How to talk with your partner about finances.

Money can be a scary subject. Something about money brings a taboo feeling to many couples and is often a topic that does not get addressed until it’s too late. Financial stress is one of the leading causes for divorce in the United States; marriage.com has money rated as the second leading cause of divorce, specifically “lack of financial compatibility.”  The lack of financial compatibility leads to stress, the stress leads to miscommunication, and the miscommunication leads to resentments due to a lack of understanding.

It’s no wonder why financial stress is a leading cause of many relationship problems. Our expenses continue to rise year over year, while at the same time the average household income has been staying about the same and the amount that the average American has saved has decreased for the past few years. According to the US Census Bureau, the average household income in the United States was $63,179 in 2018. With an average monthly household income of $5,265, less than 81% have one month’s total household income saved for emergencies without having to borrow from family, tap into credit, or take money from retirement.  People are struggling with their finances and that is causing financial stress on many relationships.

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First and foremost, realize that you and your partner are on the same team. Sometimes it might not feel like it, but you are both probably wanting your money to provide similar things. Come to the table with this position in mind. Your partner is not the enemy. You need transparency in your finances, and there are a few easy places to get started.

Understanding your partner’s money background

I have heard this called money scripts as well. At the heart of the first step is to understand what money means to each of you and how you approach your money.  Each of us has had a completely unique and different set of experiences while growing up. Every individual comes to the table with different expectations on how money should be handled.

If you find that you have opposing views regarding how the household funds should be managed, you may want to start with finding a place in the middle that you can both agree on and build from that place once you begin to see successes.

Accept that you cannot change the background, but you can create a safe place to explore options, find common ground, and make incremental changes toward a new shared vision of money.

Ensuring that you have the same goals

Sit down and take the time to fully understand what your money represents for each of you and your lifestyles. When interviewing couples and talking about finances in my initial interviews, I often discover how many couples, new and old, have completely different views of what their money is for and how they plan to use it. Once you start talking about your finances together, you may find that you are on completely different planets regarding what each of you wants to do with your money. You may find that one of you has only short term aspirations and no long term planning other than that they may eventually want to buy a house or retire while also stating that the money in savings is going to a vacation later this summer, while the other of you has only long term money plans but no short term plans.  These views represent extremes, though the point is that there is room for disagreements regarding long-term and short-term planning.

Create a budget

Once you know what you are working for as a cohesive unit and have discovered the financial goals you want to achieve together, it is time review your budget and make the adjustments needed to put you on a path to working together toward a common money goal.

More than anything COMMUNICATION

Very few things build resentment faster in a relationship than having to make compromises and not talking about it. Sure, in a relationship we sometimes have to make sacrifices. If you’re not you should look in the mirror and realize that your partner probably is. When it comes to your finances and you are planning to build a long-lasting life together, you need to talk about what your money is doing and what it represents to each of you in a calm empathic manner. Truly understand where your partner is coming from. Schedule regular financial check-ins with each other, talk about each bill you’re about to pay, talk about purchases you want to make and your goals as they continually evolve through your discussions. One of the best exercises that I can recommend is having a financial date night. Make it a big deal and lay everything on the table on a regular basis. Without open, honest, empathic communication, the potential problems will only accumulate.

Now I never said that it was going to be easy and for most it will not be an overnight success. That said, start by taking the first step, scheduling some time to bring the conversation up and sitting down to listen to each other. It’s going to pay off.

How do you talk about money with your partner? Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

How to Teach Your Kids About Money

Looking at how important financial literacy skills are for navigating through life, it is almost appalling at the lack of required curriculum financial literacy has in our children’s schools. Speaking with several teachers about financial education over the last few weeks, most all have expressed concern about our children graduating with a serious lack of knowledge around money, credit, and investments. As a parent, it is imperative that you teach your children the important financial lessons that they will not learn anywhere else other than by trial and error.  Children are constantly exposed to financial transactions in the exchange of goods and services and may have an unclear understanding of the value of money without a proper explanation of the basics. Preparing our children for financial security can start at any age and can also teach us a few important financial lessons and skills at the same time. 

Learning good money habits at a young age helps your children to make good financial choices later in life. By learning to budget now, they will have a ‘leg up’ on others when it comes time to budget for being on their own, building credit, and saving for retirement. 

