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Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

Getting married? Unless you’re royalty, it’s time to talk money!

Getting married? Unless you’re royalty, it’s time to talk money!

On Monday, Prince Harry and Meghan Markle announced their engagement, and the media (and everyone I know!) is buzzing about the news. The royal wedding is scheduled to take place in May at Windsor Castle, and I’m sure the bride-to-be already has her eyes set on a wedding gown. The good news for them is that, while I’m sure they’ll have many challenges of their own to face in the years to come, one issue they’ll happily be able to sidestep is money.

Unfortunately, all too many soon-to-be couples who are far from royalty make the mistake of sidestepping the money talk before marrying. It’s a move that can lead to painful consequences.

  • Angela is money wise and has a generous spirit. Her husband Alex is very controlling, especially about finances. They have a healthy marriage, except when it comes to money. She enjoys spending what they can easily afford, but she knows that even the smallest expense will be an issue for Alex. Rather than argue with him, she regularly borrows or withdraws money from her 401(k). They don’t discuss it—until tax time when her 1099 arrives, and her withdrawals are right there in black and white. Her rationale: at least they only argue about finances once a year.
     
  • Bruce is the self-appointed CFO of his family—but he doesn’t have the skills to do the job well. When money is tight, he tries to keep the shortfall under the radar from his wife, Lisa. But that approach only works for so long. Soon the bills begin to mount and the truth is revealed. It’s a pattern that Lisa (and I) have watched repeat itself over and over again.
     
  • Patricia, a long-time client, died recently, and I’m now working with her adult children to manage their inheritances. Her daughter’s husband is already planning how to spend the windfall; he seems to have mixed emotions about the fact that his wife now has her “own” money. In contrast, Patricia’s son and his wife seem to be excellent financial partners; they’ve already placed the funds in a joint account and are working together to decide whether they want to spend, save, or invest the assets.

I have to wonder how things might be different if these couples had ironed out the details of their financial lives together from day one.

Whether you are marrying for the first time, blending families, or enjoying a later-in-life union, your life partnership is about more than your love for each other. Some of the best marriages have been broken by that troublesome nemesis that is money. The good news is that, with proper planning, money can also serve as a foundation for a wonderfully healthy marriage. But it all starts before you say “I do.”

What every couple should understand is that marriage is (hopefully!) rooted in love, but it’s also a business transaction. When you marry, you are forming a legal partnership that involves many rights and responsibilities. Before you take the next step from two legally and financially independent people to becoming a married couple, take the time to work out the business details of your relationship. Think of it like opening a shop together—and have a little fun.

Start by taking a close look at your current financial reality. Consider each of your personal incomes, what you spend, and what you save and invest. Determine your individual net worth and share your credit scores. This information serves as the starting point for your financial future. Next, combine your balance sheets and agree on how, and if, you want to use your joint assets together.

Next, create a set of bylaws and assign roles and responsibility. Who will serve as the CFO (learn from Bruce: don’t assume the role for yourself!) and who will be the bookkeeper? Agree upon how you will make financial decisions, including your household budget and large purchases such as a new home, a major remodel, or a new car. Talk through a process to handle financial challenges or disagreements. (Yes, they will happen!) If there are children from a prior relationship, what do you need or want to do for them? Will you both help fund their education? Will you pay for their weddings? At what age will you stop offering financial assistance? If you have siblings, friends, or aging parents who may need financial help, how and when will you be willing to step in?

Now comes the fun part: creating your shared vision for the future and drafting your strategic plan. This is when you align your dreams and set the path for a happy tomorrow, and it’s one of the most important things you can do as a couple. If your spouse imagines a simple retirement cabin on a lake and you fantasize about the hustle and bustle of Manhattan, there’s bound to be conflict down the road. Share your vision for five, ten, and twenty years into the future, and discuss how to combine your ideas and bring those dreams to life.

