Managing your finances as a couple

Couples often find managing finances together to be a challenge. There is no one way to go about doing this, and we cannot promise that there is an easy path to what ends up being some not particularly comfortable conversations, but we can say that making your preferences explicit and tackling some important financial planning work can lead to better outcomes for you and your family’s financial goals.

You should leave this essay with an understanding of some key areas of financial planning as it relates to managing your finances as a couple.

Deep dive

Broadly speaking, creating some sort of financial plan will help you and your partner illuminate areas of uncertainty and opacity. The planning process can be summarized at a high level by the following 5-step framework. All steps are subject to reprioritization due to the nature of what is most important and time-sensitive to you.

1. Understand you and perform values discovery
2. Collaborate to set S.M.A.R.T financial and non-financial goals
3. Gather data and analyze your current financial situation
4. Develop and execute proposed financial planning and portfolio recommendations
5. Monitor progress, follow up on outstanding items, and manage event-based needs

Discovery of what is most important

The purpose of this section is to figure out what is most important to you and your partner. These are some not so easy questions, so we encourage taking your time on them.

• What is the purpose of your money?
• How will money decisions get made between you? Who is responsible for what?
• Do you want to leave a legacy? How do you think about impact?
• Do you intend on having children?
• Do you intend to pay for your children’s education in full?
• What does a potential “retirement” look like for you?
• How much real estate do you want to own (and where / when)?
• What major purchases might you make in the next 3-5 years?
• Are these goals in alignment with your values and objectives?

Collaborate to set S.M.A.R.T. financial and non-financial goals

Work together to create S.M.A.R.T (Specific, Measurable, Attainable, Realistic, Time-Bound) goals for the next 1+ years, 5+ years, 10+ years, and 20+ years. 

Examples (Financial)

• “We’d like to buy a $2.5mm single-family home in the Bay Area with a 20% down payment by December 2023.”
• “We’d like to fully fund our kids’ college expenses up to a 4-year private university by the time they enter their Freshman year in 20XX”

Examples (Non-Financial)

• “In the next 3 months, we’d like to take steps to protect each other in the event of a premature passing, as well as ensure that our loved ones are taken care of and have guardianship plans in place.” (Life Insurance / Estate Planning)
• “By the end of the Q1 2023 we’d like to make sure we are well protected against loss as it relates to home & auto, disability, long-term care, personal liability, etc.” (P&C Insurance / Disability)

Gather data and analyze your current financial situation

Using facts gathered (current and future income, expenses, major purchases, etc.), you should craft a 10-year cash flow projection as well as a long-term financial plan with all assumptions baked in.

This plan could then be used for “what-if” scenario modeling, such as home purchases or liquidity events for company equity.

Develop and execute proposed financial planning and portfolio recommendations

• Consolidation of existing accounts, where possible
• Opening of new accounts, where necessary
• High-level cash flow plan exercise - here’s what you should be saving (and where)

Monitor progress and follow up on outstanding items.

• Set priorities for the remainder of the year and continue to follow up (insurance, estate, etc.)
• Monitor portfolio implementation to make sure investments are aligned with your goals

Key milestones

There may be a few key moments in your relationship that catalyze new financial planning activities.

Here are some examples:

‍Marriage

• Combine your finances: Open joint bank accounts and credit card accounts, and close individual accounts that are no longer needed.
• Review and update your insurance coverage: Review your life, health, and property insurance policies, and make changes as necessary. Employer plans - who has better coverage and costs?
• Create a budget: Develop a shared budget and determine how you will split expenses.
• Invest in your future: Start saving for long-term goals such as retirement, buying a home, or starting a family.
• Plan your estate: Consider writing a will, setting up a trust, or choosing a power of attorney.
• Review your debts: Evaluate and prioritize your debt, and develop a plan to pay it off.
• Plan for unexpected events: Consider setting up an emergency fund to help you handle unexpected expenses.
• Assess your credit scores and work on improving them: Your credit score can impact your ability to get loans, insurance, and even employment.

Having a Child

• Update your insurance coverage: Review your life insurance policies to make sure they provide adequate coverage for your new family, and consider purchasing disability insurance to protect your income.
• Review your will and estate planning documents: Make sure these documents reflect your current wishes and provide for your children.
• Start saving for your child's future: Consider setting up a college fund or a custodial account for your child.
• Create a budget: Consider how you will pay for the increased costs of caring for a child, such as child care, medical expenses, and education. Plan for primary and secondary education savings and utilize all available tax-advantaged accounts. Open 529 accounts for tax-advantaged education savings and growth. Explore the potential for outside savings contributions from various family members.
• Consider your work-life balance: You may need to make changes to your work schedule or seek flexible work arrangements to accommodate your new role as a parent.
• Review your debts: Make sure you have a plan in place to pay off your debts and prioritize paying off high-interest debt first.
• Review and update your beneficiaries: Make sure all your accounts and insurance policies list your spouse as a beneficiary.
• Evaluate your spending habits: Take a close look at your spending habits, and make a plan for reducing debt and saving more.

In summary

Working with an advisor to help you create an actionable financial plan that is tailored to your goals and values can help you achieve your financial goals. 

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