Financial compatibility – Love & Money
“Birds do it, bees do it, even over-educated fleas do it”. Cole Porter was talking about falling in love.
When we move into a serious relationship and begin sharing our lives, we inevitably merge ways of living, attitudes and beliefs, and goals and aspirations. We feel compatibility when we feel aligned in many of these areas, however, one area that is often not considered, or that emerges later, is financial compatibility.
It may not be the most romantic subject or the first thing that springs to mind when you feel attracted to someone, but it can be a subsequent cause of conflict and stress, or conversely bring you closer together.
For that reason, it is important to understand and talk about. We provide a quick overview of what it is, and how to manage it.
What is financial compatibility?
Let’s start with what it isn’t. Financial compatibility does not mean having the same amount of money in the bank, the same earnings or an equivalent investment portfolio.
It doesn’t even mean you need to share the same risk profile.
Financial compatibility means you and your life partner share the same attitude to money, and more importantly, are open and communicative about your attitudes to money and how you manage your finances.
We see financial imbalance from time to time and one of the key barriers is communication. It is often that a couple has not talked about it, sometimes because it is an uncomfortable topic or because it causes conflict. Talking about your attitudes to money is key.
Signs you and your partner have it
There are some indicators that point to you and your partner having financial compatibility.
You can talk about money without arguments
If you can discuss money without it becoming fractious, you are on track to having a healthy and financially compatible relationship. Talking about money means the boring and the exciting. It includes how you meet the cost of living, how you manage inflation pressures, how to save for future events, how much you put aside for holidays, how to spend your discretionary cash, and how much, and how you invest. It can also cover lifestyle issues like whether you pay for private education for your children, and how you like to furnish your home.
You don’t need to hide purchases
This is a key sign of financial imbalance. If you or your partner feel like they have to hide the purchase or not disclose the true cost of acquisitions, this is a sign of trouble and a sign that perhaps there is an imbalance in your comparative attitudes to money. Ignoring it can lead to bigger problems later, so we would advocate addressing this together, or in the safer space of the company of a professional.
You trust your partner’s spending habits
A sign that you are aligned is when you are comfortable and can trust your partner’s spending habits. This may be because you have similar attitudes to spending, or that you have an agreement where you will respect each other’s position
You have similar spending priorities
If you have the same day to day priorities you will more likely have similar spending and saving patterns and be financially aligned, compatible.
You have similar goals
On a longer term basis than spending priorities, if you share the same goals and aspirations, there is a greater likelihood that you will be financially aligned. You will be more likely to work together, and independently towards achieving your dreams.
Workable differences can still lead to compatibility
Having described the signs of financial compatibility, it is important to state that you don’t have to be absolutely the same to enjoy financial compatibility.
You can have:
Different goals
Different spending philosophies
Different risk profiles
And still be financially compatible. How?
The answer is the same for those that feel they have frictions in this area and would like to make it better. So whether you are fixing, maintaining, or establishing financial compatibility the key items are:
Communication. This is key, you need to talk about your attitudes and your plans for the future. And you should keep talking as life goes on to adapt to changes in your lives and in the world around you.
Compromise. Like all aspects of building a life with someone else, you need to be able to reach a position of compromise where you are both comfortable.
Talk about the future. Have the big discussions about what you most want to do, achieve and be in life and how money factors in to your aspirations.
Independence. You still exist as an individual, and for some aspects, particularly if there are some areas of difference in your financial compatibility, you can perhaps manage your finances separately. This way you each adhere to your own personal principles and preferences, and remove a source of friction in your lives. That might mean having separate bank accounts, savings accounts and investments, and come together for other aspects, such as common cost of living and items of shared responsibility.
Managing money can be complex and doing that in the context of a relationship can compound that difficulty. Opening communication channels with your life partner is important to ensure you have compatibility with how you manage money and your goals. Understanding your goals and how to get there is where we can add real value. To speak with us, you can contact us at info@extinvestments.com.
