Investing for Beginners
with Joshua Kennon
| Love & Money |
Investing is complicated enough, but adding a significant other to the equation can overwhelm a new Investor
Relationships and Investing are both complex subjects - mixing the two can sometimes be a recipe for disaster. Here's what you should (and shouldn't) do with your money when you are seriously involved with someone else.
Single vs. Joint Accounts
Couples and experts alike have debated over single and joint accounts for as long as most people can remember. The two sides are both striving for the same goal - creating a stronger marriage while becoming fiscally responsible. The arguments go something like this: 1.) Joint accounts create a sense of unity that is vital to a relationship. If you separate the money, you take away a degree of integration that should be present in any long-term relationship, or 2.) separate accounts allow each the ability to retain their independence, actually strengthening the relationship.
Which side is right? ... That depends.
Before you can even consider planning your financial future with someone else, you have to look at what type of personality you each have. If you managed your finances, made your own investment decisions, and had qualified retirement accounts before you got involved, you will probably be very hesitant to give up that control to anyone - including the person you may spend the rest of your life with. On the other hand, if you were prone to spur-of-the-moment spending and liberal use of credit, you would more readily opt to open joint accounts.
Both Parties Should Be Accountable for the Money
Before you get excited... this doesn't mean that one of you has the right to ask for money whenever you feel like it. Often, I'll receive letters from couples who complain that the woman feels like a child receiving an allowance. In some cases, this is a valid argument. More often than not, when the entire story is told, it turns out that the party in question simply cannot handle money.
The Story of Kent and Elizabeth
We can all take a lesson from Kent and Elizabeth Washington
*. Before they met, Kent owned a restaurant and made around $40,000 a year. His wife was an elementary school teacher who brought home about $23,000. Elizabeth was given $200 every week to buy groceries, and take care of small household expenses. She became so frustrated at receiving her 'allowance' that she actually gave Kent separation papers because he refused to change the way the finances were run. She felt that, as an educated woman earning her own salary, the money was rightfully hers.The truth of the matter was, at one point, both had separate checking accounts. Elizabeth took her weekly paycheck of $442.31 and deposited it into her account, just as if she were single. The total household expenses were just over $35,800 annually [this included rent, food, etc.] Because she brought in 36.5% of the income, Kent decided that she should pay the same percentage of the bills. This worked out to around $13,067 annually. Two weeks into the new arrangement, Elizabeth had spent her paycheck and not paid any of the bills. She went to her husband and told him he needed to pay them... Kent refused. In the end, the bills were not paid, and she had no money left. This led to the current arrangement of an "allowance".
The moral? As cruel as this sounds, it's the truth - If you or your spouse cannot be responsible with the finances, you do not deserve to have control over them. This is especially true if you have children. The fact of the matter is, if Elizabeth had been on her own, her monthly expenses would have been higher because the cost-savings of living with someone else would have been eliminated. In only a few months she would most likely be considering bankruptcy.
This isn't a game; it's your life. There are no do-overs or try-agains. Her argument was that she felt like a child - and although this is sometimes a very real problem, in cases like this, that excuse is bull. As soon as Elizabeth begins acting like an adult and handles the money responsibly - she should be entitled to autonomy over her finances. Until then, absolutely not. For the men out there who are smirking - this includes you. If your wife is the one who is saving, investing, and being responsible, and you are irresponsibly spending money - you have no business making financial decisions. It is not your right as "man" of the house to be in charge of the money. That job should go to the best qualified. Be responsible and honest enough with yourself to recognize who that is - even if it means ceding over autonomy of the checkbook.
Luckily, when you are talking about your investment accounts, they already have a built-in solution to the Love / Money controversy...
The Built-In Solution
If you still want to have a joint account, but you're worried about one partner being able to control or spend part of the investments, don't fear. Most brokerage houses offer a "double sign" feature on all of their accounts - meaning that unless both of the spouses sign the checks, no money will be moved or spent. This is a great feature that not only curtails potential conflicts, but will save money. After all, if you have to get your "other" to agree to spend money, you probably are going to end up saving more, which is good for everyone involved!
Battle of the Strategies
Another thing to watch out for is fights arising from different investment styles. If your wife or husband is a value investor and you are more interested in high-flying, high-risk stocks, no matter how responsible you each are, it would be wiser to have separate accounts. Otherwise, one or both of you is going to end up frustrated and angry.
The Answer
1. If you and your partner have similar views on money, investing, and saving, open
joint accounts.
2. If one or both of you is a shopaholic, opt for the "Double Sign" feature on
your brokerage and checking accounts
3. If you have different strategies, get separate accounts! Why create a source of
conflict?
4. Have common goals in your relationship - and don't just limit them to financial ones.
5. Keep only one credit card between the two of you - use it only for emergencies or to
build up credit.
6. Keep track of your finances [both joint and individual] in a good software package like
MS Money or Quicken.