Here’s a sexy audible for your next date night. As the conversation shifts away from the pickup schedule and that Rosé starts talking, slide a few pieces of paper over to your better half. Its contents are more eloquent than a love letter, more sensual than a sonnet, and yes, even more risqué than a Jeff Bezos selfie. As your partner performs the grand reveal, they’ll be pleasantly perplexed to find: a balance sheet, financial projections, exception reports, and even a stress test. Meet your quarterly Money Review.
Are you for real? Between jobs, sleep training, and Peloton sessions it’s hard enough to find time to Netflix and Chill. Why would a busy couple add yet another deliverable to an overcrowded plate?
Money avoidance is a dangerous strategy
Furthermore, even within the safe confines your relationship talking about money can be taboo and silent source of resentment; four in 10 married people don’t know how much their spouse makes and 40% of couples don’t even talk about money. Considering how money touches virtually every aspect of our lives, that’s insane.
Money is stressful enough at the individual level, hence the temptation dodge and evade the conversation. But avoidance is bound to lead you astray. What if there was a review process to ensure two things: first, that your bases are covered. But more importantly that you and your partner are aligned in your collective earning, spending, and savings decisions
Create money alignment with your partner
A Money Review goes well beyond budgeting – it’s about defining your money values and using them as a True North for your entire financial picture. And one thing is clear: a structured, open and regular conversation can ensure that both partners are pedaling in unison and towards the same direction.
This Money Review process is the result of numerous conversations with couples across a spectrum of careers (entrepreneurs to high earners), divisions of labor (single and dual income households), and life stages (married with no kids to soon-to-be empty nesters). All respondents are comfortably able to cover basic needs and benefit from financial cushion (both savings and earnings). And for simplicity, I’ll assume that at couple’s assets are commingled.
Your Six Step Money Review
As you go through the various elements of the Money Review, feel free to cherry-pick and modify the recommendations to suit your own unique situation. Remember, these are simply an aggregation of others’ practices.
1. A little agency goes a long way
In most relationships there’s one individual who “owns” the day-to-day financial responsibilities. While one partner might be more financially minded, you can’t get far without bringing the other partner into the conversation – and more importantly – giving them some agency over the collective financial picture.
As a recovering finance dude, In our marriage, I gladly volunteer for all the financial housekeeping and kept the process mostly to myself. This wasn’t for any nefarious reasons, but simply not to trouble my wife Lisa. But this distance wasn’t healthy for us.
As an artist, Lisa isn’t particularly financially-minded (and doesn’t really care to know about the details), but absolutely wanted to understand the 10,000 foot view: to better understand the context around specific decisions and, more importantly, for peace of mind.
Bridge the gap with a “data dump”
We bridged this gap with a one time “data dump.” I walked Lisa through all of our accounts, explaining the risk (simply as low or high risk), liquidity (as accessible now or not for a long time) and purpose (college, retirement, buying a house,)
But the “moment” we shared as a couple was as simple as jointly logging into all the accounts (and the acrobatics of navigating my complex maze of 2-factor authentication). This was accompanied by compiling a list of key counter parties (accountant, life insurance rep, financial advisor, and the lawyer who drafted our wills) and also an opportunity to add her and the kids as the beneficiaries for each account.
This process was a reminder that when it comes to money, a couple can operate on wildly different planes: I was in the weeds optimizing every account and she just wanted to know where to “find” everything should the unthinkable happen
2. What gets measured gets managed
It’s hard to talk about money without access to the raw materials such as balances, expenses, and rates of returns; as I mentioned earlier, most of the interviewed couples operated in a post-budget world, yet still needed some numbers to anchor and standardize their regular conversations.
Pick a tool like Mint or YNAB
Do you know how much you spend each month on Uber? Or Amazon? I’m shocked by how many people can’t answer these two basic questions. Thankfully, there are a ton of tools to easily evaluate your spending: Mint.com is free and You Need a Budget (aka YNAB) is a hugely popular paid app used by many RadReaders.
Each of these services have the ability to “tag” an expense based on the credit card description. So at the end of each month you can see spending buckets ranging from groceries, utilities and digital subscriptions.
I’ve started to use YNAB (here’s a 4 month free trial) because its tagging is wayyyy more accurate than Mint. YNAB also does a wonderful job at “gamifying” the process of budgeting (each day you have to “acknowledge” the new transactions into a category) and I’ve been able to create very specific categories that suit my life as a solopreneur.
When it comes to monitoring investment account, Mint (and most financial providers such as Betterment, Vanguard and Personal Capital) do a fine job of covering all publicly traded assets such as stocks, ETFs, bonds, and mutual funds.
Make sure you compare apples-to-apples
A productive Money Review requires a evaluating your financial picture in a standardized fashion and in regular increments. You want to be able to compare apples to apples, to better understand trends and catch outliers. To achieve this, some couples chose to create a spreadsheet to manually aggregate the disparate data whereas others just printed out summaries (i.e Mint.com budgets or Vanguard account balances).
3. Create exceptions and thresholds
Despite not using budgets, most couples are very vigilant about avoiding lifestyle creep. This vigilance was implemented in two ways: spending thresholds and exception reports. Spending thresholds – the more conservative of the two – is a joint agreement to clear all purchases above a certain threshold with your partner. Lisa and I use the less robust Exception Report approach: each review, we look at past expenses and discuss all purchases beyond a specific threshold. Some couples get clever, borrowing from behavioral science’s “nudge theory.”)
