Money is one of the most common sources of friction between couples, says David Bach. He ought to know — he’s worked with thousands of couples over the years as a financial advisor and seminar leader.
Bach’s goal is to help couples stop fighting about money so they can get their relationships on track. “When you help couples fix their finances, you can save more marriages,” Bach said. One of the ways he hopes to do that is through his bestselling book, “Smart Couples Finish Rich,” which has been updated and is being re-released Jan. 9.
As the title suggests, the book isn’t just about resolving money differences. It’s about achieving financial dreams as a couple. Bach shared some of the tips from his book with GOBankingRates. Here are 10 things couples can do to manage their money together and get rich.
“Most couples are disconnected when it comes to money,” Bach said. That’s because they’re not talking about it enough. To get on the same page financially and finish rich, you have to have conversations about money with your partner.
Bach uses two examples from his book as proof. With one couple he assisted as a financial planner, the husband said that when he retired, he wanted to build a home on some lake property they owned and spend his time fishing. The wife then asked whom he was planning on fishing with because she wasn’t planning on moving, Bach said.
In contrast, another couple had come into his office that same week holding hands. They had set a goal to retire in five years but actually reached that goal two years early and were going to volunteer in Mongolia as part of a church-sponsored program. “They aligned their values as a couple,” Bach said. “They made it happen. They lived the dream.”
If you and your partner haven’t worked on your finances together, Bach says the best place to start is by getting all of your financial documents organized. Once you know where your money is, you can create a plan together and take control of your finances.
Get several file folders and label them for the various aspects of your financial life: tax returns, retirement accounts, savings and checking accounts, credit card debt, insurance and so on. “It’s really helpful for couples to sit down, spend an hour or two around the coffee table and put together these file folders,” Bach said. Most importantly, be diplomatic rather than demanding when you ask your partner for help.
In addition to creating a filing system for paper documents, Bach recommends using an app such as Mint or Clarity Money to keep track of your financial accounts and where your money is going. Once you’re organized, it will be easier to set a budget and stick with it.
Figure Out Your Values
Most couples come together because they have similar values, Bach says. But you need to talk about your values if you want to get on the same page financially. “Discover what your ‘why’ is,” he said. “Why do we want to have money? Money is just a tool to help make your values real.”
Bach recommends that each of you write down five values that are important to you, such as security, freedom, family, marriage and health. It’s a structured way to talk about what matters most so you can figure out the purpose of money in your lives together. Having this conversation will help make financial decisions easier, Bach says.
Find Out if Your Spending Aligns With Your Values
After you identify your values, look at your financial accounts to see where your money is going. “Are you spending, saving and investing in a way that aligns with your values or pulls you further away from your values?” Bach said.
There’s a good chance you’re spending money on things that go against your values, he says. If so, you’ll need to make some adjustments to live your life in line with your values.
Get Spending Under Control
If you focus only on big items such as your mortgage, car payments or regular bills when figuring out whether your spending aligns with your values, you’ll likely miss a lot of the smaller expenses that leave you with less money for the things you value. Bach refers to wasting money on small things as the “Couples’ Latte Factor.” These costs can add up quickly. Likewise, they could help you grow your wealth if you invest that money instead.
Bach recommends that couples track expenses for seven days by writing down every purchase. Next, you and your partner can review your lists to find expenses that can be eliminated. If you can save $5 a day starting at age 30 and invest that money ($150 each month), you’d have $270,158 by the time you’re 65 assuming a 7 percent rate of return, Bach writes.
Set Goals Based on Your Values
As Bach writes in “Smart Couples Finish Rich,” “Go for nothing and you get nothing.” To finish rich, you can’t just let your financial life happen. You have to set goals to achieve financial success, and those goals need to be based on your values, Bach says.
Put your top five financial goals in writing and make sure they are specific, detailed and have a finish line. For example, your goal might be to reduce spending to pay off a $1,000 credit card balance by the end of the year.
Make sure your goals match as a couple. Also, get a rough idea of how much it will cost to achieve your goals, then start taking action toward your goals within 48 hours. For a debt payoff goal, that might mean setting up an automatic monthly payment in an amount that guarantees the balance will be paid off in a year. Bach also recommends enlisting help to achieve your goals.
Pay Yourself First
Because Social Security alone probably won’t sustain you in retirement, Bach says couples need to save for retirement. The best way to do this is by paying yourself first.
Put aside a set percentage of every dollar you earn — at least 10 percent — in a pretax retirement account such as a 401k plan. The money comes out of your paycheck before taxes, so not only are you building savings, but you’re also reducing your taxable income. To become really rich, Bach recommends saving 15 percent to 20 percent of your income.
Protect Against Emergencies
While saving for the future, don’t overlook protecting your financial well-being now. That means preparing for the what-ifs in life so an emergency doesn’t wipe you out financially.
Bach recommends securing your finances with these six safeguards:
1. A cushion of cash in a money market account to cover at least three months of expenses
2. A will or living trust to spell out what happens to your property when you die
3. The best health coverage you can afford
4. Life insurance, preferably an affordable term-life policy, to provide financial support to your loved ones when you die
5. Disability insurance to protect your income if you can’t work
6. Long-term care coverage to help pay for assisted-living or nursing-home care
Save for Your Dreams
You and your partner likely have dreams. They can become a reality if you save for them. That’s why Bach recommends creating savings accounts for your dreams, whether it’s travel, changing careers or giving to charity.
Put names on each account you open so you know what the money is for. “The more you can identify what the purpose of the money is for, the more motivated you will be to save,” Bach said.
Often, your dreams take less money than you think. For example, Bach says he dreamed of owning a home in the Hamptons, the seaside resort area of Long Island, N.Y. He couldn’t afford to buy the home he wanted, but he could afford to rent it for the summer. The best part: “We could enjoy all the benefits without the headaches,” he said. “A lot of times you can rent or lease your dreams. You don’t have to buy all of your dreams.”
Go on Money Dates
Bach believes that one of the best ways couples can stop worrying about money is to work on their finances together with a “Money Date.” Rather than having reactive conversations about money, couples should schedule a time to talk about their finances without distractions, Bach writes in “Smart Couples Finish Rich.”
On your money date, you can follow Bach’s tips for finishing rich, such as figuring out your values and setting goals. Celebrate how far you’ve already come together and plot where you want to go.
David Bach is the co-founder of AE Wealth Management.