by Julie Rains – business-finance grad, investor, and writer at Investing to Thrive
Agreeing about major financial decisions was a priority for my new husband and me, years ago, whether the topic was buying a house, paying off a car loan early, or deciding on the best cable television package. So, when he came home one evening and told me he bought a stationary bicycle during a business trip, I was taken aback.
At the time, the bike was top of the line, much like the Peloton is today. From my perspective, the bike was a major purchase that should’ve involved a conversation and agreement.
As context, we both had parents who grew up during the Depression. So, the concept of frugality was a familiar one. On the other hand, we met at a local gym so we both valued exercise and fitness.
Still, I was both surprised and upset. A new rule was quickly enacted: before either of us spent $500 or more, we would consult with the other person.
Develop guidelines for finances and investing
This ceiling worked well for us because we didn’t have to micromanage our spending. For others, small daily purchases may cause interpersonal friction and financial problems, and a different approach may be needed.
So, the specifics of money rules may vary. But developing guidelines can encourage communication. Plus, they may put your spouse or partner at ease about financial issues and investing.
Just as spending was scary to me, investing may be scary for your partner. For most of my adult life, I’ve found investing to be fun and fulfilling. I studied finance in college plus worked with someone who had become independently wealthy through investing (she cherished her job but could also walk away whenever she wanted).
Still, investing may seem fraught with risk, frustration, and failure for others, possibly your spouse or significant other. So, it may make sense to gain a solid money footing before investing and develop rules for investing.
Build a financial foundation
Start by considering financial priorities. Talk about to your partner about what’s important for each of you individually and both of you together. Your checklist may include:
An emergency fund for an agreed-upon amount
Decide how much you want to keep in cash to handle the unexpected. In this way, you can take care of car repairs, medical expenses not covered by insurance, and whatever else may come along. Plus, you’ll have a cushion to deal with the potential loss of a job or major client.
Just as important, you’ll be able to cover these expenses without relying on short-term loans, credit-card debt, or sales of stock investments. Generally, you don’t want to invest one day and then sell your investments the next to generate cash for emergencies. Not only will you miss out on long-term gains, but you may also be more likely to lose money simply due to normal market volatility.
A plan for paying off debt
You or your partner may strive to live debt-free. Or, you may be comfortable with borrowing at a low-interest rate for assets like a home or business equipment.
When we owed money on a car loan and carried a mortgage balance, I started investing small amounts. My investments allowed me to benefit from compound growth and gain an understanding of investing basics at a young age. As a result, my husband and I live now in a mortgage-free home and drive cars bought with cash.
Still, debt can prevent financial progress. What’s important is to develop a plan to deal with any debt and decide how you’ll approach major purchases in the future.
Automatic contributions for specific financial goals
Contributing automatically to a retirement account or one designated for specific goals can allow you to grow your money with relatively little mental or emotional effort. Typically, you’ll simply choose from a menu of investments, monitor your account balances, and update your selections periodically.
Employer-sponsored accounts, such as retirement plans and health accounts, are the most obvious choices for automatic savings and investing as the set-up is facilitated by company administrators. But you can also create automated transactions for college savings plans, managed portfolios, and more.
Generally, these accounts hold mutual funds and ETFs containing stocks and bonds (though some hold low-return money market funds). So, if you or your partner have initiated automatic contributions or share purchases, then you’re investing already. This knowledge may give you and your partner the courage to invest on your own in a regular brokerage account.
Explore life dreams and confront investing fears
While celebrating progress toward funding an emergency savings account, paying off debt, and investing automatically for retirement, you and your partner may want to explore life dreams, such as traveling, starting a charitable foundation, or simply becoming more financially stable.
At the same time, consider discussing and confronting fears surrounding investing. For example: Is your partner worried about losing money because a friend lost thousands in the market? Does investing seem too complicated? Will researching stock investments be time-consuming and detract from family time? Are you scared of being embarrassed about investing mistakes?
Develop strategies for dealing with concerns. For example, you may develop guidelines like these:
- allocate a certain dollar amount to investments on a yearly basis
- cap the amount you’ll invest in a single stock (or limit its percentage in your portfolio)
- avoid discussing specific investment picks with coworkers
- don’t borrow to invest
- limit the number of stocks you’ll research, buy, and monitor
- set aside time to read books on investing
These guidelines may help your partner feel comfortable with investing in general as well as specific investment decisions. They may also instill investing discipline.
One of the characteristics of a successful long-term investor is discipline. Billionaire Warren Buffett says, “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” When you have taken steps to get ready to invest and set guidelines for investing, you demonstrate and sharpen your financial discipline.
Further, taking care of the basics first can allow you to remain calm in various market situations. So, reaching an agreement about investing can enable you and your partner to achieve mutual goals and enjoy your life together.