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9 Money Mistakes Couples Make and How to Avoid Them

Author Alvin Yam

Managing finances and money matters as a couple can be challenging. In fact, dealing with money effectively is a factor in relationship satisfaction, and money problems are a leading contributor to divorce rates in the U.S.

Here are nine common money mistakes couples make and how to avoid them. 

 

1. Not Talking About Money

It’s easy to get caught up in the excitement of a new relationship and neglect to bring up money matters. 

Yes, money can be a sensitive topic, and even uncomfortable to discuss it with your partner. However, avoiding these conversations can lead to misunderstandings and disagreements and end up causing you financial problems.

Firstly, couples should agree that money is a shared responsibility. Both partners should be aware of their financial situation, including earnings, debts, and financial goals. Without having this discussion, you won’t be able to plan for your future effectively.

I’ve met couples who have drafted a cohabitation agreement that clearly states the living arrangements agreed to, which works well for them. It could include how much each person pays for rent and utilities, for example, or state whether one person financially supports the other. Putting it down on paper can help to protect both parties if there’s a breakup.

Having open and honest discussions regularly about money is healthy and can help avoid financial misunderstandings.

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2. Not Having a Budget

One of the biggest mistakes couples can make is not having a budget. This may seem like a no-brainer, but it’s worth saying again that every couple needs to have a budget.

Without a budget, it’s easy to overspend, miss payments, or fall into debt. More importantly, couples must have a budget that works for both partners. Whether you decide your goals include early retirement, buying a dream house, or funding a vacation, a budget will equip you with a roadmap.

Budgeting should be a shared responsibility and should account for all income and expenses. Your budget doesn’t need to be overly complicated – but both partners must work to stick to it once agreed.

This means tracking your spending, avoiding impulse purchases, and making adjustments when needed. It’s also a good idea to have regular check-ins with your partner to discuss the progress and to discuss what’s not working.

Another benefit of a shared budget is that it acts as a lens and allows each partner to see their financial picture more clearly. There are dozens of budgeting methods out there to choose from. A few popular methods are:

  • The 50/30/20. This rule is a simple way to divide your income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt payments. 
  • The envelope system. This cash-based method involves putting a specific amount of money in different envelopes for different spending categories, such as groceries, entertainment, utilities, etc. You can only spend the money in each envelope for that category; when it’s gone, it’s gone. Yes, this is old-school, but it works for some.
  • There are lots of budgeting apps available. One is YNAB, which is an app that automatically tracks your spending and has budgeting tools to manage your finances jointly. We have also reviewed Projection Lab, which is more advanced here

 

3. Not Discussing Long-Term Goals

Ideally, couples should discuss their long-term goals early on. These are anything significant in terms of finances, such as starting a family, retirement planning, funding the kid’s college education, buying a home, or starting a business. Doing this will help you focus on your saving habits with the goal of making your dreams more achievable.

Once you’ve identified these, set concrete goals that are SMART: specific, measurable, achievable, relevant, and time-bound. You’ll then track your progress and make adjustments when needed.

Because life gets busy, losing sight of what you’re working towards can be easy. To stay on track, you can schedule a date night or a weekend getaway to discuss your financial progress and make it fun. It’s best to find a time when you’re both relaxed and can focus on the conversation.

Long-term goals should be a shared responsibility and an ongoing process, not something to set once and forget. 

 

4. Not Knowing the Other Partner’s Spending Habits

One of the biggest money mistakes couples make is not knowing each other’s spending habits, which can cause tension and even lead to breakups. But it doesn’t have to be that way. 

We all have different attitudes towards money, which are shaped by our upbringing, experiences, and personal values. Some of us are savers and meticulously plan every purchase. Some of us are spenders who get in a rush whenever finding a deal or buying something new. Are you a saver or a spender? Do you believe in investing? If so, what types of investments are you comfortable with? Or do you prefer to keep your money in a savings account or a CD? 

