Seven smart steps couples can take to build wealth together
Money matters don’t need to drive a wedge between you and your partner. Follow these seven steps.
Money issues are indifferent to your age, gender, sexual orientation, life stage, and upbringing. And, despite the material wealth and bright smiles we see on the outside, money issues affect rich couples, poor couples, and those in between. Sadly, financial incompatibility is the leading cause of separation and divorce in North America, which is a shame because it’s completely avoidable! You and your honey don’t have to become another separation or divorce statistic. You simply need to find a way to respectfully communicate with each other — and follow these seven steps to building wealth together.
1. Get on the same page: Do you and your love have a clear idea of where you want to go, and what you’d like to accomplish in the next five to ten years? Getting on the same page is all about understanding your common goals like home ownership, starting a family, purchasing a vacation home, or becoming debt free. This is the fun part of financial planning — dreaming of the future and creating practical strategies to make it all happen.
2. Scrap your emotions and sort out your accounts: There’s no room for finger pointing, name calling, or dwelling in the past when it comes to money management. Sit down together and open your financial backpacks to form a combined list of your assets and liabilities. Total them all up and determine your net worth. Your net worth is what the two of you will need to focus on growing to ensure your dreams (those from step one) become a reality. Financial transparency is key in this step, even if it’s painful, and will build trust.
3. Curb overspending: Overspending leads to debt and is often the root of heated arguments between couples… especially when one of the partners is the primary culprit. Overspenders and savers can indeed live in harmony, but only if they’ve got a plan to spend within their means. This involves using, and sticking to, a budget and including fun expenditures within it. Download our new Better Budget Roadmap here.
4. Get out of debt: Debt is a ball and chain around a couple’s ankles. It’s stressful and doesn’t allow flexibility to chase what’s most important — your dreams for the future. Form a plan to get rid of consumer debt first (e.g. credit card balances and car loans) followed by non-consumer debt like your mortgage. The beautiful thing about crushing debt is your household cash flow improves dramatically once the first portion is eliminated. I’m often asked by new couples whether the previous debts of one partner (incurred prior to the union) should be the full responsibility of that partner, or if both should be responsible for paying it off. It’s completely up to the couple. If you want to get out of debt faster so you can build up savings and reach your goals sooner, then both partners should contribute. But, if you want to keep it separate, you’ll simply live with the cash flow limitations of one partner. Legally however, you’re both responsible for debt taken on together during your union.
5. Own the walls you live in: Eventually home ownership makes sense for most couples, unless you live in crazy-expensive cities like Vancouver, New York, Toronto or San Francisco, in which case it can be best to rent and beef up your savings instead. Build up a minimum of a 10 per cent down payment (aim for 20 per cent if you can), as anything less exposes you, and your partner, to far too much mortgage debt. When you’re ready to start house hunting, do yourselves a favour and don’t stretch to the top of your budget. You’ll end up house poor and miserable.
6. Invest like a pro: You’ve probably heard that you should invest 10 per cent of your gross income (before taxes). It turns out that wealthy couples actually invest 15 to 20 per cent. It’s what allows them to retire early (or on time) and ensure they’re prepared for a long retirement, because these days, thanks to medical advances, we are out-living previous generations. The best approach to investing well as a couple is to utilize tax advantaged retirement savings plans, choose high-quality investments (just like Warren Buffett), and get good advice early and often.
7. Design your money master plan: As my high school teachers used to say, “If you fail to plan you plan to fail.” Pull your dreams and financial strategies together in a comprehensive financial plan. Sure, life will change and you’ll need to update it. But, your money master plan will be a compass that guides your finances so that your dreams actually happen. So stop talking about it and make a plan. To reach your full financial potential as a couple you’ll need to focus on balancing between your financial, personal, and professional goals because together they will make you and your honey happy and wealthy. If you’re interested in building your own plan, that’s precisely what we do in our signature program, The Secret Art of Building Wealth.
Originally written by Lesley-Anne Scorgie and published May 19th, 2016 for Business Insider.
