9 Money Mistakes Couples Make and How to Avoid Them

I am a big fan of couples taking time to get away at least once a year to dream, plan, and set goals together. My post Dare To Dream-Goal Setting For Physicians explains it all. As you read today’s post, keep in mind that this annual exercise will greatly help you avoid these 9 mistakes. If you are looking for a great retreat location along the shores of Lake Michigan, check out Simpli SoHa, it’s where my wife and do our annual goal setting retreat.

This post by Alvin Yam was originally posted on Physician on FIRE February 24, 2024

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

Initiating conversations about finances may seem daunting in the initial stages of a relationship. However, avoiding these discussions can lead to misunderstandings and financial discord down the road. Couples should establish a mutual understanding that financial matters are a shared responsibility. Regular, transparent discussions about earnings, debts, and financial aspirations are crucial for effective financial planning and harmony in the relationship.

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

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.

The absence of a budget can pave the way for overspending, missed payments, and accumulating debt. Couples must collaboratively devise and adhere to a budget that aligns with their shared goals. Whether employing the 50/30/20 rule or the envelope system, a budget serves as a roadmap for financial stability. Regular check-ins and adjustments are essential to ensure financial objectives are being met.

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

Transparency is paramount in maintaining trust within a relationship. Financial infidelity, characterized by hiding or lying about finances, can erode the foundation of trust. Open communication and honesty, even in the face of mistakes, are essential for preserving relationship integrity.

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.

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. Couples should evaluate their financial needs, health status, and life expectancy to make informed decisions regarding the timing of benefit claims.

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.