Explainer: How couples can avoid friction over finances
Tension in a marriage has many causes: poor communication, lack of commitment, infidelity, and inability to compromise are just a few. Fighting over money and finances is another. In many surveys, it is cited as one of the leading causes of divorce. Finance friction likely has become even worse during the “Great Recession” that officially ended last year, but continues to affect many American families.
Below, TODAY Money experts David Bach, Sharon Epperson, Jean Chatzky, Carmen Wong-Ulrich and Allison Linn offer strategies, some from personal experience, on how to reduce tension over money in your life and avoid fighting over finances.
David Bach: Be a team
After several years of hosting "Smart Couples Finish Rich" seminars across the country, I have gotten to hear firsthand how couples successfully navigate money issues. Here are the top three things I have learned over the past decade. These tips can quickly turn your money fights around and lead to working on your money as a team.
Discover what your real money worry is
The biggest fight I ever had with my wife over money started with a new pair of shoes. She came home, showed me the new black shoes she bought on sale, and I proceeded to lose it. New shoes? How could you need new shoes? I then pulled out all of her black shoes to count them. My wife, in turn, went to my “tech toy drawer” and pulled out three old cellphones, three old Palm Pilots, and other gadgets. Before I knew it, our fight was over items in our house and not the real money worry I had: how can we do better at saving money.
Fortunately I was able to pull back from the argument and steer the conversation towards how important it was that we “pay ourselves first.” We agreed to a goal of paying ourselves the first 20 percent of our gross income. But we also concurred that if we could achieve that goal we wouldn’t fight about the little ways were spending money. The result: we put our savings on automatic pilot, had our paychecks automatically deposited first in savings accounts from our 401k plans to our emergency account, to our bills. The fights stopped and we built real wealth.
Set aside a “money date”
During my talks about Smart Couples Finish Rich I often start by asking people when they talk about money at home. The top answers have consistently been when they are paying bills (very stressful because usually only the person in the couple who pays the bills knows the whole picture) and in bed (which trust me is an terrible time to talk about money if you want to sleep well, much less be romantic).
The best way to talk about money is to set aside a pre-agreed to time for the talk. I call this time a “money date”, and I recommend that couples set aside one hour a month to sit down (without kids around if you have any) with an agenda to go over the family finances. Just sitting down together to work on your family finances at a time you are both mentally ready can make working on the money together a team effort rather than a war of the finances.
Share the bill-paying burden
Most couples have one person who takes over the role of family CFO. They open the bills, they pay the bills and they take on all of the financial burden. It’s not fair, and it’s often a disaster.
Instead, you can split the duties. Have one person be the billpayer and the other person be the money-tracker. Today tracking where your money goes is easier than ever. There are websites such as mint.com that allow you to track spending and budgets online. Most banks also allow you to pay your bills online for free. You can download the spending reports into a financial program like Quicken.com. Then you’ll have plenty to talk about on your “money date”.
Sharon Epperson: Build a safety net
To reduce tension over finances in the home, even if you're deep in debt or have different ideas about saving and spending, you need to get organized and build your safety net. Achieving financial stability even in hard times will only happen if you and your spouse take responsibility. So start with a conversation about money.
Talk about your budget
How much income is coming in? How has your income changed? What bills need to be paid? What expenses can be cut? Who will pay the big-ticket items (rent/mortgage, utilities, car payments, child care, etc.)? Where do you want to be financially five years from now, 10 years, in retirement?
Separate bank accounts
You may decide to use a joint account to pay for big-ticket items or for all committed expenses. Or you may decide to have separate accounts and you’ll divvy up the bills. If you decide to “divide and conquer”, take responsibility for expenses — that is, divide the bills — based on your income.
Limit all 'committed expenses'
They should be held to 60 percent of gross income. As I write in my book, "The Big Payoff," it's important to work toward limiting your committed household expenses to 60 percent of your gross income. It’s a tough number, especially if one of you has lost a job or you’re underwater on your mortgage or facing a load of credit card debt. But it’s also a simple way to stick to a budget and build a strong safety net. (That 60 percent figure includes taxes from your pay and your monthly debt obligations.) If you limit your committed expenses to 60 percent of your gross income, the other 40 percent should be divided this way: 10 percent to long-term savings (retirement or college-savings for young children), 10 percent to short-term savings (college tuition within the next 5 years or a new car), 10 percent to emergency savings (you want to have saved at least 6 months worth of expenses), 10 percent for “fun money” (spend it whatever you want.) When it comes to “fun money”, separate checking accounts are probably best for eliminating arguments that start with: “You paid how much?! For what?!”
