For most couples, dividing up the chores is one of the first items of business when they start a life together. Taking out the trash, doing the laundry, cutting the grass, scrubbing the toilets. We all know the list. And paying the bills, which is on there too, is typically handed off to the partner who is either best at math or has traditionally been the most responsible with money. What most couples don’t realize is this: the mathematician in the house is getting a pretty raw deal.
Sure, the chore of “paying the bills” is pretty straightforward. In the beginning, finances are simple. The most important tasks are budgeting, paying every bill on time, and managing monthly cash flow. Not so bad. The chore is done in the time it takes to cut the grass. But as time moves on, finances get more complex. Suddenly “paying the bills” includes finding the best rate on a home mortgage and figuring out how much to contribute to your 401(k) and 529 plans. Deciphering complex benefits packages and navigating corporate buyouts are added to the list of responsibilities. Juggling FSAs, HSAs, and insurance claims fall into this category too, as does trying to pick stocks, diversify investments, stay educated on the market, and think about tax liabilities. It can sure make scrubbing the toilets seem a lot more attractive than it did in the early days.
Lisa and Matt called my office a few weeks ago, and it wasn’t a happy discussion. They’d hit a breaking point, and they needed help. Lisa had been their family “CFO,” and she was proud of how she’d handled the finances over the years. But two things had changed. First, Lisa felt she could no longer do the job well; they were trying to buy a second home, and she felt overwhelmed by the decisions that needed to be made. Second, when they initially dove into the financing process, they got some unhappy surprises. They were in much more debt than they’d realized, and their FICO scores had dropped below 700. Matt accused Lisa of mismanaging their money. Lisa didn’t know what she could have done differently. Things were a mess.
Lisa and Matt’s story is all too common. No matter how hard they try, most people don’t have the knowledge they need to make complex financial decisions. In worst-case scenarios, a serious error has been uncovered: taxes are misfiled, assets are lost, or there’s been hidden overspending by one spouse or the other. That’s when I become as much a mediator as a financial advisor. And I hate to see it, because today’s troubles could have been avoided years ago—back when the chores were being divided, and “paying the bills” and “cutting the grass” where somehow seen as equivalent. The fact is, the grass never gets more complex, but your family finances are a dynamic, moving puzzle that requires both time and expertise.
Whether I’m talking to newlyweds just starting or older couples who have hit a treacherous fork in the road, here’s what I recommend:
1. Take on joint responsibility for your finances—NOW. As partners, you should share equal responsibility for all aspects of your money. Sure, one person may be dealing with the basic bill paying, but you should each consider it your fiduciary responsibility to your relationship to make mutual decisions about the budget and how your money is being spend. No one wants to have to ask permission to make a major purchase—or be criticized for financial decisions that were made when they were simply doing the best they could.
2. Don’t wait until there’s a financial tragedy to get help. Inevitably, your finances will get more complex and you’ll realize it’s time to start working with a professional. All too often, it takes a misstep of some kind—a financial wake up call—to take this step, and by then, there’s a mess to clean up. A good rule of thumb: if managing your money is taking longer than it takes to cut the grass, it’s time to get some help. If, like Lisa and Matt, you know it’s time for some real advice and guidance, be cautious who you turn to. Co-workers, friends, and family may empathize, but rarely have any formal knowledge in finance. Google is… well… Google. And a salesperson (even one who goes by the title of “advisor”) may be selling rather than solving. Find the right advisor for you using these tips from the National Association of personal Financial Planners (NAPFA).
3. Know what you don’t know. Your math skills may be fantastic, but without formal training and experience in financial planning, you could very well find yourself in a mess like Lisa and Matt 10 years from now. A professional advisor can help you get back on track financially—and keep you there over the long term. Here are just a few of the questions you may want to ask an advisor in your first meeting:
- How do we balance saving for our children’s college education and saving for our retirement?
- Should we try to pay off our mortgage early, or is there a better way to leverage our assets?
- How can we include our aging parents in our plan?
- What can we do to plan today for tax-effective asset distribution in retirement?
- Are we doing everything we can to keep taxes to a minimum and spread out our tax liability?
- Do we have enough and the right type of insurance, including life, disability, healthcare, etc.?
Of course, the challenges are different for everyone. For Matt and Lisa, it didn’t take us long to identify how they’d gotten where they were and what needed to be done to help rectify the situation. Next we created a plan that took the decision-making off Lisa’s chore list and made the finances a joint project. By working together as equal financial partners, they now have a clear path toward a more successful financial future and, hopefully, an easier road to their own “happily ever after.”
Ready to take the finances off your chore list? Contact me to schedule a time to meet. We can dive into your finances together and put a plan in place that works for you.