The last step is to put your plan in writing. Like any successful partnership, your agreements must be written down. Putting pen to paper clarifies the details, and it’s the best way to avoid miscommunication now and for years to come. Finally, review it all every year—because as we all know, life happens. And when you need help aligning your reality with your goals—or creating a shared management process that works for both of you—a financial advisor can be a tremendous help. The newest royal couple may never have to worry about managing debt or how to invest their nest egg, but for everyone else tying the knot, now is the time for the money talk! 

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Now more than ever, focus on your Circle of Influence

Now more than ever, focus on your Circle of Influence

When I walked into my early morning Pilates class on Monday, I couldn’t decipher the expression on my instructor’s face. Was it compassion? Pain? Despair? “What’s wrong?” I asked. Her answer: “Las Vegas.”

I was fortunate that I’d had a more peaceful Monday morning than is typical for me. My iPad had gone missing, so I hadn’t checked my news feed or social media at all. Blissfully unaware of the tragic events of Sunday night, I spent my pre-workout hour reading an old standby: Stephen Covey’s The 7 Habits of Highly Effective People. As I sipped my coffee, Covey had been introducing the idea that being proactive means focusing on the things we can control—even in what seem to be dire circumstances. It’s amazing how things seem to come along at just the right time, even when you least expect it.

I was rereading the book to help manage my own “Post-Election Stress Disorder,” but Covey’s words hold some wisdom for all of us when the headlines are filled with news of one catastrophe after another. In just the past few weeks we’ve seen nine million children lose health insurance when Congress let the Children’s Health Insurance Program (CHIP) expire, protesters clash in Charlottesville, hurricanes and floods devastate communities in the southern US, Cuba, and Puerto Rico, and earthquakes kill scores of people in Mexico. Then Las Vegas happened, and we seem to drown in the negative…again.

But there is an alternative.

If you haven’t already discovered Covey’s The 7 Habits of Highly Effective People, let me introduce you to the first of the seven habits. It is an important one, especially after this “September to Remember.”

Habit #1: Be Proactive

According to Covey, being proactive means taking action, but it also means taking responsibility for your own life by actively choosing where to focus your attention. He stresses that our ability to be self-aware—to consciously stand apart from ourselves to observe what we’re doing and why, and to examine the way we see ourselves—is uniquely human. Unlike animals that simply react to stimulus in the world around them, we have a choice.

What a wonderful realization.

He also talks about “reactive people” who are driven by feelings, circumstances, conditions, and environment; and “proactive people” who are driven by carefully considered, selected and internalized values. To become more proactive, look where you focus your time and energy. All the things you care about—Las Vegas, Puerto Rico, the flag, politics, your children, money, health, and more—lie within what he calls your Circle of Concern. Next, look at each of those things and identify the ones that you can actively affect, or what Covey calls your Circle of Influence.

Stephen Covey quotes Viktor Frankl who said, “Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.” On Monday morning, many people were paralyzed by the tragic events in the news. Others chose to be proactive and act within their Circle of Influence. They got in line to donate blood for the victims. They offered transportation and housing to anyone and everyone affected by the shooting. Even during the shooting, people risked their own lives to save others. What an inspiration to us all.

There will always be tragedies in our world, but I wonder how things would change if every one of us could be more proactive—if, as Covey suggests, we each took responsibility for how we reacted to the world around us and focused on driving change within our Circles of Influence. I expect we’d all be more effective. And the world would be a better place.

This concept is also true when it comes to effectively managing your finances. While many events lie within your Circle of Concern—market corrections, inflation, gas prices, black swan events—you cannot influence their outcome. Know what you can control and strive to focus on your Circle of Influence: keep your fixed costs low, maintain sufficient emergency funds, select an appropriate risk profile, and have a solid financial plan in place.

By focusing our positive energy in the right place and acting wisely, each one of us has the power to be more proactive, more effective, and drive positive change in our own lives and in the world around us. Now is the time.

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Index

09 November 2016

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >