal-breakers.
Don’t count on prenuptial agreements to protect you. First of all, they don’t apply to your creditors or the IRS. “And Tiger Woods’ experience is an example of how prenups are almost irrelevant,” Ulzheimer said. “Just because you’ve got one in writing does not mean it is enforceable. It can be challenged in court. And it can be expensive to defend.”
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