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Make saving fun

One of the greatest ideas on teaching your children to save came from a friend of mine who gave his daughter a few large glass jars for saving her money opposed to a standard piggy bank. He explained that the jar allowed his daughter to see the money as it grew. He labeled each jar for different things that she was saving for. She had four jars, which were labeled: Ice Cream Dinner, American Girl doll, Hamster, and Savings. This not only let her decide where she wanted to spend her money when she received it but they also created a rule that she had to put a minimum of ten percent in a savings jar, where it would be saved for her when she was older. 

Teach them about the how the coins and dollars add up

Learning how to add up money can be confusing and frustrating for a young child. Help them understand the basic concepts of money by introducing the different coins and the value each one has [or how much each one is worth].  Take the time to review how money adds up. Show them how each coin adds to the next and how collectively they add up to a dollar, and how a dollar adds up to twenty.  We often found the most fun was to quiz. I would write 2¢, 55¢, $1.32, along with other amounts on a piece of paper and let her find the coins that would add up to this amount. When she got it right, there was great reinforcement, and we took the time to review.   Knowing how change and dollars add up to will help when they begin to encounter purchasing.

Provide them chores

Make them do chores to earn the money that they put in their money jars. Learning early in life that work and money are connected is an important foundation.

Help them create a budget with goals

Having your child create their own budget can give them an idea of what they can afford and how much things actually cost. This will come in handy when your children want to buy something, but they realize that they need to plan to save up for it. This helps them understand the value of money and learn not to take things for granted.

Open a bank account with your child

Most banks understand the importance of teaching children financial literacy at an early age and offer accounts designed specifically for children and young adults. Once they have a small amount saved in their savings jar, take them to the bank to open the account. Encourage them to ask questions by going over a few before you leave home. Ask the banker to provide a ledge and review the account opening process with you child. Having been a banker for several years, these moments are often the best part of our day. Opening a bank account allows your child to feel like an adult and take the next steps in their financial literacy with pride.

Include your children in financial decisions and transactions

Don’t let money be a secret in your house. Talking about money often feels like a taboo subject in some households I have observed over the years. A great way to help kids understand money is to teach them how to use money. Next time you go to the grocery store have it planned out in advance. Have cash and coins available and take the time to let your child count out the money and present it to the cashier.  Have a little bit of every denomination available. For example, if your average grocery bill is $90.00, bring four $20’s, a $10, a $5, five $1’s, three 25¢, two 10¢, a 5¢, and five 1¢. This will be more than ample for them to understand the amount of money it takes to purchase daily goods.

If you have the opportunity to take them with you when making major purchases, such as a house or car, do it. Let them learn and encourage them to ask questions. This will allow them to have a different perspective on purchases.  Take them to your next meeting with your retirement advisor. Show them that you are saving money and they will want to emulate you by doing the same.

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Play the investment game with your children

If your kids are past the age of piggy banks, consider giving them a glimpse at the stock market. Rather than investing real money, though, you can invest in virtual stock markets. You can make it a game by using websites such as Investopedia and Howthemarketworks.com, which offer free online stock market simulators.. Allocate each of your family members a million dollars of pretend money and see who can create the best returns over a set period of time, offer a prize or put a wager of chores on the line. When the prize is high and the game becomes competitive, you might be amazed at how much your children begin to research and study to win.  It is a fun way for parents to teach their young adults about the exhilarating highs and the demoralizing lows of risk in the financial markets without spending a penny.

Teaching children about money, including lessons on spending, savings, and investments, also provides a nice reminder to parents about the importance of financial literacy and preparation for the future.

It’s never too early to teach your children about money.

How do you teach your children about money? Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.

Why Investing is a Must for Everyone

Many investors, both new to investing and seasoned having spent lifetimes investing, don’t always realize the different roles that investing their money and saving their money play in their financial strategy when planning for their future. Investing and savings each have a very important place in every person’s individual portfolio, but each has an entirely different role to play in your overall money strategy. Your savings has a different purpose and plays a different role in your financial strategy than that of investing your money. Making sure you are clear on this fundamental concept before you begin your journey to building wealth and finding financial freedom is vital because it can save you  heartache and stress down the road.

Investing is not about getting rich. It is about building a financial future where you will be able to support yourself for the rest of your life once you stop working. Having the funds available to support your lifestyle during retirement can mean the difference between living life on your terms and living life in fear  that an emergency could arise that would ruin your ability to live comfortable.  All of this is can be addressed when creating your personal money portfolio. 

