"Finding Harmoney" with Financial Therapist, Megan FordSubmitted by Radix Financial on April 3rd, 2018
Am I crazy or does this winter seem to go on forever? It's been generally cold, with a few beautiful warm days; then warm for a while, with a few chilly days mixed in. The stock market acts similar at times; it will be up for a few months with some down days mixed in and then it will be down for a few months with some big up days here and there.
Much like this crazy winter, the markets had an unusually warm January (up 5.73%), but cooled off in February and March, with the S&P 500 ending the quarter slightly down (-0.76% YTD). Safe to say volatility is back thanks to the unpredictable nature of the current geopolitical climate, the Fed's plan to continue raising interest rates, and the impending tariff fiasco. 2018 looks to be another year driven by the news cycle, which at times can offer prudent buying opportunities, but the strategy remains the same: disciplined, long-term portfolio growth.
Couple housecleaning items before we get started:
- Remember to file and pay your taxes before April 17th, and don't forget Q1 estimates are also due!
- There is still time to contribute to an IRA or Roth IRA for 2017. Get in touch if you still need to do so. Max contribution is $5,500+$1000 catch up bonus for 50+
Now, for the fun stuff! This quarter, I'm excited to bring you specialized blog content surrounding how modern couples can better approach collaborative healthy conversations around their finances, budget, and goal set. This resource was jointly written by myself, Amy Hubble, founder and Principal Advisor for Radix Financial and Megan Ford, a couples therapist who specializes in relational money matters and founder of FindingHarmoney.com. With our insights as a financial advisor and financial therapist combined, we take a critical look at several tools couples can utilize to improve money management.
This resource is organized in three parts: (a) dispelling common myths and misconceptions, (b) a primer exercise to help get organized, and (c) a review of apps to help keep you on track. We hope you enjoy!
COUPLES + MONEY
Is there anything that gets us more riled up than talking about money with our partner? According to research, it's one of the trickiest areas for couples to navigate—one that most of us would rather avoid due to the level of conflict that ensues. Fights about finances are identified as one of the leading precursors in the decision to end a marriage or relationship. So with that in mind, it’s crucial that we figure out how couples can get on the same page and communicate more effectively about money.
Myth #1 "We are arguing about the numbers"
Although the numbers are certainly a factor that cannot be ignored in context of money conflicts, it is typically not the root of why we find ourselves in an argument with our partner over money. When you’re fighting about money, what you’re really fighting for are the deeply held values and beliefs that tend to manifest as an opinion.
When you consider that there is a fair amount of “money baggage” that we carry with us into our relationships and marriages, it’s no wonder money is a difficult one for us to sort through as pairs. Just remember, the numbers may be an element of the conversation, but they are not the reason we’re pushing so hard to feel heard by our partners.
Myth #2 "If we don’t talk about it, it will just sort itself out"
Oh, if only this were true! From a psychological perspective, avoidance is one of the most powerful coping strategies people use concerning money. Individuals rationalize that: If I don’t see it, it’s not there. It will work out even if we don’t work it out. My partner will manage things - they’re better at it anyway. These notions aren't uncommon for couples, but in the long-run, they can be ineffective and even financially harmful.
Money isn’t the sort of thing that just takes care of itself - wealth is like a garden: if you want to see it grow, it requires care and frequent attention. You may even need to employ a master “gardener,” like Radix Financial. Little attention or conversation with your partner will have consequences. While there isn’t conclusive research on how frequent communication should happen (our hunch is that it wouldn’t be a one-size-fits-all prescription), even a quick check-in can be effective at mitigating frustrating misunderstandings and costly miscommunications (wait, I thought you were taking care of the mortgage payment this month…). Do yourselves a big favor - talk early and often!
Myth #3 "There is a specific way that couples should handle their finances"
There's no clear evidence indicating couples who organize their finances in one way or another are happier. The traditional view is that couples, especially those who are married, should commingle all of their money. End of story. However, what we are seeing now, particularly in younger generations, is that the degree of mixing money varies widely along a continuum. We are of the opinion that how couples choose to organize their finances is ultimately less important than the communication that leads you to this decision and how those individual assets can be optimally allocated to meet your shared goals.
You’d be amazed how many couples can’t articulate exactly what it is they’re saving or investing for, and it all stems back to a lack of conversation around money. Think about it. Could you accurately identify where all the retirement accounts, insurance policies, checking accounts, credit cards, student loans, or other financial assets owned by your partner are located? and approximately how much is in them right now? We’re guessing not, but that’s not unusual. While it’s not necessary to be able to rattle all of this information off at the drop of a hat, the “not-knowing” stance can cause problems when your individual financial resources are not optimized towards achieving your shared goals. It’s a bias called “mental accounting,” and it involves assigning different objective buckets for different sources of income or assets individually.
