 |
Resources
Women's Spotlight: News & Features
When it Comes to Marriage and Relationships, Money Talk Matters
 You’ve heard it so many times that it sounds like a tired old cliché: financial conflicts are among the most frequent causes of divorce and failed relationships. Yet the problem doesn’t go away.
Let’s face it: “money speak” is not very romantic. When you’re dating, it’s hard to imagine talking about credit card debt, spending habits, or retirement plans. Yet whether you’re dating, engaged, newly married, or a long-married couple, it’s important to understand that financial fit is just another component of personality compatibility.
Independent of personality and behavior, money is really meaningless. It’s a tool for measuring value, but how we use it also reflects our personal values—what we care about, what’s important to us, our sense of responsibility to others, and so on. Read on for tips and ideas to help couples move toward a thriving financial life—regardless of where you are in the relationship spectrum.
1. For unmarried couples, think twice about intertwining finances until it’s clear the commitment is long-term.
Even when both parties understand things aren’t going to work out, parting usually creates difficulties. Joint accounts, intertwined credit, or co-owned assets can make it harder to move on.
Or maybe you’ve been together for years and are comfortable that it’s a life commitment, but for personal reasons agree you don’t want to walk down the aisle. If so, it would be wise to get advice from a financial professional or attorney on taxes, estate planning, insurance, retirement, and other issues that could pose complexities.
2. Decide on the joint or separate approach.
Especially when both are working, many couples struggle with the question of joint or separate accounts. No answer is right for everyone. But it’s helpful to boil it down to three basic options:
- Completely shared finances, with one joint checking account for depositing pay and paying bills, as well as joint savings and investment accounts
- A mixed approach, with shared accounts for major living expenses and long-term goals, and separate accounts allowing each spouse to individually manage remaining disposable income
- Completely separate accounts for each spouse and a plan for managing shared expenses and financial goals
The first approach works well if you feel confident that your financial styles are highly compatible, are on the same page on most money matters, and communicate frequently about expenses.
If you’ve agreed on big priorities—basic living expenses and shared goals like retirement savings or college for the kids—but still want some independent money, consider the mixed approach often used by couples who have separate professional lives and are active debit card users.
Or maybe you’re extremely compatible in nearly every respect except finances. Let’s face it: often, the men in our lives have very different ideas about money. For many couples of this profile, the completely separate approach works well. In every other area you might be like two peas in a pod, but when it comes to money you pass like ships in the night. And that’s fine, as long as there is open discussion and agreement about how to cover basic expenses and progress toward major goals.
As your relationship evolves, you may also find that your best-fit approach changes.
3. Set goals and make detailed plans.
In a healthy relationship, you may have goals as individuals, shared goals as a couple, and goals for your family. In all three areas, you’re unlikely to get from Point A to Point B without plans, financial and otherwise, for the steps in between.
Across the individual, shared, and family spheres, goals could include retirement, college for children, continuing education for yourself or your spouse, starting a business, a career change, a dream vacation. The earlier you start planning, the more likely you’ll be happy with the results.
List your goals. Brainstorm about the necessary steps—daily, weekly, monthly, annually, etc.—to achieve them. Planning proactively, you’re much more likely to make things happen, instead of passively allowing things to happen to you.
4. Turn differences into strengths.
One of you might be great with numbers, the other more of an idealistic dreamer. One may favor “going by the book” with the budget, while the other might enjoy an occasional splurge. Personality differences can create tension. But if dealt with constructively, they can also be complementary, and even fun.
Let’s imagine a couple named Mary and Jim. Mary’s a pragmatic number cruncher, while Jim’s more of a free-spirited, visionary type with big dreams. Without regular, constructive communication, Mary and Jim could be headed for a lot of financial conflict.
But if they understand and own their differences, talk about them regularly—preferably with a healthy dose of humor—and put them to work in fun and imaginative ways, the potential for synergy is tremendous, creating vital checks and balances.
Mary’s practicality and common sense could enable her, in a role as the family’s “Controller” or “Chief Operating Officer,” to help keep Jim’s approach to finances reasonably down to earth. Jim’s creativity could help Mary see more possibilities for what they could accomplish, or more solutions to challenging situations. Mary’s knack for the nuts and bolts could help her formulate a plan to turn some “crazy dream” of Jim’s into a viable entrepreneurial venture.
5. Focus discussions on facts—and know when money isn’t “the real issue.”
If you find money talks turning into arguments, issues other than money could be at work below the surface. When emotions enter financial life, it’s really about what our “money thoughts” reveal about larger issues—values, priorities, or whether you feel in control of circumstances.
If either of you allow underlying tensions to drive a money discussion toward a money meltdown, the true concerns could stay bottled up inside, and that makes things worse. If it’s time to have a practical, objective conversation about working toward an important goal, try to keep emotional concerns out. However, if an uneasy feeling about something financial could be pointing to something bigger, set the “money talk” aside and try to deal constructively and openly with what’s really on your mind.
6. Consider expert help.
One way to help keep money matters from getting the best of you as a couple is to seek objective advice from “the best.” When an informed, emotionally detached third party guides you through your process, it’s a lot easier to focus on facts, keep other issues out of the way, and refrain from second guessing each other.
You wouldn’t try to be your own doctor or lawyer. So consider the idea that trying to be your own accountant or financial planner might also be too stressful. Ask friends for recommendations. Interview several prospects before choosing an advisor.
Be informed about how potential advisors are compensated. Is there a fee? If so, do they work for a straight fee and focus strictly on finding solutions that best fit your situation? Or do they earn commissions on specific products or services? Either model could be a good fit, but be sure you know the facts.
A local bank with which you already have a strong relationship could be a great resource. Ask about what services are available from staff specialized in personal financial planning.
Think of it as a different kind of “courtship.” Personality and compatibility were crucial to bringing you together as a couple. Make sure, too, that you’re both compatible with the advisor you’ll be trusting with such an important aspect of your lives—your finances.
7. The bottom line: communication is the key.
By now, you’ve probably spotted a common thread in these tips. It’s communication—open, constructive and, ideally, always approached with a touch of playfulness and imagination. Sound familiar? It works as well for money matters as for any other aspect of a relationship.
There’s no way to anticipate every financial challenge life could throw your way. But investing effort into developing good communication habits—and an understanding of when you might need outside help—will make it easier to keep those challenges from sabotaging your relationship.
Click here for a printable version of the above article
Return to the top of this page
Understanding Investment Risk
 Do you consider yourself a risk taker?
In reality, we’re all risk takers. Every action—whether something small like trying a new shade of lipstick or something major like choosing a spouse or deciding where to live—involves risk.
At the moment, the idea of financial risk might give you the jitters. With the beating many people took in the financial crisis, that’s understandable.
But as life returns to something closer to normal, many of us—especially those who recently shifted to more conservative investments—will need to think about making sure there’s enough risk in our strategy.
Why? Because higher risk, as long as it’s balanced appropriately with more conservative investments, usually also means more growth potential. This, in turn, can mean a better chance of achieving goals and dreams for yourself and for your family.
Coming out of 2008 and 2009, it’s easy to say, “I don’t want to risk any of my money. If there’s a chance of losing anything, I’m not interested.”
But being too conservative can lead to disappointment. Unless you’re content with growth only modestly above the inflation rate, some risk is essential. The key is to determine how much to invest in higher-risk categories. Lower-risk investments tend to produce returns that, for most people, won’t meet financial goals.
For example, if you had money in stocks before the crisis of 2008, cashed all of it out after the market tanked, and made no new stock investments in 2009, you missed out on one of the strongest annual percentage gains of the past 10 years.
Why is risk important? Because when you’re aiming for above-average performance, above-average risk almost always goes with the territory. It’s as true in business as it is in other areas of life. If an Olympic skier or a concert violinist never takes chances, is she likely to achieve a world-class performance? Probably not.
In business, high growth investments usually reflect companies that are taking the chances necessary to innovate and outperform competitors. They need to approach risk intelligently—recklessness in business doesn’t pay. But calculated, balanced risk often does.
The path of business risk takers is seldom free of twists and turns. The normal sequence includes setbacks as well as triumphs as businesses develop good ideas, run into obstacles, and find ways to overcome them. That’s why business risk-takers can experience painful periods of loss as well as outstanding gains. And it’s also why higher-risk investments can fluctuate so much.
To understand what this means to your investments, let’s look at some big-picture data. When you examine the entire U.S. economy, you see the full range of what’s happening in business—companies that are doing splendidly, companies that are achieving just “middling” performance, and companies performing poorly or failing.
That’s why Real Gross Domestic Product, a measure of all goods and services produced in the U.S. each year, tends to grow at a rate that looks rather modest—an average of 2.6 percent annually over the 20 years from 1990 through 2009. This is almost certainly less than the growth you want for your investments. In effect, GDP averages together the different levels of risk and performance—low, average, and high—of businesses throughout the country, resulting in a big picture of overall growth that looks … well, … average.
But let’s look at another measure. The S&P 500 indexes stock prices of the 500 most widely held public companies traded on the New York Stock Exchange. The average annual growth rate of the S&P 500 from 1990 through 2009 was 7.6 percent—nearly three times faster than the entire U.S. economy as measured by Real GDP. Why? The growth reflects the risk many of these companies are taking to perform exceptionally. In any given year, some of these companies succeed in achieving outstanding performance, and some fail. But on average, companies taking the risks necessary to innovate grow at an above-average long-term rate.
However, in some years most of these companies miss the mark. That’s why the growth rate of the S&P 500 has varied so much during the 20-year period, ranging from a high of over 34 percent in 1995 to a 34 percent decline in 2008. The volatility illustrates that higher average growth comes with a higher risk of decline in any given year.
To generalize, returns on higher-risk investments, such as stock mutual funds, tend to look more like the S&P 500—more variable, but with stronger long-term growth. Lower-risk investments like bond and money market funds tend to grow more like GDP—slow, steady, and average.
Risk can be intimidating. But without it, it’s difficult to succeed. If you retreat from risk entirely and invest all of your money conservatively, you may not earn enough to achieve your goals.
The solution is managed risk. When it comes to finance, whether or not you’re a “risk taker” shouldn’t be a matter of personality. Instead, it should be a question of how much risk your portfolio should include. The answer should be based on an objective evaluation of your overall goals, resources, and life situation.
An experienced financial advisor can help considerably. Factors to consider include your:
- Age
- Family status—married or single, with or without dependents
- Income and its expected rate of increase
- Goals—retirement, college, home purchase, etc.—and when you want to reach them
- Total financial situation, including the value of all assets, such as cash savings and home equity, and of other investments like retirement portfolios
Generally speaking, the longer your investment timeline, the more risk you can afford. But there are other considerations. For instance, if you already have a well-funded retirement portfolio with balanced risk, you may be able to afford more risk in supplemental investments.
After determining an appropriate risk level, managing your portfolio strategically can help you make the most of your plan. When you buy in by investing a specific amount at regular intervals (dollar cost averaging), you smooth the effect of price fluctuations. And by regularly doing what investment professionals call rebalancing your portfolio you can build into your strategy the old principle of “buy low, sell high.”
For instance, your advisor might suggest 60 percent in an S&P 500 mutual fund and 40 percent in a low-risk bond fund. After a landmark quarter for the market, you find that your stock fund’s value has grown to 65 percent of your portfolio. By selling enough shares to bring your stock investment back to 60 percent, and investing the cash back into bonds, you have captured some profit, while returning to the recommended risk level.
The reverse also holds true. If a bear-market year lowers your stock investment to 55 percent, you would cash out some of your bond funds and buy more stocks. The instinctive reaction might be to do the opposite—pull out of stocks entirely, fearing that they have become too risky. But look at the chart again. Many years of negative S&P 500 growth were followed by significant growth. When you buy stock in a down market, you’re purchasing it at a reduced price (buying low), setting the stage for more profit once the market rises again (selling high).
These are simple examples. Real-world situations can be complex. Few of us have time to learn everything necessary to manage the process well. Every investor’s situation is different. But good financial advisors, such as the Investment and Trust Management partners available to York Traditions Bank customers, will have the knowledge, skill, and experience to help you manage investment risk in a way that matches your unique circumstances.
Click here for a printable version of the above article
Return to the top of this page
Women's Spotlight: Article Archives
• Smart Retirement Ideas for Women of All Ages
What’s the best time to start retirement planning? If you take the question at face value, the answer would probably be “the day before you were born—if not earlier.” Read more >>
• Wondering What to Expect in “The New Normal?”
Few women have been entirely unaffected by the economic meltdown of 2008–2009. For those who haven’t personally experienced a crisis like a job loss, someone in our circle of family, friends, and neighbors probably has. Read more >>
• Gendernomics: The Recession is Impacting Women and Men Differently — And That Difference Could Alter Family Lifestyles
Reporting has exploded on how the recession has affected women and men differently, focusing on such topics as women who have suddenly become family breadwinners, the rise of stay-at-home dads, and stay-at-home moms re-entering the workforce, increasing work hours, or looking into entrepreneurship. Read more >>
• You Are Not Alone: Getting Help Navigating the Complexities of Business Ownership
From recent graduates dealing with a tough job market to seasoned professionals facing layoffs, women are increasingly interested in “creating their own jobs. Read more >>
• Saving for Your Child’s Education
Many parents dream of putting their children through college. But for parents with young children, four years of college could total nearly half a million dollars! The good news is that there are ways to help your children realize their educational goals, no matter their age. Read more >>
• Securing Your Financial Future
Financial security may seem like an oxymoron given today’s economic outlook. Yet there are simple steps you can take to ensure you get the most out of your money. Read more >>
|
