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Get on the Same Page

Sarah called me a few years ago to tell me that she and her husband, Thomas, weren’t doing so well. Through her sobbing, I learned that Thomas had started to move his stuff out. Sarah was hysterical — six years of marriage were crumbling beneath her.

After years of lavish living and serious overspending, Sarah and Thomas were up to their eyeballs in debt. Though they made a healthy combined income of $95,000, they were falling behind on car, credit card, loan, and rent payments. They shared one luxury vehicle, lived in a nice-sized condo in a hip area, shopped for expensive clothes, and took an exotic vacation each year. They had no savings.

For the majority of their marriage, Thomas had managed the finances. His philosophy was “live now, pay later.” It wasn’t until Sarah’s credit card was declined at the grocery store that she had any clue they were maxed out.

Sarah quickly pulled her head out of the sand and confronted Thomas. Together they worked their way through stacks of unopened bills and letters from collections agencies. Learning they were $45,000 in debt and had no assets to their name meant long arguments. The blame game started and resentment built quickly.

Sarah interpreted Thomas’s financial mismanagement as a demonstration of disrespect, lack of care, and misjudgment. Sarah also blamed Thomas for controlling their finances and thus trying to control her. She had blindly put her trust in Thomas’s financial capabilities and, according to her, he’d broken that trust.

From Thomas’s perspective, Sarah’s lack of interest in their finances meant she didn’t care much about their future. Often, he’d felt it necessary to make Sarah happy by spending money on expensive trips, meals, and clothes for her. He felt that she demanded this lifestyle. As well, she’d never helped out with the money management responsibilities.

The more they fought about the meaning behind their financial situation, the less they focused on actually resolving the problem.

I’ve seen couples just like Sarah and Thomas head straight for divorce court far too often. Their story is a common one: lack of healthy bounda­ries, such as spending limits, poor communication, and few skills to help them manage their money.

For Sarah and Thomas, a few simple lifestyle changes were necessary to alleviate the immediate financial pressure on their marriage. They had to sell their BMW, stick to a budget, and negotiate repayment terms with their lenders, all the while working to rebuild trust in each other. It took over a year, but eventually Sarah and Thomas got on the same financial page and stayed together.

Money and Emotion

Money issues are rarely just about money. Rather, they may represent much deeper issues such as control, independence, dependence, greed, trust, power, self-confidence, respect, and commitment. No wonder money breaks up so many relationships!

How you and your partner think, feel, and act about money is a reflection of your deeply rooted value systems. That’s why spats over money boil down to the “meaning” of the financial choices each of you makes.

Take, for example, a couple in which one partner is working their tail off while the other is unemployed and not making a concerted effort to find work. The income earner may conclude that their partner is lazy, just like the rest of his or her family. Meanwhile, the unemployed partner may require a period of rest and regrouping after being fired or laid off from their recent job.

Money issues are rarely just about money.

On the surface, it appears that this couple is struggling with one partner’s unemployment. But issues of work ethic and rehabilitation are in play. To avoid relationship breakdown, both people in the couple need to understand and respect where the other is coming from.

Start Talking

You and your partner have developed attitudes toward money through childhood, school, culture, friends, careers, and trial and error. In some instances, you’ll have had great role models in your parents. In others, your partner will have experienced a financially catastrophic event like bankruptcy or divorce. The following sections will help you and your partner think about your personal views on money and where they came from. I recommend you work through these questions together.

Do not “pass go” until you’ve ironed out major discrepancies — trust me, they’ll resurface if you don’t.

If you and your partner fight a lot, you need to establish some ground rules. In fact, the simple Sparks motto, “I promise to share and be a friend” will do the trick (FYI — “Sparks” graduate to Brownies and then become full-fledged Girl Guides). That, and:

 Respect each other’s views

 Be patient

 Be kind

 Be truthful

 No yelling

If you run into problems, get some help from a professional money coach, who will help you develop financial skill and work with you to design a financial plan for your future together, or you could even go to a relationship counsellor. You may find it easier to split this chapter up and address just one issue at a time.

Dreams

Marty and Linda just got engaged. They’re planning a wedding, a house purchase, future children, and the rest of their lives. Their biggest roadblock is that Marty just lost his job and the economic forecast isn’t looking too hot for his line of work. Linda currently works to support their lifestyle. But money is really tight and causing arguments between them.

Marty and Linda have some big, and very natural, dreams for their life together. But with every dream come the hurdles and challenges associated with accomplishing it — in their case, Marty’s unemployment. Navigating through good and bad times is part of building a healthy relationship. That’s why it’s helpful to discuss your dreams, how you’re going to make them happen, and the “what-if” scenarios. Don’t just assume that you’re both working toward the same goals. Start this conversation by addressing the following:

 Describe a day-in-the-life of “us” five, ten, and twenty-five years from now.

