Money and relationships: Getting your financial house in order

couple talking about finances

As Financial Advisers, talking about money is part of our day-to-day operations. Coaching people through times of transition and guiding conversations around money values and the feelings involved is important when we meet with our clients.

‘Arguments over money are the second biggest reason that relationships break down or end in divorce’, says Bridgette Jackson founder and CEO of Equal Exes.

When you are managing money as a couple, it’s important to understand your entire financial situation. There are a number of things to keep in mind. We’ve put together five tips to get your financial house in order.

Discover what you own and what you owe

Take a personal tally of your finances and assets by jotting down what you own and what you owe. You may have heard people refer to this as creating a financial position of assets and liabilities. This is a good time to assess which finances and assets are held in joint names and which are held individually.

What are your sources of income?

Is your income sourced solely from salaries or wages? Or do you have other sources of income? You may receive income from a rental property, a business, or through dividends from holding shares in a company.

Good debt vs. bad debt

Debt is often seen as a dirty word. But not all debt is the same.

Bad debt includes high rates of interest, such as credit cards, and hire purchases. Or things that will devalue, or have no value after you’ve bought them. Do you have the capacity to repay any bad debt sooner? Paying it off faster can help reduce the overall cost of fees and high interest.

Good debt relates to anything that will be able to increase your income or quality of life at a later stage, such as a business loan, student loan or home loan.

It is important to understand the type of debt you have, both jointly and individually, and to compare these against your assets.

Setting goals

Once you’ve mapped out your financial position, you will have a clearer picture of your finances. Have you thought about the financial goals you would like to achieve, individually or as a couple? A holiday, a new car, home renovations, a new home. Or perhaps you’re saving for your children’s university fees, a wedding or considering putting money aside to look after parents or other family members. You may even have a goal to retire early!

Set time frames for your goals – short, medium and long-term. There is a wealth of research on the psychology of goal setting. (Locke & Latham, 1980) found that ‘challenging goals lead to higher performance than easy goals, “do your best goals” or no goals’.

Planning to achieve your goals

There are a few ways to start when it comes to planning:

  • Pay yourself first: The concept of paying yourself first is a significant step toward becoming financially independent. ‘Pay yourself first’ was a phrase first used in a book called The Richest Man in Babylon by George Clason, written in 1926. The concept is simple and quite literal; you pay yourself before you start spending. Automatic payments are a great way to distribute your income without having to give it a second thought. Forming consistent long-term habits will help to grow your wealth steadily over time and achieve your goals.
  • Budgeting: A personal budget is a plan for the money you earn and how you expect to spend it. Budgeting takes a future view of how you will spend your money, sharing it across your savings and expenses. For a budget to work, it needs to be accurate and can’t be too tight. We recommend the Sorted Budget tool, where you can input all income and expenses. This tool is also completely free to use, and you can export a copy of it.

These tips, for getting your financial house in order, can provide clarity over your financial position. Identifying high-interest debt can help you focus on paying it off faster to reduce overall cost and the importance of goal setting cannot be underestimated.

But sometimes it can be overwhelming to pull this information together to create your own plan. It may even be a little stressful in your relationship. This is why, as Financial Advisers, we can simplify the process and review your financial situation and goals. We make recommendations on investments, based on your tolerance for investment risk, and what is important to you. Financial Advisers can provide a professional and unbiased view that will help you achieve your goals.

If your financial house is in order, you might want to share some of these tips with people who are close to you and who might benefit from ensuring they are set up well for their financial future.

14 July 2022

Disclaimer: This article is general information and does not consider your financial situation or goals and does not constitute personalised advice. There are no warranties, expressed or implied, regarding the accuracy or completeness of any information included as part of this article.

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