In the past, I have lamented on the pages of this blog that there isn’t enough conversation about personal finance and retirement planning. It seems as though a lot of people are afraid to discuss money matters. I say let’s talk about checks, baby, let’s talk about you and me, let’s talk about all the good things and the bad things that may be, let’s talk about checks … and savings accounts, emergency funds, 401(k)s, IRAs, etc.
I suspect that part of the reluctance stems from the fact that in our society the norm is to not discuss money, whether that be salaries or savings. Perhaps the more significant reasons are that people are afraid their ignorance with respect to money matters will be revealed if they say too much and they will be unfavorably compared to others if they reveal their salary, savings, portfolio balances, etc.
Unfortunately, too many people spend too much time worried about how they stack up against the Joneses instead of understanding the value of picking the brains of financially savvy friends or family members; and sharing useful information. While it is somewhat understandable that people would not want to reveal too much about their personal finances – after all, we are talking about personal finance – to others outside of their family, why don’t families in general, and spouses specifically, talk more about finances? Why is that spouses don’t talk in detail about money matters or actively pull in two different directions with respect to managing their money and planning for retirement?
While I have thought about the topic for a while, it was brought to the forefront for me recently after having conversations with a couple of new acquaintances that are disappointed that they and their spouse don’t really discuss retirement planning in any meaningful way or they appear to be pulling in two different directions.
Anyone that has been involved in a relationship for any length of time knows that there will be tension over money/money issues at some point. Below are five actions you and your significant other should take to limit potential arguments about money, mitigate the damage from any arguments and ensure you meet your financial goals, particularly with respect to retirement:
Discuss Your Dreams – Don’t assume you know what your significant other wants to do when you’re retired or that they know what it is that you want to do in retirement. How important is travel to one or both of you? To what extent do you plan to help out children and grandchildren? Identify the things you should do together as well as those that you will likely engage in independently. Take the time to talk about what it is you want to do … and just as importantly, listen to what it is your significant other would like to do.
Track Your Expenses – Monitor and record your income and expenses over a given time period; three to four months at a minimum. Doing so will reveal two critical pieces of information: your total expenses relative to your income and your current income allocation. With that information in hand, you are ready to gain control of your financial life. The RWR Spending Planner – part of the RWR Simple Retirement Workbook – is available as a free download. Ideally, your income will exceed your expenses. If not, you should consider ways to generate more income and/or determine how you can reduce expenses. Once you have achieved a positive monthly status, you can look more closely at your current allocation.
Set Common Goals – With a firm understanding of your individual and shared dreams; and an understanding of how your present income is being spent, saved and invested, discuss what your monetary goals should be to attain your dreams. The RWR Retirement Planner – part of the RWR Simple Retirement Workbook – helps users understand and track the relevant factors (i.e. current principal, years to retirement, expected rate of return on investments and the requisite annual contributions) that will determine their annual retirement income. The planner is available as a free download.
Practice Honesty – Too often, significant others don’t share when they make discretionary purchases. I believe it is reasonable to suspect that people don’t share as often as they should because they fear a fight. Unfortunately, too often couples fall into the habit of hiding purchases. One way to make it easier to allow for better communication and honesty is to factor autonomy into your relationship. With your goals defined and your spending plan set, determine how much money each partner can maintain on their own, perhaps in separate accounts, and spend at their discretion. As an example, my wife and I maintain separate checking accounts and we have established that either can spend up to $200/month at their own discretion.
Review Your Retirement Plan Quarterly – Dedicate some time every three months or so to review your retirement plan, making sure you are on track, and review the first four actions. Perhaps there are some modifications to your dreams/desires. Maybe your household has taken on new expenses – or shed some expenses – recently. Perhaps one or both of you have received significant raises at work and you’re giving some consideration to adjusting your retirement goals … the quarterly review is a good time to discuss and adjust where appropriate.
Don’t underestimate the value of openly discussing your money/retirement dreams, goals, hopes and fears. Pour two glasses of wine tonight and settle in for an honest conversation. There is no better time than the present to get started. Stay savvy, my friends. Stay savvy!