Aligning with Your Partner Financially
I haven’t posted in a while, but I’ve been talking my head off. I recently did an hour-long interview with Minnesota Public Radio on money and values. Some really interesting calls from listeners, including a couple headed to Uruguay with only the stuff they could carry. To listen, click here.
In my Valentine’s Day Yahoo!Finance column, I look at how couples can be better aligned in their finances. Given the gloom in the media lately, I wanted to focus on couples who were getting things right, who were taking action to improve their teamwork – whether it’s working with a coach or finding the right tools to track their finances.
I’ve found that couples who are peaceful about their finances have a few things in common: They agree on the importance of living within your means; they communicate about their values and goals; and they trade off financial responsibilities.
Consider Amy Goldsmith, a New York attorney I interviewed for the story (who didn’t make the final edit.) She and her husband Bill, also an attorney, chose to live below their means because of the uncertainties involved with raising and educating three children.
When they purchased their home in the mid-1990s, they were told they could borrow up to $700,000. They bought a smaller home on a busy street and took out a loan for just $250,000, so the payment could be made on one income in the event of job loss. (They will have their mortgage paid off when their youngest child enters college.)
That decision turned out to be a hedge against soaring college costs. “When I graduated in 1982, my tuition at Cornell was $2,300,” Goldsmith notes. “The tuition right now is $28,000 – that’s where my son is going – so it’s far outpaced anything that anyone could plan for.” (On average, between 1982 and 2007, college tuition and fees rose 439 percent after inflation, according to the National Center for Public Policy and Higher Education.)
Because they have always lived frugally – choosing a smaller mortgage payment, driving used cars, taking just one vacation a year – the Goldsmiths were able to contribute current income to cover their savings shortfall. “Though our lifestyle is not what we want it to be at the moment, there is a benefit because we are able to send our kids to school,” says Goldsmith. “If you manage risk properly, you’ve taken a weight off your shoulders. Sleeping well at night is biggest reward.”
Successful couples also share financial responsibility equally, and stay on top of their bills. “When the three kids were young, and up to a few years ago, Bill was responsible for paying the bills — I was on night duty,” Goldsmith wrote in an email. “Now, it is my turn. Bill is responsible for Quicken. We use automatic bill-paying for some expenditures (i.e., the mortgage) but not all. For instance, I won’t have the cell phone bills paid automatically since I have found that the bill needs to be analyzed carefully for errors. We were overcharged by $700 one month and if we had used automatic payment, we never would have been able to recover the funds.”
Getting on the same page financially pays off long-term. Economist Jay Zagorsky, a researcher at Ohio State University’s Center for Human Resource Research, tracked the financial and marital status of more than 9,000 people from 1985 to 2000. He found married people accumulated an astonishing 93 percent more than single or divorced people over the 15-year study. Those who divorced saw their wealth reduced by 77 percent on average.
Separately, Zagorsky published research that found one reason married couples argue about money is because they don’t agree on how much of it they have. The typical husband says the couple earns 5 percent more income, and has 10 percent more total wealth than his wife reports. Meanwhile, the typical wife says that the family’s debts are $500 more than her husband reports. And both men and women in a marriage estimate that their spouses earn less than their spouses say they do.
Interestingly, couples who did not divorce were more in accord on their estimates than couples who divorced – indicating better communication on the issue. Boston-based financial coach Belinda Fuchs has devised a survey for couples to assess their financial compatibility. Click here to take the test.
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