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According to a study by the American Psychological Association, 61% of Americans report that money is one of the most significant sources of stress. Another survey by Citibank found that 57% of divorced couples believe that money caused the deterioration of their marriages. With that in mind, I have compiled the top most common financial mistakes couples make.
1. Not Talking About Money Before Marriage
When you’re in love, the last thing that you might want to talk about is money. Nobody wants to share their previous money mistakes. It isn’t romantic, but that conversation should take place before marriage.
In fact, couples should discuss money early on in their relationship. You need to go in eyes open to your potential spouse’s financial situation. I knew a couple that got married, and the husband’s name had to stay off all the bills and loans because of his terrible credit scores.
The real problem was the wife was unaware of his poor credit score beforehand. That led to some serious marital trouble due to this lack of communication.
2. Not Creating a Budget
It is imperative that you and your spouse understand how you will save, spend and allocate your resources each month, as a couple. Once you are married, you have to be in sync in these areas. Each month, you should check in to make sure the budget is still appropriately allocating funds.
When I first got married, I couldn’t for the life of me understand why my wife had to spend $40 a month on getting her nails done. In contrast, she couldn’t understand why I paid for a gym membership when I could do P90X at home.
However, once we set up a budget, we included a small portion of the budget towards a slush fund so that we could spend up to $100 per month on whatever we wanted. That has worked out really well for us.
3. Making One Person Solely Responsible for the Household Finances
In marriage, you are a team. That means that both parties needs to be involved in the finances.
Even if you decide to divide up the financial responsibilities between each other, you both should know what is going on with your finances. I encourage you to use a program such as Personal Capital so that both parties can be in the know.
4. Not Making Time To Have Money Dates
We make time for things that we value. Whether that’s going out to eat, watching movies or even going to the gym. However, too many couples rarely talk about money. Most of the time, people find these conversations awkward and would prefer to avoid them. Burying your head in the sand is not a wise way to go through life.
If you don’t already do this, set up a monthly money date meeting and tie an incentive to it. You could go out for ice cream or even catch a movie afterwards. Whatever it is, sometimes creating an incentive can help get the ball start rolling when conversations need to happen.
5. Not Taking Debt Seriously
According to a SmartMoney survey, debt ranked #1 as most likely to spark a fight. Couples all too often are not on the same page when it comes to debt and the amount or type that is permissible.
“Credit card debt can destroy a marriage,” says David Bach, author of the book, The Automatic Millionaire. “I don’t care how much two people may love each other, if one of them is constantly spending the couple into debt, I can promise you that eventually the relationship will fall apart. If both parties are running up debts, it will simply end that much sooner.”
6. Forgetting to Plan for Emergencies
Unexpected things happen. That’s life. Fortunately, you can plan for these unexpected emergencies. From acquiring the proper insurances to setting up an emergency fund, being able to mitigate disaster will greatly reduce your stress and improve your relationship.
7. Not Setting Financial Goals
The first question my money manager friend asks his clients is what their financial goals are. Most of the time, people just want their portfolio to grow. They are typically unable to come up with other concrete financial goals.
If you haven’t set up financial goals as a couple, take some time to do so as soon as possible.
8. Not Teaching Your Children about Money
As of 2016, only 17 states in the US require students at public high schools to take personal finance classes before they graduate. That leaves it up to parents to do the heavy lifting of teaching their children money matters.
David Bach assures, “You don’t have to be a financial professional to be able to teach your kids about money. You can still talk to them about how you are saving for retirement and why. You can discuss with them how you handle your credit card debt, what sort of investments you are making, and how you make sure your financial practices reflect your values.”
If you’re unsure where to start, take a financial course, such as Reaching FIRE, so that you and your children can walk through it together.
9. Saving for Your Children’s Education but Neglecting Your Retirement
Your children can take out loans for college. You cannot take out loans for retirement. Do you really want to depend on your children financially later in life? Make sure that you prioritize your own retirement so that you won’t be a burden on them later in life.
10. Investing with a Purpose
So many of my friends have asked if they should invest in Bitcoin. Bitcoin is clearly a hot investment today. I usually ask them what their analysis of Bitcoin’s future, and then I receive a blank stare in return.
That’s not to say Bitcoin is a bad investment, although I have a feeling that it’s reaching Tulip Mania. Whatever type of investment that you choose, you should be able to back up your investment decision with some sort of analysis.
Whether you create a diversified portfolio of stocks and bonds or dump all of your money into a passive index fund, you should know why you invest the way you do.
11. Keeping Money Secrets
This is a huge no-no in my book. In any relationship, you should be open and transparent. Relationships are built on trust. Any sort of deceit can cause a ton of strife within a relationship.
A friend’s mom had multiple credit cards that her husband had no idea about. She reasoned that because she planned to close the credit cards, they would not affect him. Thus, he didn’t need to know about them.
Little did she know that opening and closing credit cards can affect a credit score. Last thing you want is a big surprise when you are needing to take out a mortgage or another type of loan.