All Things Financial Planning Blog

It has been said in several studies that money issues is one the main causes of divorce. One other most commonly stated causes of divorce is poor communication. Combine these two issues, and you have a recipe for frequent conflict. How is it that something like money, which can bring so many positive things into our lives and improve the world around us for the better, can cause so many problems? One reason is that couples lack an operating system, or communication system to understand their day to day finances, the ramifications for their decisions, and how to make better choices.

Think about the number of transactions that occur every day in your household. Electronic transfers, deposits or payments perhaps happened overnight. You stopped on the way into work and filled the car with gas before hitting Starbucks. Your spouse orders a present for a family member on the internet. You begin to plan your family vacation a few months down the road. You go out for a quick sandwich over lunch. On the way home, you pick up a few items from the grocery store. When you get home, a child from your neighborhood rings the doorbell asking for a donation for their school group. Think about all those interactions that happened in one day. Each of those events in and of themselves are harmless, but when you string together day after day after week after month of those events, it is not hard to see why our country is struggling under a burden of debt and that conflict around money is common.

There are several simple techniques that can help couples communicate about money and structures that can be introduced to reduce potential conflict points.

1. Agree to an amount that your household will spend during the week for day to day expenses. For all those day to day events that were mentioned above, set a limit that for 7 days, your household will run on a certain amount of money. Then put a system in place to help make that happen.
2. Set a limit on how much each person can spend without checking in with the other person. For example, if something costs $100, you need to check with your spouse before making the purchase. While some view this as restrictive, in reality it is a display of respect towards your spouse.
3. Before taking on any new debt, such as a larger mortgage or a new car loan, save the amount of the future payment into a savings account for at least six months. If you can consistently save that much for six months, you can realistically afford the purchase. Better to know in advance the sacrifices you will need to make than have buyer’s remorse after the fact.
4. Build and keep an emergency fund for unseen expenses or events such as a job loss. The last thing you need when going through a difficult transition is the stress of worrying about money.
5. Discuss and identify mutual short and long term goals. The mere act of having future based conversations about what you want out of life and your money will relieve tension. Then automate a savings plan to make it happen. If it is automated, the probability of reaching your goals is far higher than if you rely on future discipline to make it happen

It has been said that if you execute on the simple, basic fundamentals, you are likely to be very successful. By implementing several or all of the simple techniques mentioned above consistently, you will be reducing potential conflict points. Combine that with some focus on talking about the purpose of money in your household, and you’ll be on your way to success with money.

By Eric Kies, CFP®
Special to FPA