Seven in 10 couples don`t see eye-to-eye on financial issues. So, what are the areas that bring about disharmon(e)y?
Dr. Hugh F. Doherty, CFP
When a doctor and spouse tell me they never have an argument over money, my thoughts go to the comedian who said: "If a couple says they never fight about money, I will show you two people on their way to their wedding reception." While husbands and wives may disagree about sex and raising children, money is what they fight about most. Seven in 10 couples don`t see eye-to-eye on financial issues. So, what are the areas that bring about disharmony? The main ones are credit cards, shopping, spending, and sticking to a budget. Some people are secretive about money management, some want tight control over it, and some try to avoid dealing with it altogether. None of these attitudes will sit well for a long, happy life together. Conflicts over money between spouses often reflect a poor distribution of power in a marriage.
Where money`s concerned, many couples are anything but a match made in heaven. What if he`s a planner ... she`s a dreamer ... he`s a saver ... she`s a spender ... he keeps scrupulous financial records ... she forgets to record her checks ... he invests for retirement ... she lives for today. The personality traits illustrated could just as well be stated in reverse; i.e, she`s a planner ... he`s a dreamer ... she`s a saver ... he`s a spender. The potential for squabbles definitely arises because of differences in personality and values. It would be ideal if couples would state their approaches to money before setting up house. Unfortunately this is not the case. Therefore, the learning objective for this article will be to identify the problems and present solutions before tempers flare and the relationship between doctor and spouse gets out of control.
Problem - overspending
Like all couples rich or poor, doctors and their spouses can fall into money traps that pull them apart. By the time doctors start to earn big dollars, they are usually in their mid-30s. Professional couples want the high life. At this point, having delayed gratification for so long, a lot of them want everything right away. They will overspend and, unfortunately, take on too much debt. Many are caught in the trap of "I deserve this lifestyle." This is a killer. The dangerous scenario: each spouse has five-figure credit-card debt, they own a big house with a big mortgage, several luxury cars, a condo, and a boat. Saving money is a low priority. Yes, it`s true, you worked your butt off for years to get that degree. It`s also true that dentistry can be a tough, serious, demanding, even at times brutal profession, but that doesn`t mean you "deserve" any particular kind of lifestyle. If you need to drive the best car, live in a mansion, landscape it like the White House rose garden, and do all those other external things to impress your friends and boost your ego, maybe it`s time you re-evaluate your goals and learn what`s really important in life.
What about happiness? If the daily grind in your practice were making you happy, the irritations and inconveniences would be a small price to pay. If we could believe that our profession was actually making the world a better place, we would sacrifice sleep and social lives without feeling deprived. If the extra toys we buy with our labor were providing anything more than momentary pleasure and a chance to one-up others, we`d spend those hours on the job gladly. But it is becoming increasingly clear that, beyond a certain minimum of comfort, money is not buying us the happiness we seek. So, what is really important and what should be your main focus?
Solution - live below your means
Your primary aim in life is and always should be your marriage, your family, and your health. In order to save money, you must fight to keep from spending what you have earned. Recognizing that there is a limit to the amount of money you can spend is the first step to long-term financial planning. Everyone enjoys spending money, but your taste in restaurants, clothes, home furnishings, and cars must be weighed against your financial priorities. You have to make the choice between funding your financial future to its fullest or spending money on extravagant things because you think you "deserve" it. You can get away with this lifestyle as long as the money`s rolling in, but eventually it leads to great stress, particularly if the practice income suddenly drops off or a personal disability occurs. Worse yet, your relationship will crack under the strain.
Problem - credit cards
It`s easy to run through money (even megabucks) when you don`t see the downside of making these purchases with credit cards. Some of the unknowns include sales and, possibly, luxury taxes on your purchases, plus any upkeep these new "toys" require. But some doctors couldn`t care less. They think they have so much money that it`s going to last forever. They overspend and take on debt, thinking next year they`ll pay it off. Unfortunately, they don`t.
Solution - charge cards
Put all purchases you make on a charge card. Why? With a charge card you must pay off the entire balance every month. With a credit card (Visa, MasterCard, etc.), you don`t. Herein lies the cause of running up uncontrolled personal debt, because you don`t have to pay down the debt completely. The most widely used charge card is American Express. Of course, it`s pretty tough to exist in the world these days without a Visa card and a MasterCard, but you should commit yourself to having and mainly using charge cards - not credit cards. Some terrific ideas such as the one above can be gleaned from the May 1998 issue of The Richards Report, in an article titled "26 Rules of Financial Success," written by Richard Madow. