This article is the third in a series on personal finance and investing at different stages of your life. As some issues may overlap the different stages of life, they could be covered in a prior or subsequent article. For the full series go here.
Money tips for engaged and married couples
After starting a career, the next life-cycle stage to begin for many people is marriage. Some say it is the most important in terms of financial success. No, they don't mean marrying someone wealthy (although this wouldn't hurt!). What they are referring to is financial compatibility between two individuals.
"Probably my best financial move has been choosing a spouse with similar money habits and views on personal finances," says Scott McKibbon, a do-it-yourself investor in Hamilton, Ontario. "This seems to be particularly important in this day and age as broken marriages have destroyed more personal balance sheets than poor markets."
Here are 10 tips to help sort through the financial risks and rewards of married life.
1. It takes two to tango. As a married person, one needs to realize they are not saving and investing just for themselves. Their spouse will likely have a different tolerance for risk and that should be taken into account.
The Invest for Life series:
York University professor Moshe Milevsky, a leading expert in financial mathematics, came to the conclusion his personal exposure to stocks should be leveraged by 300 per cent to offset the predominately bond-like nature of his personal wealth (tenured job and pension plan).
"Are you out of your mind?" was his wife's reaction (as quoted in the November issue of the Journal of Financial Planning). And so Mr. Milevsky went with a much lower level of leverage.
2. Set compatible goals. Also realize that one's spouse may have different financial objectives, and compromise is in order on this count as well. On Tim Stobb's blog, Canadian Dream: Free at 45, a recent post recounts a frugal husband's attempt to interest his wife in buying a Tumbleweed Tiny House, which range from 65 to 800 square feet in living space.
The husband thought they could live in such a tiny house since they had no plans for children. His wife responded with: "I will not live in a garden shed, no matter how cool you think it is." The solution settled upon in the end was a thousand-square-foot townhouse.
3. Talk about money, even if it hurts. Some spouses don't like to compromise and may hide what they are doing with the family finances. They don't communicate and that is when money issues can really spiral toward the tragedy of separation and divorce.
In Jonathan Chevreau's financial novel, Findependence Day , the central character, Jamie, decides to borrow $60,000 - without telling his wife - to invest in stocks. But after taking the plunge, the market crashes hard. When his wife finds out about the losses, she tells her husband: "I can't believe you'd be so stupid. That is the last straw." A while later, Jamie receives an envelope from his wife's lawyers requesting a split.
4. Two heads are better than one. But marriage, of course, is not all sacrifice and strife. A team working together can accomplish more than the individual members separately. "The other huge success I've had is finding a partner who enjoys taking part in our financial decisions," declares Brad Ferris, the author of the blog: Triaging My Way to Financial Success.
He illustrates with an example. "As I mentioned in a post a while ago about investing in the stock of Reitmans Canada, my partner's shopping experience and insights into their products … helped me see a different side of the fundamentals than what any analyst could pass on."
5. No 'I do's' without a financial chat first. It is no revelation that money issues are a leading cause of martial discord and dissolution. So head them off before getting married (if one is still at the stage of clubbing around). Don't be blinded by those beefy biceps and a twinkle in the eye. Look for extremes in financial behaviour before saying "I do." For a guide, check out the "lighthearted" Valentine quiz from the Australian Securities & Investments Commission.