Simple Debt-Free Finance

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What’s in your spouse’s wallet?

Posted on | July 16, 2008 |

“Consider: Half of the pairs in a 2003 study came up with completely different figures when asked to estimate their family’s income and net worth. In a survey last year of couples ages 43 to 70, some 35% were more than two years off when guessing when their spouse planned to retire.”

What would you find if you looked in your spouse’s wallet?
YIKES!

This is from a recent article at CNN’s Money Magazine.

The article discusses why many couples end up with a schizophrenic financial picture. Mostly because couples marry later in life and have their own financial identities already established through their own credit cards, car payments, savings account and retirement accounts. Still, it isn’t what one would call “optimal.”

This is a problem, even if you are lucky enough to have chosen a fiscally responsible mate. Let’s look at retirement accounts for example.

RETIREMENT.

In a simple case, let’s say you and your spouse each have a 401(k) account. Worst case scenario: you have a properly balanced portfolio, but your spouse has 100% of their balance invested in company stock. This is bad. If the company your spouse works for goes out of business, then you not only lose an income, but you have effectively lost half of your retirement savings as well - even though you were savvy enough not to invest in your company stock.

But even in a non-worst case scenario, there are still things to consider. If you and your spouse are the same age and expect to retire at the same time, then should you also each have the same portfolio allocation? For example, if you each have your portfolio allocated 70% stocks and 30% bonds between the same mutual funds (or even very similar funds), then you are essentially paying twice for the fund! In this example, you might be better off splitting your asset allocation among each account, for example: stocks in your account, bonds in your spouses. Or vice versa.

Of course, there are other factors to consider like what funds are available in each account, and how much each of you can put into your 401(k)s. This is one reason an IRA   is a better choice since you have the whole world of funds available by comparison to a dozen or so in the typical 401(k).

DEBT.

Debt is probably the single biggest trap if you and your spouse don’t talk about finances. Since you are married, you are most likely on the hook for your spouses debt as well as your own so it’s definitely something you should be up front about.

THE PERFECT BALANCE.

So what’s the solution to a fractured financial situation? Communication.

You and your spouse need to have regular and honest discussions about money. Each must be aware of sources of income and bills and other obligations that take a piece of that income.

Balance is important however. I know some people who share everything, but argue when one spouse spends money on something the other thinks is unnecessary. On the other end of the spectrum I’ve seen people who lead financially separate lives each with their own bank account, credit card, etc.. only to have them become emotionally separate as well and the marriage ends in divorce.

For a while, when my wife was working, we had two incomes, our own credit cards etc. We had a joint account that funded communal expenses (rent, utilities, etc.) and we kept a predetermined amount from each paycheck for our own spending on whatever we wanted. That worked pretty well, but eventually we decided my wife should stay home and raise our children. Now we joke that we don’t have any extra money to worry about spending on non-essentials.

Still, it’s only a half joke since we do occasionally argue when she spends money on a new pair of shoes, or I spend it on a CD. :)
What’s your situation, and how is it working for you?

photo by Big Swede Guy

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