You are on the road to DIYing, and it’s time to put this beautiful financial plan in place. You have scrubbed every blog out there, taken a financial planning course, and maybe even built your own Excel spreadsheet with tab after tab of downloaded spending analyses, college savings plans, balance sheet and asset allocation.
But it takes two to tango, and a financial plan is a “we statement.” It is a lifelong dance. At its core, a financial plan represents a series of trade-offs of time and money, long-term and near-term. Investing can be a gut-wrenching decision on its own. You get paid to take on risk, after all, which means sometimes your money will be winning and sometimes losing. When two people are involved it gets waaaaay more complicated.
We’ve had clients tell us their partner isn’t interested, that their spouse is great with whatever comes out of our work with them. But in our practice, we have learned that a plan created by one person on behalf of two ultimately is a non-starter or can lead to problems down the road when the plan inevitably is challenged.
Here are the three complicating factors:
- Choosing a savings rate. We see the following scenario very often, especially in our role as retirement plan advisor. The person in front of us is saving at the right rate and then doesn’t know (or assumes) that their spouse is not saving at all. They wish their spouse wasn’t forgoing the match, but whatever, at least they are saving enough. But they aren’t saving enough. The household is bringing in dollars that are supporting both spouses. If only one spouse is saving enough on their pay alone, then the household may not be saving enough of both incomes. The goal of retirement is to retire on your own terms (age and lifestyle) and saving only on behalf of one spouse’s income will not achieve that. What I find interesting is that even when the client is certain his or her spouse won’t save, in a meeting with both spouses discussing goals and dreams for retirement, we can often ask enough questions that both people get on the same page on saving. No one ever disagrees with the concept of saving, but often it is not presented or explained in a way that would elicit action. And with all the emotion embedded in marriage and money, appeals for saving from the spouse might not resonate the way an unemotional third-party appeal can.
- Investing. How many people, women especially, have we worked with who have upwards of $400,000 in cash in a bank account? They are paralyzed by fear of investing and figuring out who to trust. Our brains are loss averse, and they are alert to the potential losses in the market. Maybe their spouse has made a great plan, but he is a physician. What does he know about investing? Getting on the same page with investment philosophy and strategy and then automating the process of getting cash into the market on a regular basis is critical. We believe couples should create an investment policy statement together. In the case of one spouse doing the homework and the other spouse being fearful, a third party can provide a lot of education and handholding to help create a shared plan that provides an investing blueprint for the couple.
- Spending. Whereas factors one and two are more intellectual differences and somewhat emotional, spending harbors ALL the emotions. Think about the households we grew up in, that were possibly scarred by fighting over money or, on the other end of the spectrum, completely silent on money. Many people come into marriages with financial baggage, and the dysfunction plays out in the spending. Let’s say a couple has the right savings rate to retire on time and has a sound investment strategy for those dollars. They should be good, right? Well, not so fast. While technically they could be fine and stay out of credit card debt, their day-to-day financial lives might not be enjoyable. Especially when one is a spender and one is a saver. And especially when one of them takes charge. If the saver takes over and grips the money firm, the spender can grow to resent their spouse for being tight and having power over them with the money. If the spender takes over to “live in the now,” then the saver can be in a constant game of blocking and tackling, adjusting the budget, moving money, and having hard conversations. Neither is enjoyable. We believe in having a spending plan that allocates money proactively toward big ticket items agreed upon ahead of time by both people, automates monthly bills, and then divides the remaining money into weekly allowances. For the spender, this limits spending. For the saver, this gives permission to spend without having to worry.
A financial plan cannot be created by one spouse in a marriage. We believe it must be done together. If you find that you can’t get on the same page or that it is never a good time to sit down together to do it, consider writing up a plan with a flat-fee financial planner. It allows you to control the plan and the investments but also helps you get on the same page. Sure, it can cost a few thousand dollars to do it, but imagine the cost of a (potentially) perfect financial plan that is not implemented.