It’s certainly not wrong to consider money you earn or otherwise receive “yours” and kept in separate accounts. Today, almost all dual-income families have some degree of financial separation. That’s fine, and frankly, we encourage it in many cases. Just make sure that you’re communicating with your partner about what and where your resources are located and what role (if any) they’ll play in your family’s shared financial goals. We can’t stress this enough, especially as we’ve encountered this time and time again in our work - if something were to happen to the primary household financial manager (most commonly through death or divorce), the other partner is at risk of being taken advantage of.
As we’ve said, it really doesn't matter whether you keep all of your money in one account, separate accounts, or a combination of the two. Find what works for both of you and make sure all of your assets are working together towards common goals. Don’t fall into the mental accounting trap where one partner sits on a fully-funded cash saving account while the other partner pays 25% interest on a large credit card balance or is regularly having to pay overdraft fees. It may be working against your shared goals if the household is unnecessarily spending precious income on credit card interest and fees, hurting the credit of one partner, when you may have a future goal of someday purchasing a house together.
It becomes more difficult to navigate when overspending, mistrust, or mismanagement enters the picture. If there are deeper concerns, they need to be discussed together and a compromise reached about how to deal with them. If it’s overspending, try setting little traps for yourselves. Sometimes the issue can be helped by automating payments, turning off overdraft protection, or more closely monitoring your spending habits through one of the apps we explore below.
INCREASING COUPLE AWARENESS: A PRIMER EXERCISE
Whether you’re brand new to this or just trying to get back on track as a couple, here is an exercise that can really help you gain better clarity and transparency. It’s also a great precursor to getting prepared to use any of the budget apps we introduce later.
Step 1: Together, write down everything you “own” and everything you “owe.”
You can do this in a spreadsheet, with pen and paper, back of a napkin, or whatever you have, but this step is crucial for couples before they can begin to establish savings and investing goals. You’ve got to know what you’re working with! Include everything, even credit cards with no balances.
Include the following for all of your accounts:
- Nickname the account: What do you refer to it as?
- Ownership: How is it legally titled, is it joint or individual?
- Location: In what bank, brokerage account, or storage shed is it located?
- Value: Market value for assets or principal outstanding for debts ($)
- Rate: What APR % are you paying for debts, or earning for assets?
- Cash Flows: Any regular contributions to or payments made from?
- Purpose: Why do you have it? Example: House - “to live in”
- Future plans: What would you like to accomplish with this account in the future?
Step 2: Together, establish your goals
Now that you’ve mapped things out and become more aware of “own” versus “owe,” you can start to build some financial goals. Through the process of writing things down, you were hopefully able to identify for yourselves where some challenges exist, especially within the “purpose” and “future plans” columns. From a behavioral perspective, make these goals specific and agreed-upon. It’s going to be harder to stick to these ideals if only one of you is really invested in the goal.
Now, write down that same list of accounts, but this time, write down where you hope to see these accounts one year from now. What about five years from now?
Be clear with each other: What do you both need to accomplish to get there? How can you keep one another on-track? How often do you want to revisit things? Put this plan in writing and keep it with the list of accounts.
TECH TOOLS FOR COUPLES: A BRIEF REVIEW
Current technology makes money management easier to navigate, with nearly instant online access to banking, investments, and credit reports. Financial apps for individuals can seem like a dime a dozen these days, but developers are finding new and unique ways to help couples navigate their financial lives with more transparency and synergy. A lot of the barriers to couples’ consistency with money management is time and proximity. When you can access things with one or two clicks and the information you need is at your fingertips, there is a better chance you’ll both be more aware of your current money picture. While apps don’t replace the necessary foundations of productive communication and deeper understanding of our partners’ money histories, they can certainly be a way to facilitate more talk and teamwork. Below you’ll find a thoughtful review of several popular apps couples can use.
Brief Overview: Mint is undeniably the money management app leader, so we would be remiss not to mention it. While both of us have tried Mint (Amy still uses it), from our perspective it is not necessarily formatted and designed for couples. Though this is the case, some of Mint’s strengths are that you can incorporate ALL of your household assets in one place for a convenient, high-level view of how you’re doing. You can include bank accounts, credit cards, loans, brokerage and retirement accounts and even estimates of the market value of your home and car from Trulia and Kelly Blue Book. Keeping your credit score front and center doesn't hurt either.
