5 Questions Couples Should Ask in the Money Talk
When couples decide to live together or get married, they usually talk about family, children, vacations, wedding plans and decorating. They almost never have a discussion about finances. Understanding a person's view and handling of money, however, is just as important as his or her opinion about having children. Once a couple decides to live together, married or unmarried, money decisions will be made on a daily basis that will affect both partners, so it is crucial to be on the same financial page from the beginning.
If you are thinking about living with someone or getting married, sit down as a couple early on and ask yourselves the following questions. The answers should provide a solid foundation for building a happier financial life together (or reveal important differences in money attitudes that might stop the relationship in its tracks).
1. How do you feel about money and spending?
It is important to understand the financial environment you each grew up in, and talk about what money means to you. Some people don't think about money when they have it, only when it runs out. Others keep close tabs, saving as much as possible and spending only when absolutely necessary. If one person in the couple is a spendthrift and the other is a tightwad, there are bound to be money problems in the relationship down the road.
In 2007, economists at Carnegie Mellon University did a survey of 2600 people, placing them along a tightwad-spendthrift scale. Results showed that 61% were un-conflicted about money (meaning they fell somewhere in the middle), 21% were tightwads and 18% were spendthrifts. Identifying your own financial behavior patterns and views as well as your partner's is a necessary first step. As a couple you should have similar feelings about spending and saving. Being financial partners means working in harmony to meet your needs and achieve your financial goals.
2. How much debt do you have?
Coming into this relationship, you and/or your partner may have student loans, a car loan, credit cards, overdraft lines of credit, etc. If you're planning to live together, the household budget and cash flow will be greatly impacted by you and your partner's ability to contribute to joint expenses. Full disclosure of your debts will allow you to make informed financial decisions as a couple. One of you may be struggling to pay credit card debt or about to start paying on a large student loan; the other person should know about it. In addition, the way you each handle your debt obligations will have a big influence on your financial health as a couple. This leads right into the next question.
3. What is your credit score?
Credit reports rule your adult life; they are a reflection of the way you have handled your financial responsibilities over the last 7 to 10 years. The Fair Isaac Corporation (FICO) credit score, which is the most widely used, ranges from 300 (awful) to 850 (perfect). The biggest component of the score is your monthly debt payment history. The second biggest component is your credit availability. (Being maxed out on your credit cards isn't good.)
Before you start living together or get married, each of you should pull your credit report, make sure it's accurate, then review your reports together. Everyone is entitled to get a free copy of their credit report from each of the three major credit bureaus once per year — go to AnnualCreditReport.com. To get your score on the site it will cost about $12. If there are problems and the credit score is low for either or both of you, this will have a negative impact on your ability to get a job, rent an apartment or get a joint loan, and will result in higher rates charged by utility and insurance companies. Make sure errors are disputed (in writing) and corrected, and monthly debt payments are made on time. (FTC.gov has dispute forms.) Your credit score should improve within six months of good debt payment behavior. To be in the top tier, shoot for scores over 720.
4. Will this be an open financial partnership?
When one person operates independently, spending outside of a common budget or plan, your income, saving and purchasing power as a couple isn't maximized and debt can get out of control. Here's just one small example: If each of you spends $2 per day on coffee and $6 on a sandwich during your workday, that's $16 per day, $80 per week, and over $300 per month. Working within a food budget, you could buy the ingredients at the grocery store, make a pot of coffee and sandwiches at home to bring to work, and save over $200 per month. That's over $2400 per year which could be used for retirement savings instead!
It's okay if one of you keeps the books and pays the bills, but there should be a regular "budget night" at least once a month where the other person gets an update on your joint financial status. Then you can review spending, savings activity and make financial adjustments and decisions together. Even if you're a stay-at-home-mom with no earned income and your husband is the major breadwinner, you each have a role in the operation of the household and value-added in the financial partnership. A good relationship requires an open and continuous financial dialogue and a meeting of the minds regarding your short and long-term financial goals.
5. What are your financial goals?
This really relates to the first question about your feelings toward money: what is financially important to you. Is it getting a big house in a fancy suburb, building your own business, going on a world cruise, having a comfortable retirement, starting a charitable foundation? Talk about your dreams, decide together how you're going to fulfill them, and create a financial plan. The top three financial goals in most couples' lives are buying a home, saving for retirement, and building up an education savings account. However, it takes time, effort and teamwork to pay for these things. Budgeting will be less drudgery and more fun if you both realize it will help make your dreams come true.
Money is essential, money is powerful, money is math. In a relationship, you must both play starring roles in your financial life together. So have that money talk with your significant other. You can't afford what might happen if you don't.
This is a guest post by Hollis Colquhoun. Hollis has over 20 years experience in the financial industry, is an Accredited Financial Counselor and co-author of Women Empowering Themselves: A Financial Survival Guide. Contact her at Women Empowering Themselves. Here are more articles by Hollis: