Don’t let money problems lead to divorce
27 April 2016
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Hello and welcome to the latest episode of Old Mutual Live Business, my name is Chris Gibbons. So, you would like to lay the foundations for your future prosperity and you have no wish to struggle financially. Perhaps you’ve just got married or started a family or maybe bought your first house, all wonderful things. But also wonderful sources of financial pressure and the research confirms that worries about money, fights about money even, are one of the chief sources of marital break down.
So, how do you set out putting the right building blocks in place and in the right sequence to ensure you don’t become a statistic? Old Mutual Live Business is joined now by Jillian Howard who is a certified financial planner and author of The Best Pocket Guide Ever for Family Finances. Jillian, welcome and thank you for joining us. First off, why are worries about money such a source of pressure, especially in a marriage?
Jillian Howard: Mostly Chris, because people don’t communicate about their finances before they get married and in their getting married stages. Once you’re married it becomes a pain to discuss it. So I would urge that people start communicating way before they get married about who earns what. Who pays for what and all of the financial ins and outs.
Where to start as a couple
CG: Okay, so that’s the problem, now where should you start to make sure it doesn’t happen to you?
JH: You need to sit down and discuss your budget. Most people should have a budget, as a single person they would know how much they have to spend and what they’re spending it on. Sit down and communicate how they are singly, and then work on a budget that’s joint.
CG: So, the key is to involve your partner.
JH: That’s right, right throughout the marriage.
CG: One of the sources of financial pressure I notice these days is the desire to have a very fancy, very expensive wedding, often funded by debt.
JH: Yes, and in my book, the very first chapter is, don’t do that!
JH: Look, everybody wants a fairy-tale wedding, but if it’s that important to you, then start saving for it as soon as you are going to have a salary. Some people, some people have a wedding fund investment before they even meet Mr Right or Mr Wrong.
CG: You’ve got to suggest that perhaps young couples might be better changing the sequence, start with the house, start with a savings plan and then only have the wedding.
JH: Yeah, that would be a good idea as well.
Plan for the cost of children
CG: I could also say, and here I’m only half joking. That if you want a life free from financial pressure, don’t bother having children.
JH: Okay, that is quite a big indicator, but through the book I have explained how you can overcome that. A lot of people spend an awful lot of money on children and you can circumvent that.
JH: Okay, by, again, talking with your partner and finding out what’s exactly essential. What is their priorities in a marriage? Do you really need your children to go to the very expensive school or can you do with one around the corner? Do you really need to live in that suburb, do you really need to drive that extremely fancy car, which one is more important to you? Focus on that one instead of the whole package.
Buy a house within your means
CG: Then, of course, I mentioned a moment ago, the house, that can be a major expense. How do you deal with that?
JH: Yes, it is. Again, just look at your budget, see what you can afford and don’t ever buy above your budget. Don’t keep up with the Jones’s, as hard as that is. You want to, but when you can afford to keep up with the Jones’s, and you’re not compromising any of your other areas of your life, then fine, go ahead. Live next door to the Jones’s, but before then, work on your budget.
CG: This word ‘budget’ keeps coming up, I’m going to come back to that in a moment or two. Where does savings fit into this plan? I’m not referring to retirement savings, I’ll deal with that in a moment, but saving, maybe a little bit each month for that unexpected repair or maybe a medical bill or even a holiday.
How to spread your income
JH: Yeah, one of the key things that I have in all of my books is, it’s called the ‘One Third Rule.’ I’m not sure if you’ve read my book. But the way that it’s set out is that any excess that you have, in other words, your salary minus all your expenses. If there is an amount left over a month, divide it into three.
One is always to be saving more, one third of it towards more, one third of it towards debt. Even if it is only your bond or your car and you don’t really have other debt. Then one third you spend on yourself, whichever way you want to, save it for a holiday or buy jewellery or go out for drinks, whatever it is you want to do. The one third you have to have fun with it.
CG: That’s a very good rule of thumb. So, life is now a bed of roses, there’s mum, there’s dad, there’s two little sprats, there’s a house, a car, maybe two cars, there’s a stack of debt. But it’s okay, cause we can afford it. Then suddenly, out of the blue, one or other of the partners is struck by a deadly disease. Leave aside the emotional disaster, it’s also a financial catastrophe, how do you overcome that?
JH: All right, disease is easier than retrenchment, although these days you can get insurance for retrenchment as well. I do have a chapter in the book where I say that you need to assess your risks. Part of that risk is dying too young, getting disabled in some way or a dreaded disease that costs a lot of money. Those kind of things can be insured for. If you’re young and healthy, right at the beginning of the marriage, it’s not expensive. It should all be looked at together, carefully and discussed with each other.
CG: If you have a bond on your house, you’ll certainly have insurance with that, but what about insurance for the contents of the house, things like that?
JH: Those are essential these days, especially in South Africa, but you just shop around, you have to shop around for the best deal for you.
Start your retirement fund early
CG: All right, retirement, the one thing the youngsters often fail to take into account is retirement, what, retire, that’s at least 40-50 years away, I’ll worry about that much later! That’s a wrong decision because of that wonderful thing called compound interest.
JH: Correct, yes, right in the beginning when you sit down and people should consult, they don’t do it. But there should be a sort of pre-marital financial consultation and there you put in place your retirement plan. The only retirement plan that’s going to work smoothly is where you set aside about 15% of all your income ever and to not compromise that when you have children.
In other words, when you’re working out, can we afford to now have children, it’s with that 15% going into your pension fund or a retirement annuity as well. Don’t compromise on that to have your children or buy a bigger house, that should always be in place and stay in place.
CG: All right, let’s be clear, none of this is really difficult. There’s some sums involved, there’s a piece of paper and a pencil, doing some division and what-not. But what is tough is setting out a plan and sticking to it.
Sticking to the plan
JH: Yes, it is. That’s where communication is key, that’s where you have to talk to each other and be comfortable talking about my money, your money. So right, pre-marital stage, I would say, sit down and say, okay, who is in charge of the money? Are we both equally in charge, are you in charge of yours and I’m in charge of mine or can we allocate one person to do all of this figure work for us? Whoever has got the strongest in that area.
CG: I presume having discussed it before the marriage or shortly into the marriage, you need to review it as you go along fairly regularly.
JH: Yes, you do, I would say at the minimum, every couple of years.
CG: That’s Jillian Howard, certified financial planner and author of The Best Pocket Guide Ever for Family Finances. Jillian, thank you for being with me on Old Mutual Live Business.
JH: You’re welcome Chris.
CG: The Best Pocket Guide Ever for Family Finances is published by Zebra Press in soft cover at a very affordable R110.00. My name is Chris Gibbons, if there’s anything you’d like to hear about or have discussed on Old Mutual Live Business, you can email me at email@example.com, or check out my website, www.chrisgibbons.co.za. Until the next time, thank you for listening.