4. Automate away
One of the most powerful habits is automating investment decisions into your 401ks, 529s and IRAs. But for couples who don’t budget, it’s hard to accurately assess your the steady state of your spending when there are lumpy or seasonal purchases such as vacation, school tuition, insurance premiums, and tax estimates.
One workaround to “smooth” these expenses was to create sub-accounts. These act exactly as their namesake implies, creating a new account that rolls into the primary one and are offered by online banks such as Ally and Capital One offer this feature.
Let’s say you want to smooth out your spending for vacation. First you’d estimate the annual spend (i.e. 3 trips a year at $4,000 a each). Next, you’d create a “vacation” sub-account and each month, sweep out $1,000 from your primary account. By excluding these sub-accounts from your net worth, you have a more accurate snapshot of your financial picture. And when it’s time to pay for your vacation, you “flush out” the sub-account and start over. (And if you don’t want to go through the hassle of creating sub-accounts, YNAB makes it extremely easy to accrue these accounts within the app.)
5. Stress test your assumptions
No one wants to lose money. The threat of a stock market crash holds so many people back from investing – or even worse – baits them sell into selling their stocks during the most inopportune times. Furthermore, the possibility of losing it all is a driving force behind the scarcity mindset.
And when it comes to markets, there’s only one guarantee: markets are unpredictable. But a simple back of the envelope calculation can help you contextualize (and even anticipate) the inevitable market drawdown.
Here’s a list of all the largest S&P 500 corrections since 1928. (And as proof of the market’s unpredictability, this list missing 2018’s year end loss of nearly 20%):
Next, pick your favorite financial crisis (personally, I use 2008) and find the corresponding S&P 500 loss. During your Money Review, include the following back of the envelope calculation: Take your total exposure to stocks and multiply it by 50% (technically, the 2008 drawdown was -56.4% but who’s counting). So if 60% of your exposure is in stocks, you’d lose 30% of your assets. Then ask your partner the following questions:
- If we woke up and our net worth was down by 30%, how would we feel?
- Would we change anything about our lives?
- What immediate changes would we make?
- What longer-term decisions would we make?
- Are there any decisions we wish we could reverse?
It’s important to note that this is an extremely crude calculation and that “history rarely repeats itself, but it rhymes.” No one knows the timing or size of the next market correction. But this stress-test (especially if repeated regularly) can put you in the mindspace of what something really bad might look like – and offer clues about how you might react
6. What are your money goals (and values)?
Why do we earn money in the first place? Obviously we seek specific outcomes or goals, like putting kids through college, financial security, exploring the world and supporting the causes we care about.
But in reality, three goals dominate: home ownership, saving for college, and retirement. And while these are each equally daunting goals themselves, consider what happens when we widen the aperture. In a paper titled Mining for Goals, the financial provider Morningstar created a Master List of Financial Goals:
- To be better off than my peers
- To pay for personal self-improvement (go back to school, learn a skill)
- To experience the excitement of investing
- To start a new business
- To buy a house
- To help pay for my kids’ college
- To stop working and do something I love
- To go on a dream vacation
- To relocate in retirement
- To care for my aging parents
- To give to charity or other causes that I care about
- To feel secure about my finances in retirement
- To feel secure about my finances now
- To leave an inheritance to my loved ones
- To retire Early
- To pay for future medical expenses
- To not be a financial burden to my family as I grow older
The paper argues that there’s a benefit to sharpening your goals. A broad goal such as “Growing wealth” lacks the specificity to directly align your investing with your life priorities. “Behavioral finance can show that people can be strangers to themselves” and selecting from a list can help avoid blind spots.
What are your top 5 goals?
When you consider this list, do you think you and your partner would pick an identical top 5? How would you reconcile the differences? When you conduct your first Money Review, use this list as a diagnostic to surface any inconsistencies. Then use subsequent Reviews to re-assess, debate, and tweak the goals to further harmonize your goals as a couple.
But goals themselves can be challenging. For starters, life comes at you fast; Long-dated goals such as “not being a financial burden to my family as I grow older” have many moving parts (and wouldn’t make my Top 5, despite being very relevant). Furthermore, how do you balance a prudent financial future with savoring the present?
Values can serve as a bridge between the present and the future, distilling goals down to their primary essence. Here are a set of values that are associated with money. I’ve placed **Owning your time** and **Financial security** at the center of the wheel as these feel like universal priorities.
Our family has chosen Learning (via entrepreneurship) over Assets (home ownership), Manifesting (creativity and impact) over Giving (charity), and Experience (adventure), Ease (flexibility), and Health (all dimensions) over Extrinsic Markers (status and legacy). In your Money Review, check-in with your partner to determine if your spending and saving are in alignment with your Top 5 Values.
Now it’s your turn. Start small by just having the conversation with your spouse on a regular basis. And over time, add in specific elements to create your own Money Review process.
- Give your partner agency
- Pick a tool
- Create exceptions and thresholds
- Automate using sub-accounts
- Use a back-of-the-envelope stress test
- Determine your money goals and values
I help entrepreneurs and executives (and their partners) align how they spend their time with their money values. Hit me up if you want to learn more: khe [at] radreads [dot] co