While having everything in one place is great, for those who need or desire more granular information, Mint can cause some frustrations. It’s auto-categorization feature sounds like a time-saver, but it can cause headaches for new users. For instance, when you check out at Target, you likely didn't just pick up a few toiletries, you may have grabbed an item of clothing, a toy for the kids, and that wedding shower gift you’ve procrastinated on. It’s unlikely that we confine our Target shopping to just one budget category or area in our monthly spending plan. Mint doesn't know this, so you have to go in and dictate where these purchases belong, which can be a drain on time, and for couples, you can’t really know how to categorize that last purchase your partner made unless you see the receipt.
- Expands your financial picture beyond the budget and gives you the opportunity to integrate not only spending, but also investments all in one spot with automatic updates
- Ability to see all of your transactions more clearly and track them against your monthly budget goals and allowances
- Keeps you aware, as you can set alerts to tell you when you have low balances, bill pay reminders, hit your monthly budget limit for a particular category, etc.
- With it being a free app, there are lots of ads
- Can be time-consuming for Mint to “learn” how to categorize your expenses
- Not specifically designed for couples/shared accounts, which can limit transparency efforts and fluid communication
Best For: Couples who want to communicate more openly and effectively about the “big picture” or just need small nudges here and there to stay within a broad budget
Cost: Offers a 34-day free trial
$6.99/month, or $83.99/annually; students free for 1 year
No questions asked cancellation and refund policy
Brief Overview: As an award-winning software program, YNAB is a popular choice too. This app is somewhat unique in that it integrates the behavior change aspect purposefully through its established “rules,” which some of us need when it comes to our spending plan. YNAB “knows” our human weaknesses and positions us to plan for them. For instance, if you allocated $100 for dining out this month, but you overspend by $20, the app reminds you of this and prompts you to move money over from another category that is still under-budget. YNAB makes you budget every dollar, so there’s no “miscellaneous” category. For couples who are in need of (or prefer) a lifestyle change which includes heavy monitoring and accountability, YNAB may be a solid option, as it challenges you to plan ahead and then stick to the plan. YNAB also does a great job of helping couples align their spending behaviors with their values and broader goals.
- Excellent budgeting and goal-tracking capacity, as well as debt payoff accountability
- Continuous syncing between devices, which is helpful when you and a partner are spending from the same accounts and categories
- “Budget-as-you-earn” features make it a good tool for irregular incomes
- Extras like financial education web content
- Monthly expense
- Couples must share a login and budget details
- Without more couple-centered features, may not entice an uninvolved partner
Best For: Couples who manage everything jointly or plan to; who need to seriously focus on getting spending synced and under-control; are detailed-oriented and need to stick to a stricter budget with some built-in accountability; or who have inconsistent monthly incomes
Brief Overview: One of the more established apps out there designed specifically for couples, Honeydue claims it provides tools “to reduce money-related arguments.” Unlike other apps we’ve introduced, Honeydue creates better opportunities for couples who organize money both together and separately to get on the same page and support one another in their spending and saving goals. The app also incorporates some basic budgeting tools, bill payment reminders, and auto-launching of PayPal or Venmo for less-hassle settling of those bill splits (we loved that feature!).
For those who feel it’s best to maintain some level of privacy, the app offers the ability to choose whether your partner sees only your balance in a specific account or the nitty gritty transaction details. We can appreciate the argument for full transparency but also recognize that it’s couple-dependent, and there are reasons some would choose not to share everything. You might want your partner to know the account exists and how much is in it but not necessarily micro-manage everyday expenses or line-by-line transactions. Fights like this are usually linked to one partner not understanding why that “type” of spending is important - getting caught up in thoughts like: that seems like a silly thing to spend money on.
Honeydue can accommodate potential “slush fund-like” accounts and perhaps mitigate conflict over smaller money decisions. While this app certainly creates additional tools for couples managing money as a team and may very well decrease arguments, it shouldn't become your replacement for actual conversation. Conflict is unavoidable, even with an app to help facilitate. More than that, conflict isn’t bad; it’s healthy and sometimes necessary to clarify our needs and intentions. Bottom line: Reducing money conflict is a good goal, but avoiding in-person conversations is definitely not ideal for actually improving your long-term household financial well-being.
- Option to control the level of detail your partner can view, which can work for couples in many different relationship stages
- Allows you to quickly request money between partners and manage joint expenses
- Engage with each other (and perhaps reinforce positive behaviors) through features like “commenting” and “reactions” like smiley faces
- Fewer tools or accountability features for couples who need to adhere to a strict budget
- Not as effective for incorporating other assets like retirement accounts, brokerage, or real assets
Best For: Couples who regularly split bills and household expenses; who maintain and desire some level of financial autonomy (a mix of separate and joint accounts); or who want a new way to prompt and engage each other around money