Sharon Epperson is CNBC's personal finance correspondent and a recurring panelist on TODAY's Money 911, where financial experts take viewers' questions.
Jean Chatzky: Communicate
The big "secret" to reducing money stress in my house isn't all that secret at all: We talk about it. My husband and I have different money styles. He balances his checkbook to the penny and still prefers to pay bills by hand. I bank and pay bills online and check my accounts on an almost daily basis to alert me to anything that's amiss. I shop for sport and enjoy it — even when I don't buy anything. He never shops unless he needs something — and rarely enjoys it with the exception of a trip to Costco (which by the way, I don't enjoy very much at all). We are both, thankfully, pretty conservative about saving. Having money put away makes us feel safer. But like most couples we do not always agree on priorities, on what's the most important thing to spend our money on right now.
So our solution is to maintain three accounts. Yours and mine to give each of us enough autonomy that the relationship doesn't become parental. And ours for the things we do together. When we disagree, we talk about it. We talk about the fact that though he'd rather go on a vacation this year, I'd rather buy pricey outdoor furniture but because I have a Bat-Mitzvah to fund and he has college (it's the second marriage for both of us), we may not be able to do either one. We may not come to an agreement the first time around, but we listen to each other and decide to come back to it. Just because you love someone enough to marry him doesn't mean that you morph into that person: you still can have your own personal goals, dreams and priorities.
Jean Chatzky is the financial editor for TODAY, a contributing editor for More Magazine, and a columnist for The New York Daily News. She blogs daily at JeanChatzky.com.
Carmen Wong Ulrich: Establish roles
Surprise, surprise. The ‘money-mama’ manages the household finances. And the investments. But we split the tax-stuff. Hey, one out of three ain’t bad!
But having the money-pro head up the ‘money’ stuff does not necessarily make a happy home. What makes the triumvirate of money-husband-wife work well in our house has to do with two things. One, we shared similar values regarding money from the get-go and made sure to talk about it early on. For example, when we were dating, I asked my now-husband his stance on credit. “I like to use cash.” As some girlfriends would say with joy, “I die!” He may have choked a bit when I told him my-then student loan balance, but he started breathing again when I said, “That’s my responsibility and mine only.”
You may not be able to replicate the initial conversations (or dating, a.k.a. weeding out period) but you can copy-cat the second most important part of what we do to keep the peace. We established roles and maintain communication. I’m responsible for paying the bills, managing deposits and keeping watch on spending (call me the home CFO) but I make sure my husband knows where we stand several times a month and we are consistently open about needs and concerns. We have discussions about big decisions and since we also share a professional partnership (LLC), we work on our taxes together with our accountant. Notice a pattern? Lots of talking.
Since we’ve been through many financial ups and downs together, we always try to remember one very important thing: No matter how high the money-stress gets, we’re on the same team.
Carmen Wong Ulrich is a personal finance journalist and former host of CNBC's "On the Money."
Allison Linn: Meet the challenge
I’m certainly not going to argue that a recession is a good thing, but I do think good things can come of a terrible situation such as this. For one thing, it can serve as a financial wake-up call.
Over the past few years, I’ve probably spoken to hundreds of people who have been hurt by the recession. There have been the tragic cases, of course — the people who have lost their home or their jobs, or been separated from their families.
For others, however, the recession has prompted them to take a good, hard and proactive look at their own finances, and to avert financial disaster.
Here’s what’s surprised me about those people: They’ve seemed to kind of like the challenge.
Sure, I’ve had couples lament the things they miss, whether it’s a quick weekend getaway or the ability to buy a treat for their kids. But I’ve also had many couples delight in telling me how they learned how to cook their favorite restaurant meals at home or enjoy a walk in the park as much as a fancy date night, or actually had fun bargain shopping for their kids’ holiday gifts.
Of course, there’s nothing fun about struggling to pay the mortgage or put food on the table. But I have been inspired by those couples who have seemed to embrace the challenge together, rather than let it tear them apart.
Allison Linn is a senior writer for msnbc.com.