Why every couple needs a joint financial plan
Setting clear money goals as a couple can pay real ‘dividends’ for both your bank account and relationship. Lifetime financial adviser Chané Berghorst explains what you need to consider when drawing up a shared plan.
OPINION: It’s the ‘dirty’ word that can make or break your relationship.
Money, although often tarred as a stressor, has the power to bring a couple closer together – and joint financial planning is essential to this.
Cementing a financial vision can lead to surprising side-effects for your relationship such as greater trust, more honest communication and a higher level of commitment – and this is in addition to the financial benefits.
Finances can be such taboo topic that some couples find it easier to talk about sex than money!
Recent research* has also shown that women find money a greater stress than men, so it would seem to be in a woman’s best interest to be the driving force behind drawing up a joint financial plan in addition to both partners setting their individual financial goals. Ultimately, sharing living costs and setting financial goals together can help you reach your financial targets faster.
Communication will always be key. When you share a goal with your partner, you will both be more inclined to achieve it. From financial infidelity to dealing with debt, here’s what you need to cover off as part of your planning.
Align goals without compromising your values
Because individuals differ in their values around money and spending habits, it’s important to start by acknowledging your ‘money personality’.
Just because you’re in a committed relationship doesn’t mean your attitude towards money will be the same. This means the first step in a joint financial plan is letting go of all expectation and judgement around this.
Begin by identifying the financial goals you may have in common. Ask yourselves, “What are we trying to achieve in the long-term?” and “At what age do we want to retire?”
Once you’re able to answer these questions you will find establishing small goals to lead you to your end result will be the easy part.
In some cases where financial goals don’t align, lean on your financial adviser to help the process along – this brings a level of ‘neutrality’ into the discussion and can also help diffuse any emotion around decision-making.
Be sure to achieve the right balance
Your joint financial plan is a long-term endeavour, so be sure to achieve the right balance between what you’re putting away in savings, and what you’re spending in day-to-day living expenses.
For example, if you’re planning to buy a house, living in a tent now to afford a mansion later may not be the most sustainable approach. Prioritise your goals but be realistic about what is achievable over the long term and where your comfort level lies.
A clever way to tackle this is to allow a small reward such as dinner out on the town or a modest spa treatment once a major goal reached. The closer you can align your reward to your values, the more effective this tactic is likely to be.
Shine a light on “spend cheating”
Financial infidelity, or “spend cheating” as it’s more commonly known, refers to those seemingly harmless splurges or debt we hide from our partners.
Research** has found that almost 18% of New Zealanders have money or debt their partner is not aware of, and women make up 64% of those not disclosing their true finances.
If you are both committed and contributing to joint goals, what you spend individually is entirely at your discretion. However, in an instance where reckless spending impacts joint goals, it will be important to find a remedy. Even if your finances are separate, agreeing to a joint financial plan means complete honesty around all spending and income.
Setting up automatic payments for fixed costs and bills, budgeting catch-ups, and small rewards for goals achieved are all smart ways to help tackle this.
Tackle debt, don’t hide from it
There’s no shame in debt, and so in a relationship you needn’t feel the urge to hide any debt you may have.
If one partner brings a lot of debt into the relationship, the other may need to help settle it before they are in position to tackle their shared financial goals. Whatever method you chose to do this, it’s very important that both partners are aligned on how best to achieve this.
Be sure to pay off all high-interest bearing debt first and leave lower interest debt for last, for example, student loans. Break up your debt goals into six-month sprints and celebrate each mini-goal reached.
“What are we trying to achieve in the long-term?” and “At what age do we want to retire?”
Protect your income to reduce your risk
Because your income is central to your joint financial plan, it’s vital to protect it from risks such as loss of employment or disability. While often seen as an added expense, insurance can safeguard you while working towards your financial goals.
Another big factor to consider is insuring your non-working partner; just because they don’t bring in income doesn’t mean there’s no financial loss should they fall ill or be unable to look after the family or home.
A 2018 US study*** benchmarked the stay-at-home partner’s true income value at US$162,581, so it’s important to think about the expenses likely to be incurred should this parent be incapacitated.
Chané Berghorst is an Authorised Financial Adviser with the Lifetime group. She enjoys working with clients to make smart decisions around their finances and lives just outside of Auckland.
A disclosure statement is available on request and free of charge.
* Canstar Blue research indicated that 40 per cent of women stressed over money, compared to only 26 per cent of men.
** Credit Simple New Zealand
*** Salary.com revealed the medium annual “salary” of a mother based on hours worked and tasks.
New Zealand’s gender pay gap is unlikely to be going anywhere anytime soon and the impact of earning less over a lifetime has an enormous effect on a woman’s immediate and future financial security. This is compounded by a lower level of workplace participation, a tendency to seek part-time casual work and bear the bulk of caring responsibilities for children and other family members. So how can women bridge the gap? Here are some tips on how to build wealth and make positive steps towards pay equity and financial independence despite and in spite of the hurdles women face.