Problems arise when couples don’t understand or respect each other’s spending habits. But understanding spending habits goes beyond just the numbers. It’s also about unraveling the “why” behind them. Maybe your wife splurges on new shoes because they boost her self-esteem and make her feel good. Maybe your husband is frugal because he was taught from childhood that money is hard to earn and to always save for a rainy day. Relationship experts recommend couples have an open dialogue to bridge any gaps. Here are some things to consider:

  • Establish a shared budget for personal expenses by creating a budget that reflects both your needs and wants. 
  • Set boundaries. Agree on a threshold for each person’s individual purchases before needing to have a discussion about it.
  • Define your common financial goals for major areas such as retirement planning or planning for a home purchase. Discuss how your spending habits will affect these goals.

Spending is also about tradeoffs. For instance, if you both enjoy splurging on annual vacations or upgrading to the newest car every few years, these spending decisions could mean that you’ll need to push out your early retirement timeline. 

 

5. One Person Controlling the Money

One common mistake I’ve seen couples make is when one partner assumes sole control of the family finances. This can lead to an imbalance in the relationship and create relationship problems. 

For example, one partner stays at home and doesn’t work while the breadwinner makes all the financial decisions. The partner who isn’t involved in the finances can feel left out.

This can lead to issues such as a partner hiding their spending and distrust. Meanwhile, the partner in control might feel burdened by the responsibility and over time, may even become resentful.

Personal finances should be a collaborative effort and not a one-person show. Some ways to avoid problems in this area are:

  • Establish regular check-ins to review your finances together. Have an honest conversation and discuss income, expenses, and upcoming financial milestones. 
  • Each partner should equip themselves with a basic understanding of personal financial concepts, like budgeting, income, investments, and debt management. There are tons of resources out there, such as books and online courses.
  • Both partners should be involved in major financial decisions. 

It’s not about taking away control from one person but about working together.

 

6. Keeping Money Secrets from the Other Partner

Trust is the foundation of any strong relationship. Keeping financial secrets from your partner, also known as “financial infidelity,” is one of the biggest money mistakes couples can make.

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Holding financial secrets can cause serious damage to a relationship. In fact, hiding or lying about money could even ruin your relationship. After all, if your partner is willing to lie about money, what else might they be hiding? 

Each partner should be transparent about every financial aspect. If you’re not, then it’s hard to make informed decisions and plan for the future together. 

Honesty is the best policy when it comes to finances. Just be honest when mistakes are made and work together to fix them. 

 

7. Saving for Your Children’s College Education Instead of Your Retirement 

Parents naturally want the best for their kids – we want them to go to good colleges and have successful careers. But some couples fall into the trap of prioritizing their children’s college education over their own retirement savings.

However, if you neglect your own retirement savings, you might become financially dependent on your children in the future. Here are some ways to avoid doing this while also planning for your children’s education: 1. Start planning your retirement and your children’s education as early as possible. This will give you more time to build up your savings and take advantage of compound interest. Even small contributions can add up over time.

  1. Apply for Loans. There are a number of federal student loans available. These loans typically have low-interest rates and flexible repayment options. Your children have their whole life ahead to work and pay off student loans. 
  2. Scholarships and Grants. Scholarships and grants are available to students who meet certain criteria, such as academic achievement or financial need. These awards don’t need to be repaid.
  3. Work Part-Time. Your children can work part-time while attending college to help pay for their education; this can also help reduce the debt they accumulate. 
  4. Community College. Attending a community college for the first two years can help reduce the overall costs of college.
  5. Explore college savings plans, such as 529 plans. These plans offer tax benefits and can help you save for your child’s education. You can read our full article on 529 plans here.

 

A Custodial Roth IRA

Your child can open and fund a Custodial Roth IRA if they have earned income and the money in their Custodial Roth IRA grows tax-free. One of the lesser-known features of a Roth IRA is that it can be used to make tax-free withdrawals to pay for qualified education expenses, as long as the amounts withdrawn don’t exceed the qualified higher-education expenses paid during the year.

