The Modern Couple's Money Guide. Lesley-Anne Scorgie
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