 Where do you want to live?

 When do you want to retire?

 Do you want to travel? If so, where to?

 What type of job(s) do you want to have?

 What types of activities are you involved in?

 Do you want to achieve something extraordinary?

How did you do? Are your dreams aligned? Don’t worry if it feels like your dreams of owning a vacation home in Florida seem out of reach today. A rock-solid financial plan will be the compass you need to get there … and will also be the gauge of how realistic your dreams are. I’ll help you build your plan in chapter 11, Design Your Master Money Plan.

Lifestyle

At age 31 and 34, Becky and Chris (common-law partners) believe in the value of experiences and living life to the fullest. They travel regularly, shop, eat out, and participate in expensive activities. Becky makes $100,000 annually and Chris makes $75,000. They have minimal savings, but they have an extensive digital photo album showcasing their worldly travels.

The purpose of earning money is to support a lifestyle. If a person’s lifestyle is above or below their earning capacity, they run a deficit (a negative bank balance) or a surplus (money left over after the bills are paid). Sadly, many people spend a great deal more than they earn, which is the primary reason that savings rates in Canada have dipped so low. Overspending is not only bad for your wallet but also hard on your relationships. It can limit your ability to achieve short- and long-term goals, and can cause frustration and friction.

It’s imperative that you discuss your lifestyle expectations with your partner and whether they are reasonable given your current and projected incomes. Here are some questions to ask that will help guide your discussion:

 What type of home do you want to live in (a cabin in the woods versus a beautiful house in the suburbs versus a downtown condo)?

 What kind of car do you want to drive (no car versus a flashy sports car versus a minivan)?

 How much would you like to spend on entertainment, clothes, and travel every year ($200 versus $2,000 versus $20,000)?

 Now and in the future, what kind of expenses can’t you live without (books, vacations, gym memberships)?

 Now and in the future, what kind of expenses can you live without (expensive shoes, golf games, dining out, a car)?

A discussion about lifestyle will assist in developing techniques (such as budgeting or automatic saving) that will support it. For ex­­ample, you may share the desire to take a vacation every year. To make this happen, you could adjust your household budget and cut back on restaurant and entertainment expenses.

Spending

Carlos and Maria fight about Carlos’s spending. What frustrates Maria is that he spends his entire paycheque on digital equipment: mobile devices, video games, computer accessories, and cameras. He doesn’t save any money. Maria, on the other hand, saves her money and rarely spends on things for herself. She gets frustrated because she feels that Carlos is being selfish and not saving enough for their future. He gets frustrated because she is too frugal.

Spending behaviours can reflect much bigger issues such as selfishness, stinginess, carelessness, disrespect, and lack of joint decision-making. That’s why it’s important to set spending boundaries together. Without them, partners may feel violated. For example, if a couple has a joint bank account but doesn’t have an agreed-upon budget, one person could make a major purchase (electronics, furniture, appliances) without consulting the other.

How do you spend money? What motivates you to spend? Some people are impulse shoppers. Others are extremely tight with their cash. Often you’ll find that spending is habitual or that you do it to fulfill a need that goes beyond what the purchase offers. Work through the following questions together and give yourselves the opportunity to reflect on your own:

 Where do you get your spending habits from? Parents? Friends? Work colleagues?

 What do you like to spend money on? Why?

 What payment methods do you use to spend (credit card, debit card, or cash)?

 Have you ever made a big purchase and regretted it? If so, what did you learn from the experience?

 Do you have a budget? Why? Or why not?

 Do you have money left over every month or are you in overdraft?

 Have you or your partner hurt each other because of poor spending habits? If so, how have you resolved these issues?

The key with spending is to spend less than you make. Otherwise, you’ll go into debt and there are many strings — both personal and financial — attached to debt. The primary tool you have to help get a handle on spending is a budget, and I’ll show you how that works in chapter 3, Scrap Your Emotions and Sort Out Your Accounts.

Saving

Xu is a saver. He’s 41 years old, owns a home, has $20,000 sitting in his savings account and $60,000 in his Registered Retirement Savings Plan (RRSP). He’s miffed because his partner, Roi, doesn’t have an equal amount of savings. Xu believes that their both having the same amount of money represents like-minded thinking.

More important than your respective bank balances are compatible views on money.

