Financial Decisions That Couples Need to Discuss

Everyday Spending
Partners don’t need to police each other’s spending over purchases like a latte or new pair of earrings. But it’s helpful to put a few agreements in place:

❏    Create a threshold amount: Agree on a purchase price—say, $100—that will signal a quick discussion before a purchase.
❏    Make an overall budget: Establish a spending plan so lattes and Target runs don’t bust the budget.
❏    Agree to “money dates”: Sit down at least once a month to maintain a consistent dialogue about money. Transparency establishes trust and alignment.
❏    Divide appropriately: Whether you share a bank account or have separate ones, plan to equitably divide bills and expenses so one partner doesn’t feel dependent on the other.

Large Purchases
Once couples establish a threshold amount that requires a conversation before purchase―maybe it’s $100, maybe it’s $500―they can create a framework of questions to guide their purchase decisions. Create your own list of questions, or consider these:

❏    How will it affect short-term goals, like saving for vacation?
❏    How will it affect long-term goals, such as retirement planning?
❏    Will it increase household debt, or do you have available cash?
❏    Is it necessary for employment, the household or children’s care?
❏    Is it a fun or luxury purchase that you both agree is worth it?
❏    Is it urgent, or can it wait?
❏    Have you researched to find the most economical deal?

Money Goals
When you teamed up as a couple, you may have talked about financial goals. But revisiting the subject regularly can increase the sense of true partnership. At one of your money dates, do the following exercise:

❏    Write down short-term goals: Create financial goals as a couple and individually for the short-term (under five years).
❏    Write down long-term goals: Do the same for long-term (beyond five years to retirement).
❏    Make a plan: Prioritize the goals so you have a workable, realistic plan in place. 
❏    Rework as needed: Revisit progress quarterly and revise goals as circumstances change.

Establishing a plan both partners feel good about may involve compromise. A financial planner can help explain the ramifications of financial options so you know how each may affect taxes, retirement planning and other areas. Then you can prioritize your goals armed with the most knowledge. 

Saving Money
First, agree to establish that all-important emergency fund. Experts say anywhere from three to six months of joint living expenses stashed in a high interest-earning savings account will do it. The key is to agree to start the fund now and not to touch it unless you encounter a true need. 

Next, decide other short- and long-term savings goals. Here’s where communication, again, is crucial. You’ll have to navigate needs versus desires and talk through the merits of saving money versus paying down debt. Discuss whether both partners should contribute to a joint savings goal, such as a down payment for a home, or whether savings for individual goals, such as a weekend with the girls or on the golf course, come from individual discretionary budgets. Once you have some ground rules, making savings decisions will be much easier.

Paying Down Debts
Ridding yourselves of debt is good for your finances and your relationship!

Like ripping off a bandage, just go ahead and look at shared and individual debts on paper. Only then can you map out a plan for tackling it. One common strategy is to pay down the highest-interest debt first, while making minimum payments on all other debts. Next, set your sights on the new, highest-interest debt.

If a financial emergency strikes, don’t panic. Your emergency fund should help, and if you have to put your debt-paying plan on hold temporarily, it’s OK. Just regroup and resume it when you can.

Investing for Retirement
Saving for retirement is the supreme financial goal, and one that you as a couple can’t afford to miss. Rely on tools like 401(k)s to make saving automatic and use these tips:

❏    If both have a 401(k), both should contribute, aiming to capture any matching funds from their employers. In 2020, the IRS allows each worker to contribute as much as $19,500 to a 401(k), where it can potentially grow tax-deferred. If both of you contribute, that’s $39,000 of tax-deferred income in one year alone.
❏    Once you turn 50, take advantage of “catch-up” contributions. In 2020, the IRS allows $6,500 in additional tax-deferred 401(k) contributions. 
❏    Avoid borrowing from 401(k)s, robbing yourselves of potential investment earnings.

Beyond your retirement accounts at work, you may have more assets to invest as you age. From IRAs to real estate investments, the choices will require a couple to stay aligned. Consider working with a financial planner to develop an investment strategy that accounts for the retirement you envision.