If the amounts withdrawn are from their Roth IRA contributions or it’s been more than five years since they first contributed to their Roth IRA, they won’t have to pay the early-distribution penalty. You can also read our full article on a Custodial Roth IRA here.

 

Your Roth IRA 

As a parent, your Roth IRA qualified withdrawals can also be used to help fund your child’s qualified education expenses without penalty, with the same rules applying as mentioned above.

And because Roth IRAs grow tax-free, additional contributions you make to them can continue to grow, even if you’re using some of them for your child’s college expenses. There are also no required minimum distributions for a Roth IRA, which means you’ll continue growing your savings with Roth IRA contributions.

Lastly, involve your kids early in their college education planning, which can teach them about saving and investing. While loans, scholarships, and grants are available to help cover college expenses, they don’t give out loans for retirement.

 

8. Not Having Disability Insurance for Your Family

Disability insurance is often overlooked in financial planning. According to the Social Security Administration, one in four 20-year-olds will become disabled before reaching retirement age. Yet, many couples are unprepared for this possibility. Many couples think disability just won’t happen to them, or they believe their emergency savings or health insurance will cover the costs. 

The harsh reality is that disability can happen to anyone at any time. And when it does, it can greatly impact your financial stability. Disability insurance provides a safety net for your family. If you become unable to work due to a disability, it replaces a portion of your income so you can meet your financial obligations and still maintain your lifestyle. When it comes to disability insurance, here some things to consider:

  1. Consider your occupation, health, and lifestyle to determine your risk of disability.
  2. The loss of even one income source can jeopardize your family’s ability to pay monthly bills and meet savings goals. Consider getting a supplemental plan if your employer coverage is weak. These policies pay monthly benefits if you can’t work at all, and some pay partial benefits if you can work only part-time.
  3. Make sure you understand the terms and conditions of your disability insurance policy and know what is covered and what isn’t.

You can work with a financial planner or insurance professional to help in decide which plan works best for you. In the worst case, without having disability insurance, you could be facing a financial crisis at a time when you’re already dealing with a personal one.

 

9. Claiming Social Security Benefits Too Early 

One money mistake couples make is claiming Social Security benefits too early, which can significantly reduce your monthly payout.

If you claim Social Security benefits before your full retirement age (which is between 66 and 67 for most people), your benefits will be permanently reduced. For example, if you start receiving benefits at 62, your monthly benefit amount could be reduced by as much as 30%.

But if you delay claiming your Social Security benefits until after your full retirement age, you’ll receive a higher monthly benefit. For every year you delay, up until age 70, your benefits increase by a certain percentage and could mean a much larger monthly payout. Deciding when to claim Social Security benefits can be tricky. You’ll need to assess your situation in terms of your financial needs, your health status, and your life expectancy. When deciding, consider:

  1. Your current financial situation and your future financial goals. Will you need the extra income from Social Security early, or can you afford to wait?
  2. If you have health issues that you expect might shorten your life expectancy, it could make sense to claim Social Security benefits early.
  3. You can start claiming at 62, but a fraction of a percent will permanently reduce your benefit for each month you claim before your full retirement age. For example, if you claim at 62, your benefits will be cut 25% compared with what you would receive if you claim at 66.

 

Social Security Benefits as a Couple

When it comes to claiming Social Security benefits as a couple, there are strategies that can help maximize your income. One option is to combine retirement and spousal benefits, which are payments you can receive based on your spouse’s earnings history instead of your own. 

By coordinating the dates each spouse claims benefits to take maximum advantage of spousal and survivor benefits, you and your spouse can significantly boost your lifetime benefits.

 

Final Thoughts

Finances can be a touchy subject for couples. But conflicts over money can be avoided by making a common-sense plan for your money that both agree on and keeping the dialogue open.

 



 

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