Happy couple reviewing their finances together.
Talking about finances with your significant other on Valentine’s Day probably doesn’t sound very romantic. But given that money is one of the top stressors in a relationship, it’s a habit worth embracing. And it can actually bring you closer together—discussing finances with your partner can build trust and help you bond over shared financial aspirations and work toward common goals. Couples who manage their money together enjoy higher relationship quality and stability, according to a 2019 University of Arizona study. What could be more romantic than that?
The agenda for a financial date night need not be long or complex. The objective is to get a pulse on where you are today, what you are working towards, and what you need to do to get there.
Ground Rules - Focus on Looking Forward
Financial date night should be focused on the future, not dwelling on the past. Money is a topic typically loaded with negative feelings like guilt and shame and saddled by childhood experiences and individual money stories. While it is important to periodically dive into prior spending details to gain a better understanding of how money has been spent in the past, do not start the conversation here. The goal of financial date night is to discuss how you want to leverage your money to live your best life, which should be an exciting and positive conversation. Dwelling on who spent what and where they spent it is a surefire way to spark defensiveness in your partner, halting the conversation before you’ve even begun. It may be important to dive into those details at one point, but that is not the place to start. Look forward, not back.
Step 1 - Review All Account Balances
Bring awareness to where your finances are today by reviewing the balances of each of your accounts, including cash, retirement, non-retirement, and any outstanding debts such as a mortgage, student loans and credit cards. Write them down in an Excel spreadsheet or on a piece of paper, along with the date, to observe your progress over time. After writing down all account balances, ask yourselves the following questions:
1. Is your outstanding debt decreasing?
2. Are your cash and retirement accounts trending up?
3. How many months’ salary do you have in cash? (This should be between 3 and 12 months).
4. Is your cash on hand increasing, decreasing, or remaining stable?
This step shouldn’t take more than a couple of minutes and serves as a high-level indicator of whether you are heading in the right direction.
While you’re at it, ensure that both partners know where all accounts are, including a description of the account (checking/savings account, retirement account, etc.), the exact website URL, and the login information. If third-party authentication is required to log into the account, consider adding both of your cell phone numbers to the account, or setting up security questions as an alternative login method. You can write these details down on a piece of paper that you hide in a secure location (that you both know about) or use a password management system such as 1Password.
Step 2 - Review Your Savings Rate
Savings rate is one of the most important indicators to achieving long-term financial security. If you remember one number regarding your finances, make it your savings rate. Savings rate is the percentage of gross income allocated to long-term savings each year. I prefer using gross income for two reasons – it’s a bigger number so subsequent savings will be higher, and it’s simple, since there is no need to calculate anything. Your goal should be to save 10-20% of your gross income. I strongly recommend aiming for 20%. That way, if you don’t quite hit it, you’re still comfortably above 10%. Track your savings rate every year to monitor your progress, and to avoid lifestyle creep as your income increases.
Long-term savings include contributions to retirement plans like a 401k, 403b, 457, and IRAs. It also includes the money you may be contributing to build your Emergency Fund or saving towards the down payment on a house. If you are paying down high interest debt, such as credit card debt, that would count as well, with the idea that once the debt is paid off, that money will be redirected toward long-term savings. Savings toward short-term goals such as saving for a vacation or a wedding would not count in this bucket.
When determining your savings rate, focus on what you reasonably expect to achieve over the course of the entire year. For example, if you are automatically contributing to your 401k each paycheck and are on track to max it out, you know that unless something unexpected occurs, you are on track to contribute the full $22,500 ($30,000 if over age 50) this year. If you have an automatic transfer to your emergency fund each month of $200, you can reasonably project that you will save $2,400 towards your long-term emergency savings this year. Keep the math simple to avoid getting into the weeds.
Step 3 - Review Your Cash Flow
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Write down your monthly net income (the amount of your income that is deposited into your checking account after taxes, retirement plan contributions and paycheck deductions) and all of your fixed expenses. Fixed expenses include your rent or mortgage, childcare, groceries, vehicle expenses, internet, subscription services such as Netflix
Why is this important? Limiting fixed expenses to no more than 60% of net income provides spending flexibility and room to breathe. The common phrase ‘house poor’ describes a situation in which fixed expenses, predominantly driven by housing costs that are too high relative to net income, greatly exceed 60%, leaving no extra room for savings and discretionary spending. Those with fixed costs significantly greater than 60% of net income are likely to feel like they are living month to month and never able to get ahead, or worse, may be slipping into expensive credit card debt. Knowing this number and keeping it in check is critical to feeling like you are in control of your financial situation.
Step 4 – Diagnose and Discuss
Armed with account balances, your savings rate, and the percentage of income allocated toward fixed expenses, pinpoint what is going well and what needs attention. For example, if your savings rate is less than 10%, can you adjust your 401k contribution to get there? If not, why? Could it be that your fixed expenses are too high? If that’s the case, how can you bring them down? If you keep slipping into credit card debt, despite a healthy fixed expenses ratio and hitting your savings target, could it be that you aren’t planning in advance for irregular expenses like vacations?
On your first financial date night, it may take some time to get through the above steps. However, subsequent financial date nights should get easier, to the point where the above steps take approximately 15 minutes.
Once you make it to this level, take the conversation deeper. This is where the real fun begins. Take turns sharing your aspirations, financial and otherwise. Do you hope to change careers at some point? Is it your dream to take a sabbatical and travel the world, or build a home? How do you want to use your money to realize your dreams? Once you have a common goal, you can work together to plan how you’re going to achieve it.
Although it can feel awkward and daunting to schedule conversations about money with your partner, doing so is not only crucial for financial security, but for relationship intimacy as well. Done regularly and with transparency and openness, financial date night can make money management exciting and empowering, while strengthening and deepening your relationship in the process.