Wanting dollar-for-dollar financial equality with your partner is natural but it isn’t always realistic; one person’s financial circumstances can be quite different from another’s. For example, Xu’s partner, Roi, might be a young lawyer still weighed down by student loans. Roi’s long-term income-earning potential as a lawyer is greater than his short-term student loan commitments. So, if Xu wants to be with Roi, he’ll have to evaluate both the short- and long-term financial potential of his partner.

More important than your respect­ive bank balances are compatible views on money. When you share a parallel perspective, your financial goals are likely to be similar, which means that together, your actions will be complementary and focused on supporting those goals. Talk through the following questions:

 What assets have each of you brought into the relationship (savings, real estate, a business)? What made you successful at building assets in the past?

 What financial “baggage” have each of you brought into the relationship (a settlement from a lawsuit, a loan from a business that went sour, student loans, bankruptcy, racked-up credit cards)? Have you agreed on a strategy to deal with the baggage?

 Have you been successful at building assets together? What strategies worked?

 Have you accumulated debt together? How did that happen?

If you’re worried that your partner is a gold digger or simply has a drastically different financial picture relative to yours, speak to a family lawyer about legally protecting your assets.

Debt

Charles has $60,000 in debt, including student loans and a vehicle loan. Rebecca, his girlfriend, owes $35,000 on an investment loan. The couple’s total debt comes to $95,000. They are discussing getting engaged.

Some people are comfortable carrying large amounts of debt; others are not. Some perceive certain debts to be “worth it”; others disagree. These days, debt has become part of the average person’s finances due to the increased costs of education and housing, and also because of lifestyle choices and the availability of credit. Our grandparents’ generation had little access to credit, forcing them to save up and pay for things in cash, and, therefore, have less debt. Yes, they still had daily living expenses, but many of the expenses we have today (two cars, large homes, luxury vacations) were deemed unnecessary back then. Having to save up and pay for things in cash eliminated our grandparents’ opportunity to overextend themselves — the “buy now and pay later” approach used by many people today. It’s important to align your beliefs about what is and is not worth going into debt for.

Debt has become part of the average person’s finances.

Obviously, it’s in your best interest to focus on getting rid of, first, bad debt (expensive debt for non-assets like a television purchased on a store credit card) and second, good debt (debt for assets like a home). But if you and your partner don’t understand the root cause of your debt accumulation, you’ll always be in debt. I’ll walk you through the Crush It debt-reduction system in chapter 5 (see page 66), but in the meantime, to prevent frustration and resentment, you first need to discuss debt and agree on solutions with which both of you are happy.

 Did your parents carry a lot of debt?

 Have you carried a credit card balance for more than 60 days in the past 12 months?

 Do you wonder where your money disappears to after payday?

 Do you feel like you are living paycheque to paycheque even though you earn a healthy income?

 Does debt cause stress?

 What’s worth going into debt for?

 What debt-reduction techniques have worked for you in the past?

From a legal perspective, you are not responsible for your partner’s debts prior to your union. But debt taken on during the union is legally your responsibility. So if your partner defaults on a loan that was signed for while the two of you were in a legal union, you are responsible.

Investing

Lindsay invests 15 percent of her annual income by contributing to her RRSP and TFSA (Tax-Free Savings Account). She’s very career-focused and wants to retire at age 45 with $2 or $3 million in investments. Currently, Lindsay is 25 years old and has $30,000 invested.

Financial experts suggest that today’s 30- to 50-something couple will need approximately $2 million to support an average retirement income of $8,000 per month until the end of their lives. That may seem like a lot of money — $96,000 a year, in fact — but powerful forces of inflation are working against you. Assuming you are 40 years old right now, in today’s dollars that’s more like $50,000 a year. As a general rule of thumb, to allow for $1,000 per month retirement income, you need to have $250,000 in retirement savings to generate it.

Sure, there are programs like Old Age Security (OAS) and the Canada and Quebec Pension Plans (CPP and QPP, respectively) that you’ll receive money from in your golden years, but that money will compose only a mere 20 percent of your income needs, so they can’t be relied on as the sole source of your retirement income. Old Age Security is a modest income benefit paid out (or clawed back if you’ve earned above the threshold during your working years) to Canadians over 65 regardless of their employment history. Most Canadians who have worked throughout their lifetime also contribute to the Canada Pension Plan or Quebec Pension Plan. These funds are paid out in retirement as early as age 60, but there are limits to the amount of money paid out through both. Service Canada (servicecanada.gc.ca) has information on OAS, CPP, and QPP rates.

Successful investing is vital to your retirement saving, and you simply can’t rely upon government support, a possible windfall inheritance, or the lottery to get you there.

