Financial Pitfalls for Couples – and How to Avoid Them

May 17, 2021 | Financial Wellness

It’s no secret that many relationship conflicts are centered around finances. So regardless of your relationship’s maturity, it is never too late to become more financially savvy as a couple. The right knowledge can help you avoid strenuous situations down the road, so it’s a good idea to understand these financial pitfalls that couples commonly face before they impact your relationship.

Talk to Your Partner About Finances

We all understand the importance of open communication in a relationship, and this is also true when it comes to discussing finances. Those couples who avoid talking about money can experience major setbacks to their financial stability down the road, and this type of conflict can be disastrous. That’s why discussing finances with your partner is critical to a healthy relationship.

A good way to start a conversation around finances is to discuss your personal financial priorities for the near and distant future. This can open the lines of communication and help you to understand each other’s vision for the future. Once you are on the same page, it can be beneficial to split the responsibility for managing financial obligations. By sharing the responsibility for day-to-day financial tasks, couples can stay engaged in the financial planning and budgeting processes. When both partners are engaged, there are fewer opportunities for surprises that can create conflict.

Create a Budget with Your Partner

Spending affects both partners in a relationship, and overspending, especially when it’s unexpected, can disrupt the harmony in your home. That’s why it’s critical for couples to work together to create a realistic budget. Your budget should include all your planned income and expenses, and it should include a savings plan that prepares you for a comfortable retirement. The most important part is that you develop this budget together, and this can involve some compromise.

To develop an effective budget plan, start by discussing your short-term as well as long-term goals. Examples of short-term goals might include saving for a down payment on a car or home, while long-term goals include saving for your children’s college, planning for a dream vacation, or saving for retirement. In the end, your budget doesn’t have to be perfect, but it should reflect your best estimation of your cash flow and savings. It should also give you both peace of mind around your finances. Those couples who can agree on a budget have taken a big step toward a long, healthy relationship.

Plan for Unexpected Expenses

Approximately 40% of Americans are able to cover the cost of a $1,000 emergency expense such as a car repair or medical bill by using money from savings. On the other hand, a whopping 60% would need to borrow the funds or use a credit card to cover the cost. These numbers suggest that most Americans do not have a plan for financial emergencies.

One common mistake people make is assuming that their health insurance will cover all of their medical costs, and in many cases, it does not. The cost of health care remains’ as one of the leading causes of bankruptcy in the U.S. That’s one reason why it’s critical to develop an emergency fund. Whether you already have some cash you can set aside, or if you need to save to develop your fund, this is a critical step in achieving financial security. Those couples who have effectively planned for emergencies are less likely to experience additional stress when an unexpected situation arises.

Talk About Your Retirement Plan

Many couples dream about retiring together and enjoying their twilight years by traveling or surrounding themselves with loved ones. In fact, companionship can increase your overall happiness, and according to a study conducted by the University of Michigan, it can even extend your life. That’s why planning for retirement is a key component to a long and happy relationship.

Even if you and your partner are at the start of your careers or the beginning of your relationship, it’s a good idea to start planning for retirement as soon as possible. While your initial concerns might be dominated by immediate needs, like paying the mortgage, starting a family, or paying down debt, retirement planning should never be ignored.

If you’re just getting started, you can take early steps by maximizing your contributions to a tax-deferred qualified account, such as an IRA or 401(k), which are often matched at a certain level by your employer. An additional consideration could be to utilize a Health Savings Account (HSA) which can be used for future medical expenses while also reducing your taxable income.

As you approach retirement age, be sure your retirement plan maximizes your Social Security benefits, considers your healthcare costs, and chooses the right investments to minimize your risk of losing your nest egg. A retirement plan can be very complex, so make sure you work with a qualified financial professional to ensure your plan meets your goals.

Get Your Financial Fingerprint™ at Brookstone Wealth Management

If you are unsure where to begin with the financial planning process, it can be useful to seek the assistance of an experienced financial planner. There are many considerations you should make as a couple and having a professional on your team is vital. If you’re looking for assistance in understanding your finances or developing a plan to secure your financial future, contact Brookstone Wealth Management today.

If you’re uncomfortable with meeting a financial advisor in person due to the pandemic, don’t worry. We have the technology to meet virtually, on your computer or mobile device, until you are more comfortable with in-person meetings. If you want to learn more about how to prepare for web meetings, read our guide.

At Brookstone Wealth Management, we offer a complete suite of Wealth Management services, supported by an experienced team of financial and legal professionals. We are owned and led by women, and we focus on coaching, teaching and mentoring our clients. We’d love the opportunity to help you navigate to your True North.