How do you know your partner is good with money if you aren’t?
In my 25+ years as a financial planner, I’ve seen people, often women, relinquish the job of managing money to their spouse. Of course, this isn’t always the case—some women are very interested in finances. But the ones who aren’t need to pay attention to their money regardless.
Giving up the duty of managing your finances because you aren’t interested could be one of the biggest mistakes of your life. Your partner, or whoever is managing your money, may not be as good at it as you think—and it’s always good to have a second set of eyes to ensure you’re on track to reach your goals and to avoid fraud.
Here is an example:
In April of 2000, after the tech bubble burst, Janice (not her real name), a woman in her mid-60s, sat down across from me in my financial planning office. Her husband handled their finances, and she wanted a second opinion on her retirement plan. She showed me a statement for December 31, 1999 and a statement for March 31, 2000.
Here’s what I remember from her statements:
- A joint brokerage account with her husband mainly comprised of very aggressive assets—”penny stocks”
- The account was a “margin account,” which means you can borrow against the account to invest more shares
- The balance as of December 1999 was over $300K dollars
- The balance on the last statement of March 31, 2000 was about $50K dollars
As I reviewed the statements, I realized that Janice didn’t know she’d just lost $250K. She knew something was wrong, but she didn’t know what it was because the statements were so confusing.
I didn’t want her to shoot the messenger (me!), but I needed her to understand her situation. I turned the statements around to her and showed her how to read them. This way, she would discover the problem.
Discover she did. This woman had given up complete control of her life savings to her husband, who was buying penny stocks on margin (essentially gambling). As she realized what had happened, the color drained from her face.
Janice was livid with her husband, who’d promised to choose conservative investments. She eventually came to realize her mistake, too. She wasn’t involved at all, and left all the money decisions completely up to him.
He knew just enough about investing to be dangerous. They recovered financially, though they had to work a few years longer than planned. But since then, Janice took control of her own financial life.
Here are some ways to take control of your finances:
Develop a working knowledge of finance.
Years ago, when I was first married, my husband was pretty much computer illiterate. He ran hospitals the old-school way, meaning he hired people to do all the computer work and record keeping and even had an assistant to manage his schedule. He didn’t need to learn computers. I had a basic knowledge and interest since I used a computer every day in my work as a financial planner.
He used to tell everyone I was “a computer genius.” After asking me several questions, tech people could determine that I could RUN the programs but was not a PROGRAMMER by any means. Genius status once again eluded me. The point is because he was a complete novice in this area, he couldn’t tell that I was just a rank beginner.
Here are some metrics everyone should be tracking about their money:
- Your net worth (your assets minus your liabilities)
- Your credit score
- The number of months your emergency fund will carry you for
- Your retirement savings percentage
- Your debt-to-income ratio (how much debt you have compared to how much you earn)
- How long it will take you to pay off any debt you have
Here are some things everyone should know about their money:
- Your risk tolerance for investing
- The asset allocation of each of your investments (and whether it matches your risk tolerance)
- If you are on track for retirement and if not, how you can get there
The best way to know that your partner is good with money is to be good with money yourself.
This was originally posted on my Forbes.com contributor site on 10/15/2017 as If Your Spouse Handles The Money, You Need To Know These 9 Things.
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