A financial relationship built on consensus will put you on the path towards long-term financial security.
Planning for retirement is difficult enough on your own, but getting two people to agree on a lifelong strategy to prioritise expenditure whilst saving for the future can be exceedingly difficult.
It’s little wonder then that money problems and financial disagreement are routinely cited as one of the most common reasons for relationship troubles and divorce.
One of the biggest causes of financial friction in relationships is the inability to agree on short-term financial priorities in light of longer-term financial goals.
For example, a couple may both agree that their long-term goal is to retire comfortably, but may have serious disagreements over how to prioritise immediate expenditure on items ranging from new cars to holidays.
Money doesn’t solve everything – the lifestyle you choose to live also has a huge impact on the future goals you are setting now. Learning to incorporate financial planning into your relationship is one of the best ways to ensure you have both financial and relationship security.
For example, a wife might want to spend money on an overseas holiday or an expensive matric farewell dress for her daughter, but the husband might argue that it’s a waste of money.
Conversely, the husband might want to buy a motorcycle or the latest 4×4, which the wife may regard as a waste of money.
These disagreements over short-term expenditure priorities can occur even when both parties are in total agreement when it comes to long-term financial goals.
These long-term financial goals may range from saving for a deposit on a property, funding children’s education, accumulating an emergency fund, purchasing a holiday home, or simply planning for a comfortable retirement.
A couple’s ability to agree on how to priorities short-term expenditure in order to maximise their chance of achieving their joint long-term goals gives a relationship a much better chance of success.
Couples need to make certain strategic decisions in order to make their finances work. They need to decide who will be responsible for paying bills, budgeting, etc. A good idea is to have a weekly financial meeting and even prepare a written scenario plan, mapping out how you intend paying for things like children’s education, home renovations, medical insurance etc.
Both parties in a relationship should ensure that they have basic financial literacy.
Perhaps they could do a condensed financial planning course together, or decide on a joint financial advisor. In fact, it’s probably advisable to see a financial advisor even before you see an attorney to decide on an appropriate marital regime, so you can prepare a written financial plan for your future.
Couples should also plan for living longer than they might expect as improvements in health, living standards and medical technology have improved life expectancy. This can affect your decision on who will retire first, or whether you will retire together, or in fact, whether you can afford to retire at all.
In fact, this may be the century where the concept of retirement is abolished altogether. A proper understanding of pension fund rules and options as well as the power of compound interest and inflation can go a long way towards helping you choose the correct asset mix to achieve your long-term goals.
Longevity is the greatest gift of the 21st century, but it’s also the greatest financial risk. Plan as if you will live for a 100 candles (longevity), but be prepared for a 30 candles event.
By 30 candles, I mean be prepared for an unexpected risk event that could impact your ability to earn or even force you into early retirement.
This is where risk cover or income protection can become exceedingly important.
Everyone thinks of death and disability, but the protection of income in case you can’t work is crucial.
Having some sort of insurance or income protector is very important if you’re married, as each spouse legally has the joint responsibility to look after the other spouse.