Discuss the following questions with your partner:

 On a scale of 1 to 5 (1 being low knowledge and experience and 5 being high knowledge and experience), how confident an investor are you?

 Are you a low- or high-risk investor?

 How much do you invest each month?

 Do you invest with a particular strategy in mind?

 Do you have a financial adviser? If so, do you like having an adviser? Why?

There are many different views on investing. Some people like to take risks, others are more conservative. People have different timelines in mind when they think of retirement. A money coach or financial adviser can help navigate any investing challenges and questions you and your partner might have.1 We’ll dive into this subject in a big way later on in The Modern Couple’s Money Guide (see chapters 7 to 10).

Family and Friends

Colin spends a great deal of time with his family and close friends. His partner, Angela, enjoys this time as well. Every so often, though, it gets in the way of their time together and their shared values. Angela feels that Colin is heavily influenced by his friends’ and family’s views on money, career, and lifestyle, which doesn’t allow him to think independently. Colin, on the other hand, really appreciates having the support and advice of those closest to him.

Establish clear financial boundaries first with your partner, then with those closest to you.

According to a 2013 BMO Bank of Montreal survey, most Canadian couples wish they’d talked more openly and received professional financial advice prior to forming a permanent household. The majority of people received financial advice from their parents and friends. Unfortunately, as in my own case growing up, rarely are these sources of information qualified to offer financial advice. So, as you and your partner create a financial plan for your future, try to understand what financial role parents, in-laws, siblings, extended family, and friends will play in your life. Consider the following:

 What lessons have you learned about money from your family or friends?

 Do you agree or disagree with the way your family or friends manage their money?

 How do you feel about teaching your own children about money? If you have children, what will you tell them?

 Do your family or friends expect financial support from you today or in the future?

When money mixes with family and friends there can be strange outcomes. Establish clear financial boundaries first with your partner, then with those closest to you.

Charitable Giving

Sir John Templeton was arguably one of the most successful invest­ors of all time. He was born in Tennessee in 1912 and graduated from Yale in 1934. In 1954, he established the Templeton Growth Fund. The fund was incredibly successful. A $100,000 investment in that mutual fund in 1954 would have grown to over $60 million today through the power of compounded interest and reinvested returns. Templeton was worth billions, but what is most interesting about his story is his community involvement. Even when he was making less than $50 a week a few years out of school, Templeton invested his time, talent, and money in worthy causes. In 2007 Templeton was named one of Time magazine’s “Power Givers” because of his philanthropy. Through the John Templeton Foundation, tens of millions of dollars have been invested yearly in cutting-edge scientific, spiritual, and educational research.

Charitable giving has become an essential piece of any sound financial plan. In fact, through my research and work, I’ve concluded that philanthropy is one of the top four characteristics that wealthy people share (the others are spending wisely, multiple income streams, and investing for the future). Whatever motivation a philanthropist has, whether recognition, or altruism, there is a return on investment (ROI) for giving back. Typically, ROI is received through direct dollars paid to an investor as a reward for the risks he or she takes investing their money. However, if we revisit the traditional definition of the term, ROI includes expanded networks (people or businesses you are involved with), increased sales, promotions, job offers, publicity, and so on. When you give back, people pay attention, and you become a hero and a leader in giving.

Your views on charitable giving are important to discuss with your partner. Some people prefer to donate time. Others money. Still others don’t believe in philanthropy at all. Iron out any discrepancies, as your views on charitable giving represent much more than just a simple donation. Here are some conversation starters for you and your partner:

 Do you believe in philanthropy? Why or why not?

 What philanthropic initiatives have you been involved in?

 How do you like to give (time or money)?

 What skills or dollars do you think you could offer a charity?

I’ll Have to Go Through It

Do you remember the children’s song called “We’re Going on a Bear Hunt”? The lyrics are about kids going on a bear hunt and encountering obstacles, such as tall grass, a tree, and a river, along the way. At every obstacle, they chant, “We can’t go over it, we can’t go under it,” and then they select the appropriate action such as “We gotta go through it.”

When challenging financial conversations pop up between you and your partner, keep these lyrics in mind, which essentially say that you need to work toward an appropriate solution rather that trying to avoid the obstacle. As the song and real life would suggest, avoidance doesn’t get you anywhere closer to your goals.

Team Approach

To begin planning a great financial future, you need to start on the same page and work toward your goals as a team. There’s simply no room in any relationship for unilateral decision-making, especially with your money.

1 A financial adviser is different from a money coach in that financial advisers can manage your investments and provide investment advice. A money coach, on the other hand, cannot manage your investments, nor provide specific investment advice. Rather, they focus on growing your knowledge on savvy investing strategies.