Rianka's Forbes piece tackles how communicating about money in your relationship can be a challenge - but it's critical to your long-term success as a couple.
It can be frustrating to realize that once you get your own financial plan figured out, you may need to adjust it when you’re in a committed relationship. There’s a temptation to skip talking about money with your partner for a variety of reasons: it’s awkward, you two disagree on the role money should play in your life, you have different financial goals, or your spending and saving habits don’t match up.
Whether you and your partner are combining your finances, or you’re keeping separate accounts, it can be difficult to force your two unique money mindsets together to build a financial plan. However, finding a connection as a couple when it comes to your finances can help to avoid serious, sometimes relationship-ending arguments, down the road.
Why Should You Talk About Money in Your Relationships?
Studies have shown that approximately 45% of marriages will end in divorce, and financial stress can play a significant part in the deterioration of a relationship. A large percentage of American couples aren’t talking about money in their relationship. In a survey of over 1,500 people, 20% of participants managed their finances separately from their partner. Large groups within the survey stated they:
Didn’t know anything about their partner’s retirement savings
Had no idea what their partner’s credit score was
Didn’t share a major financial account with their partner
Weren’t sure if their partner had any debt
Were hesitant to share their own salary and financial information with their partner
If you’re wondering whether this is correlation or causation, it’s important to note that of the 20% of survey participants who didn’t manage their money together with their partner, 20% of that group were experiencing money-related relationship problems.
The truth is that money is an emotional part of life. It’s difficult to keep it separate from big decisions about work, family, and day-to-day lifestyle choices. When finances are removed from major conversations in a relationship, it can lead to trouble later on.
When You Don’t Communicate - A Case Study
A lack of financial communication can wreak havoc on a relationship. Look at the following case study example, pulled from a financial planning client (names have been changed):
Maxine was a successful young professional in the Engineering & Technology space. She made significantly more than her other family members, including her newly single brother - who was a history teacher at a local public school.
The two were always close, and Maxine wanted to help her brother after his divorce. On his teacher’s salary, he was able to live comfortably in an apartment in a good part of town, but there was a problem - his car was constantly breaking down. Although having a fancy new car was never a priority for Maxine, she was the first to raise her hand and offer to cosign for her brother’s Lexus. She knew from past experiences that he was excellent with his budget and would always make payments on time.
Fast forward three years, and Maxine is in a committed relationship with her partner. They aren’t married yet but are starting to look at purchasing a small condo together downtown. Imagine Maxine’s surprise when the amount their mortgage lender approves them to borrow is much lower than she’d estimated - with an interest rate that was much higher than she had heard was reasonable.
Maxine’s brother had fallen behind on his original plan to pay off his car in two years or less. Although he hadn’t missed a payment, the hefty amount still left on the car loan was negatively impacting Maxine’s credit report.
Understandably upset, but not wanting to confront her brother, Maxine called their mom to ask if she knew anything about her brother paying off the Lexus. Maxine’s mother was embarrassed and upset that her son was impacting Maxine’s ability to buy her first home, and borrowed against her 401(k) to pay the car off, with the understanding that Maxine’s brother would pay her back over time. This decision was against Maxine’s wishes, but her mother was determined to right the wrong that was happening between her two children.
Maxine’s partner was upset that Maxine had never told her about cosigning for the car loan. Of course, they had just started dating at the time, but it seemed like a big enough deal that it should have come up. Maxine’s mom had to pay significant taxes and penalties for taking an unqualified withdrawal from her 401(k), and relationship tensions between Maxine and her brother were high.
Had Maxine discussed cosigning for her brother’s loan with her partner, they could have potentially come up with a plan together to support her brother in a different way. Even if they had discussed it after the loan was originally cosigned, they could have developed a strategy for their own homeownership with the cosigned loan in mind. Not communicating about the loan caused unnecessary stress in their relationship, and had a negative ripple effect on the rest of Maxine’s family.
This example, although frustrating for everyone involved, had a relatively low impact on Maxine and her partner’s relationship. However, there are other situations involving secret credit card debt, student loans, a lack of emergency savings, etc. that can have a much bigger and more lasting negative impact on your relationship.
Becoming a Financial Team
It’s important to develop a financial strategy as a team with your partner and to avoid secrets about your money that could potentially impact your financial decisions or lifestyle both now and in the future. Watching for a few key financial “red flags”, and knowing how to correct a miscommunication about money is a perfect place to start.
Red Flag #1: You don’t know one another’s current debts.
Correcting the Miscommunication:
Understanding what types of debt are owed, and what balances are left on each is critical. As was the case in the example above, keeping debt (even cosigned loans) a secret can come as an unpleasant surprise when you two decide to move toward another joint financial goal.
Red Flag #2: You don’t have combined bank accounts or a combined budget.
Correcting the Miscommunication:
It’s important for each person in a relationship to feel like they’re able to spend somewhat freely. Keeping everyone on a tight leash can result in overspending and stress. However, if both members of a couple are budgeting for their own needs, keeping separate accounts, and failing to discuss their spending and saving habits with their partner - that’s a problem.
Even if you don’t want to combine your bank accounts, it’s still important to sit down and go over your budget together. That doesn’t mean you both can’t splurge on occasion; it does mean that you have to be honest about spending, and make sure that each member of the relationship is helping to work toward joint goals - like paying bills, paying down debt, or building savings.
Red Flag #3: You don’t discuss financial goals as a team.
Correcting the Miscommunication:
You set goals together as a couple. From small goals, like taking a trip together, to large goals, like retiring early or starting a family, you operate as a unit. Your finances should work in the same way. Your money is a critical part of your relationship, whether you like it or not. Setting big-picture financial goals together, as well as smaller, everyday budgeting goals, can help to keep you both on track and working together toward a fulfilling future.
Although communicating about money can be uncomfortable, it’s necessary to have a successful financial future for your relationship. If you’re nervous about it, try taking baby steps toward your goal. Tackle these three money communication missteps first, and level-up from there.