Money Problems Couples Can Avoid -- Innovative Financial March 2021
“Stop in the name of love before you break my heart.” We know The Supremes weren’t alluding to the pitfalls couples face when they grapple over money issues. But our own experience tells us that money plus love can lead into minefields we’d rather avoid.
So, let’s recognized the obvious. Financial matters are an essential part of any couple’s relationship. Face them head-on.
For some couples, this will be second nature. For others, it’s a challenge, but we’re here to help.
If you take the time to get on the same page, you can solidify your finances and strengthen your relationship. Working towards the same goals is critical. It’s time well spent.
Six money mistakes you and your spouse can avoid
1. Set goals. He’s a spender, she’s a saver. Or, he has an always-expanding list of toys he would like to add to his collection, and she spends most of her time thinking about growing the family’s emergency fund and how she can max out their 401k contributions. Does that sound familiar?
It’s too late to have “the talk” after you have put a big purchase on your credit card. So, sit down and have a money date. Talk about your goals and write them down. Without goals, you won’t know where you are headed.
Share your feelings and (this is important) actively listen to the other’s viewpoint. Compromise may be needed, but agreeing on common goals will allow you to move forward in a unified fashion. When you have completed this task, I am confident you’ll feel an enormous sense of satisfaction.
2. All for one and one for all. Marriage is about unity, but not the absorption of one’s self into the collective whole. Our interests won’t be perfectly aligned. The same can be said about handling our finances.
A joint checking account and a joint credit card are perfect for joint expenses, but separate accounts for separate interests are a good idea too. When you set your goals, establish boundaries regarding spending and saving patterns.
3. Money secrets are a no-no. It’s OK not to disclose the secret handshake you learned from your college fraternity or sorority. It’s not OK to keep money secrets hidden from your spouse or partner.
Major secrets may be a symptom of more significant problems that can threaten the stability of your relationship. Don’t destroy the trust that can take years to rebuild.
4. Who handles the monthly bills? It’s a good idea to put as much as possible on autopay. It’s not a set and forget. But you don’t want to get caught flat-footed with overdue bills or late charges that may slip through the cracks and ding your credit report.
Therefore, who takes care of the bills? It may make sense for one person to be in charge, so there’s no confusion and regular payments aren’t missed.
But checking in monthly or bi-monthly is an excellent way to keep both individuals on the same page. Check-ins also allow you to make any adjustments, as a couple, to your goals.
5. What comes first, the chicken or the egg? It’s an age-old but unanswerable question. Should we go in the direction of retirement savings or college savings?
Having children means putting your kids before yourself more times than you’ll ever be able to count. But when it comes to saving for retirement or college for your kids, put yourself at the front of the line.
Pensions are disappearing, and Social Security isn’t enough. You must consider your retirement needs first. There are exceptions, and we can look at ways to fund both goals. But do your best to maximize retirement savings. At the minimum, capture the total amount of your company’s match.
Keep this in mind: If you don’t fund your retirement, who will? The burden could fall on your kids.
6. Stash away cash for an emergency. Did you know that just 39% of Americans have $1,000 to handle an emergency? The rest would have to use a credit card or borrow to cover an unexpected need. I know you have ample reserves, but sadly, that’s not the case for all Americans.
If you received a stimulus check in December and don’t have an emergency fund, please save it.
While not signed into law, Congress appears set to pass another stimulus bill that will provide an additional $1,400 to individuals and $2,800 to married couples (subject to income limits). If you have the financial bandwidth, this “gift” is a great way to make a down payment on your rainy day fund.
Money is a complicated topic. I truly understand that. Treat each other with respect and actively listen when you set goals. Goals provide you with a roadmap, and they can reinforce the bond you have towards each other.
If you aren’t sure how to get started, please reach out to us. We’re here to help and get you pointed in the right direction.
There’s one more thing I should mention. Procrastination is the enemy. Get started today.
Not your father’s economic recovery
Technically, the economy is still in a recession. The National Bureau of Economic Research (NBER), the arbiter of recessions and economic recoveries, has yet to declare that the recession is over. When it does, it will likely backdate the end of the recession, as it has done in the past.
Key economic reports would suggest the low point for the economy occurred in April. These include employment, consumer spending, and manufacturing production (U.S. BLS, U.S. BEA, and the Federal Reserve, respectively). The top of the cycle occurred in February.
Whenever the NBER makes its declaration, this economic recovery has been far from what might be considered an average recovery. The pandemic that led to the steepest slide in quarterly GDP on record (U.S. BEA, quarterly records began in 1947) has also shaped one of the most lopsided recoveries we’ve ever experienced.
Look no further than service-based industries that require personal interactions to thrive, which is something we took for granted pre-Covid.
Social distancing restrictions and fear of contracting the virus have severely impacted airlines, hotels, travel, restaurants, concerts, and movie theaters. These industries and more have struggled to adapt to the new normalcy.
Did you notice football and other sporting events that were played in nearly empty stadiums? It’s not only wealthy owners that have been hurt--consider all the folks who worked at those events.
Even health care has suffered. According to data from the U.S. BEA, spending on health care is down 12% versus one year ago (Q4 2021 vs. Q4 2020). Health care spending accounted for over 10% of GDP in the final three months of last year.
But other industries have adapted. For example, housing relies heavily on personal touch. But record-low interest rates have spurred strong demand for housing.
Essential retailers, home improvement, auto sales, and grocery stores have experienced robust numbers. Consequently, manufacturers were caught off guard by the resurgence in sales.
A February 22 story in the Wall Street Journal sums it up nicely: Consumer Demand Snaps Back, Factories Can’t Keep Up. Snarled supply chains, labor shortage, thwart full reopening; “Everyone was caught flat-footed.”
Reopening various sectors of the economy has helped, and generous jobless benefits and two rounds of stimulus checks have left many with ample cash to spend. While the final touches aren’t yet on the latest relief package, more money is likely on the way.
But here lies the problem. Government restrictions prevent most of us from attending sporting events, museums, and the theater. Moreover, many are not entirely comfortable traveling on airplanes, spending a night in a hotel, or enjoying a meal at a restaurant.
The extra government support that has helped fuel growth has been funneled into some industries or savings, as artificial barriers, which I recognize are needed, have severely hampered others.
You might consider your own circumstances. Have you noticed smaller balances on your monthly credit card statements? Have you noticed a different mix in your outlays versus pre-pandemic? Are you streaming more movies rather than going out to dinner or enjoying the theater? Has your choice of recreation been altered?
A new and costlier relief package that’s currently pegged at around $1.9 trillion seems likely to pass soon. Expect the new cash to support the economy and to continue to support various sectors that have benefitted at the expense of other sectors.
What might help the beleaguered industries that have suffered under today’s restrictions? For starters, a successful rollout of the vaccines that significantly reduces the odds one can contact Covid.
But I also want to be careful not to sound too gloomy. It’s been a challenging year, and there’s plenty of uncertainty, but prospects this year look bright.
Economic forecasting, which is never easy, is even more difficult in today’s environment. Still, forecasters are sounding an optimistic tone.
Table 1: Key Index Returns
Source: MSCI.com, Morningstar, MarketWatch
MTD: returns: Jan 29, 2021—Feb 26, 2021
YTD returns: Dec 31, 2020—Feb 26, 2021
*in U.S. dollars
I trust you’ve found this review to be educational and informative.
Let me once again emphasize that it is my job to assist you. If you have any questions or would like to discuss any matters, please feel free to give me or any of my team members a call.
As always, I’m honored and humbled that you have allowed me to serve as your financial advisor.