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Every money portfolio should be individually tailored in a unique asset allocation for every individual or family. For you, this will be based on your investment time horizon (the length of time that you will need money, also known as the rest of your life) and your risk profile (the measurement of how your head and heart can deal with the volatility of the cycles of the economy). Knowing these two considerations will help you create an asset allocation that will be right for you. This allocation should be reevaluated on a regular basis, at least annually.

To keep this simple, let’s put capital market into three groups. These three groups are made up of cash, bonds, and stocks. There are many different vehicles out there that offer different ways to invest your money (mutual funds, exchange trade funds (ETFs), annuities, life insurance, and more), but when you pull back the fancy wrappers on these products, you will find that at their core, these are cash, bonds, stocks, or a combination of the three. (We will take a journey down that last road another time.)

Let’s define cash in the simple sense: cash is any debt security (checking account, savings account, money market account, certificate of deposit, bond or treasury) that is payable immediately or within the next 12 months. Essentially you are lending your bank, your credit union, a corporation, or a government entity money on a very short term basis. Once you figure out the asset allocation of your portfolio, the cash amount should be set to an amount equal to your living expenses for the next three to twelve months plus anything extra that just makes you feel safer. There is no right or wrong answer here; it is whatever makes you the most comfortable and what can be supported by your risk profile.  

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Bonds are very similar to cash. They are longer term loans to a bank, credit union, corporation, or government entity, which these entities have to pay back over a time period greater than twelve months.  Creating a bond portfolio, laddering mid- and long-term CDs or treasuries for different maturities and rates finding a professional management company to do the work for you are all good options for creating your bond portfolio. This is the money that you will need in the next two to ten years. These are conservative investments that are earning you a little more interest or yield than cash and have a little more volatility than cash, as the immediate prices change with interest rates. You should keep a set percentage of your total portfolio in these types of investments. These investments will help supplement your income if needed over the next two to ten years. Should you not need the income you will reinvest it based on your asset allocations when they become due.

Stocks on the other hand are an entirely different animal. Here you are observing that the owners of companies earn all of the money. In buying a stock you are buying a small fractional piece of a company and are entitled to that fraction of the company’s earnings or growth. Stocks have high volatility in the short term, moving unpredictably in their day-to-day pricing. Over the longer term a well-diversified stock portfolio will provide a more predictable rate of return.  The money that you are looking to invest in the stock market should be the money that you want to access after a time period greater than 10 years. This money is earmarked for the long term, the money that you invest here is money that you are not going to worry about or touch on a regular basis.

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If you set up your portfolio on a percentage basis, having a set percentage of your assets allocated to each asset category you or your advisor should be rebalancing the portfolio based upon the guidelines that you set up. What that means is that you will periodically buy and sell assets within your portfolio to maintain the original level of allocation. If you originally set up your portfolio in the following manner: 10% cash, 30% bonds, and 60% stock and the stock market had several good quarters where the prices of your stocks went up while bonds and cash remained at their same price levels your portfolio percentages could have changed to something like: 7% cash, 18% bonds, and 75% of the value in stock. At this time you would rebalance, selling a percentage of your stocks and allocating those funds to your cash and bonds to mirror the original allocation set. The same is true if the stock market takes a large drop in value and your new allocation becomes: 20% cash, 40% bonds, and 40% stock. At this time you would sell some of your bonds and invest some of your cash to buy stock. This practice will assist in reducing the downside risk in extreme an extreme market volatility environment.  

 If you are looking for ways to invest it is probably easier than you imagined. You could be able to start investing at work tomorrow.  Begin by looking at your company’s 401(k), 403(b), 457(b), or whatever your company has available for you. Know what type of retirement plan your employer offers and learn about that plan. Talk to a financial professional about your plan, and know what that plan offers so you can know how best to diversify your options within that plan to match your predetermined asset allocation. Also, employers that offer retirement plans will often match a percentage of your income, if you are investing in the plan.

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If you are working for a company that offers a 401(k) or some type of retirement and your employer is matching contributions to this plan, you should maximize your contribution. If you are not investing at least as much as the employers’ matching contribution, you are saying no to free money. 

Pay yourself first, make your savings and investments automatic. Then enjoy the benefits of compound interest, market growth, and knowing that you are taking steps to invest in a better financial future.  

Achieving financial freedom, whatever that means to you, is not complicated. It takes time, knowledge, and discipline. There is no right or wrong way to invest, it is all personal preference. What matters most is that you start sooner rather than later. Begin your journey today to make your tomorrow more financially secure. Talk with a professional, do your due diligence, and read up on how to make the best plan for you.

Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.