Broaching the subject of finances can be awkward, but if you’re planning a future together, it’s a non-negotiable.
1. How much do you have saved?
When it comes to finances, brutal honesty is the best policy. Sparking a conversation around savings and “saving for a rainy day” is one of the most natural and neutral questions on this list. As a couple, you will quickly find yourselves talking about a new home, romantic holiday, or maybe even a wedding. Discussing your personal savings will help you assess your financial situation more accurately and see where you’re at with your saving goals. If things aren’t looking as expected, you always have the opportunity to work out a couple’s saving plan to reach your savings goal faster together.
A recent study has shown that four in 10 adults in the UK have less than £500 saved, while another one suggests that 28% of Britons have no savings at all. Don’t hesitate to ask your partner about their emergency fund. If you two are ready to commit to a long-term relationship, you are more than ready to commit to a savings plan, too.
2. What’s your financial personality?
Is your partner the cash splasher, the hoarder, or the FitBit financier? Knowing their financial personality will enable you to recognise spending patterns and predict their behaviour, improve their financial habits and maybe even help them acquire new ones. To better control our cash instead of being controlled by it, fight the impulses that make us buy emotionally and not strategically, we need the have a good grasp of our financial personality.
Psychologists broadly agree on six different types, so which one is your partner?
- The Anxious Investor. Affluent investors are extremely likely to have this personality type. It manifests itself in overtrading, which often racks up high levels of charges. Their overconfidence in their ability to get an edge over others actually results in them getting beaten by the markets. Does your partner trust their instincts more than their strategy? Research shows that anxious investors tend to underperform the buy-and-hold investor “by 1.5 percent to 2 percent year”.
- The Social Value Spender. These type of people use shopping as a therapy to boost their self-esteem. They tend to spend money on impulse and often rack up substantial credit card bills. If your loved one buys presents without the occasion and goes overboard at Christmas and birthdays, they might need your help with improving their spending habits...
- The Cash Splasher. It is rather self-explanatory and very simple to diagnose. Cash splashers love the spotlight and often rush into spending money for all the wrong reasons. They will be the ones loudly declaring that dinner or drinks is ‘on them’ just to be admired and to bask in the attention of others. They’ll spend money on statement things that are not necessarily and will members of all the right private clubs. If you think your partner fits the description, you’ll need to show them that money can’t buy happiness! This will not only help them to improve their emotional well being but will make a significant impact on their savings.
- The Ostrich. The ostriches hate organising their finances and will do everything to rid themselves of this tedious task. They tend to have unopened bank statements piling up on their desk and when they’re a bit older, with more money to manage, they’ll hand the money management task to an adviser and never think of it again. The best way to help the ostrich to take better care of their finances is to take it slow and steady. Start with a simple goal, such getting a better rate on the savings account, and gradually introduce more financial decisions once their confidence picks up.
- The FitBit Financier. The slightly obsessive type, FitBit financier checks their online balance and tracks their spending like an athlete training for the Olympics. They use a plethora of tools to track and stick to their budget and get the best deals available on the market, which is never a bad thing! But. Obsession with money is often a result of a person’s inability to deal with the unpredictability of life. Someone whose lost control over one area of their life will often go to great lengths to manage their finances and restore their sense of stability to some extent. If your partner can’t sleep because they’re thinking about a boiler insurance, you should probably step in. Helping them to shift their focus to the big picture (like retirement plan!) should solve the problem.
- The Hoarder. Masters of risk aversion, hoarders view money as security. They are prone to stockpiling cash and avoiding long-term investments in fear of losing the money if markets drop. Although having a rainy day fund is important, holding onto cash is not a suitable long-term investment. If your significant other prefers saving in a sock, it’s time to talk about investment strategies.
3. What are your money dreams?
The things you’re saving for can reveal what you value in life. Be honest with your partner about your visions for the future together. What are your priorities? Even if you’re both saving and actively building your passive income portfolios, you might be pursuing entirely different goals. If one of you is putting money aside for a new home and the other is socking away cash for a world trip, then you have a bit of a problem. Compare your dreams and deal with existing discrepancies as soon as possible to ensure that you’re both going in the same direction! A UK study has found that the average couple argues about money 39 times per year and one in 10 married UK adults has an ‘escape fund’ in case they want to leave! Don’t set yourself up for a failure, practice honesty.
4. What are your saving strategies?
Arguing money can wreck your relationship. Deciding on a solid saving strategy is crucial to staying in sync and avoiding money disasters. There are three major factors that must be taken into account when drafting a saving plan: cutting expenses, getting the best saving interest rate, and making smart investment decisions. Here are the questions you can ask your partner (and yourself) to dig deeper into the matter…
- Are they willing to reduce their expenses? From switching your energy provider, to installing a water meter, to changing your life insurance plan - there is a plethora of ways how you can claw back some money without compromising your life quality. Which one of you will be responsible for keeping a close eye on bills, then?
- Have they chosen the best savings account? Let’s be honest here - the majority of banks are currently offering ridiculously low-interest rates. Some are as insignificant as 0.05%! But not all of them are so tight-fisted, so it’s still possible to find a better option if you start shopping around. Look into deposit as well as standard savings accounts.
- Do they invest wisely? Investing wisely can boost your savings returns quite substantially. A few popular investment strategies that you should consider include:
Property. Buy-to-let properties in prosperous European capitals, such as London, Paris, or Copenhagen, are a popular income-generating investment. Thanks to soaring rent prices in the UK, for example, property owners are yielding around four to six percent a year. If you’re thinking about investing in property, there are three crucial things you must consider - location, location, location.
Peer-to-peer lending. Peer-to-peer (P2P) lending is catching on like a bushfire. It’s a type of lending that removes the middleman and connects the lender (or the investor) directly with the borrower. Funding Circle, the biggest peer-to-peer lender to small businesses, on average generates around 7.3% to its investors. At the moment, though, investors are raving about P2P cryptocurrency lending. As the crypto market is going through a boom stage, peer-to-peer lending using digital currencies, such as Bitcoin and Ethereum, seems to be next big thing. FastInvest, a blockchain-based cryptocurrency investment platform, is able to rack up as much as 15% in annual returns for its investors. The best thing about it? You don’t need to be an expert.
5. How do you budget and track your money?
The recent explosion of FinTech products that streamline budgeting and money tracking has made life easier for thousands of people. Even if you think your loved one uses some money management tools, it’s best to compare your strategies to ensure you’re both at the top of your game. With products like Monzo, Plum, Cleo, or Mint, you can start saving without having to lift a finger.
6. Do you have any financial regrets?
The annoying thing about debts is that they don’t go away, no matter how hard you try to ignore them. A few silly #yolo moments can cost you dearly, so it’s important to bring this topic up during the love-and-money talk. A new study shows that in the past five years, the household debt in the UK rose by 7%, a big part of it is unsecured consumer debt - mainly on credit cards, store cards, loans and overdrafts. One of the golden rules of financial planning is to clear your most expensive debts (yes, credit cards) first, as you’ll be losing money otherwise. So take a deep breath and brave the subject...
7. Do you have a retirement savings plan?
You might think you’re far too young to bother saving for retirement. Wrong. It’s never too early to start planning for something so important. Being in a strong, long-term relationship tends to make people think about the future and growing old together - do you envision your retirement in a similar way? How will you reach those goals?
Building an investment portfolio over the years is an easy and effective way to secure a comfortable retirement. Savvy Millennials are already saving for retirement using cryptocurrency, as they find the idea of a decentralized, transparent and secure financial system more appealing than going through banks. A report from VC Mangrove Capital says that an average ICO (initial coin offering) return is 1,320%. Precisely, it’s huge. If you want to have a go at it, FastInvest will hold their ICO, which guarantees to return all funds to investors in case they don’t reach the minimum capital goal, in December. A cashless future might arrive sooner than you expected.
Over to you
It’s tempting to skip the slightly awkward conversation about money. You both trust each other, so why bother? But if you’ve given this article any serious thought, you’ll know how important it is to understand each other’s financial regrets and money dreams. Don’t let money ruin what it can’t buy.