How to live happily ever after
When it comes to passion, no two subjects spark up more heat than love and money. A significant challenge among many South African couples is shifting their mindsets from “his and hers” financial planning to joint or “couple” financial planning.
According to Henry van Deventer, Head of Financial Planning Coaching at acsis, most individuals fail to make the switch to sharing financial information and financial plans with their partners because they are conditioned not to.
“Finances are an intensely personal matter so we often tend to stick with the habits that we form early in life of keeping it personal, but individual past habits may come back to haunt a couple in future. This is why it becomes critically important that individuals in serious relationships spend the time creating a framework to help them deal intelligently with their money,” says van Deventer.
Van Deventer offers various guidelines for couples to consider when putting a basic framework together:
From “Me” to “We”
Most importantly, sharing financial affairs need to change from a “me” to a “we” mentality. While this does not miraculously happen overnight, couples need to sit down and agree to what will be shared and how it will be done. Following this, couples need to stick to what they agree on from a financial standpoint, even when natural instincts at first prompt them to do otherwise.
Give your partner a map
Serious couples should ensure they are transparent with one another and share their full financial status. This includes making your partner aware of all assets such as property and cars as well as investments and liabilities such as credit card overdrafts, personal loans, mortgages and vehicle financing.
Also make a point of ensuring that your partner knows where all details and paperwork regarding these assets and liabilities are kept and who to contact should something happen to you.
The next step is to draw up a budget in order to establish how the joint income will be spent each month.
When we are single we tend to fall into the habit of paying our bills and spending the balance of our monthly earnings on our lifestyle. When individuals become a couple there is more money available to spend on luxury items and fun activities. Reacting to these impulses is a huge long-term financial risk as couples become accustomed to having this type of disposable income available.
Couples should address this by drawing up a list of combined monthly expenses and then allocating responsibility for each bill. Once the expenses have been worked out, allocate a set amount of money to have fun with and commit the surplus to your financial plan.
Have a game plan
One of the greatest mistakes couples make is to be undisciplined about the surpluses. If couples fail to do this they will run out of money eventually. A financial plan will not only help partners understand what their future plans and goals are as a couple, but also what it will likely cost to cover their joint lifetimes. It is vital to ensure that surplus money is saved in such a way that it will provide the couple with the best possible chance to secure the lifestyle they want to lead in the future.
Emotional and impulsive investments are a very bad way to spend surplus money as lifestyle assets, such as your home, cars and expensive toys, are not investments. Investments are the assets which you will live off, not live with.
As a rule of thumb, couples’ long-term planning should mean that each partner’s savings is proportionate to their contribution of the joint budget. This also means that life and disability insurance cover for each partner is adequate enough to provide cover for what they would have contributed in their lifetime towards a joint lifestyle. Couples should also ensure their wills are updated so that there is no uncertainty about savings or insurance allocations should a death occur.
Get your timing right
Couples need to understand the long-term implications of joint financial decisions before merging their finances. Couples should be careful of merging their finances too soon and, ideally, wait for a lifetime commitment from a partner. The cost of a joint financial commitment, such as buying a house together, becomes catastrophic in the absence of a contract that provides certainty about how the finances will be dealt with in the event of a breakup. A common agreement for such a financial commitment is an ante nuptial contract.
“By building a platform from which to manage your money as a couple it is possible to remove much of the stress that would otherwise keep a couple from making the most of their time together and living happily financially ever after,” concludes van Deventer.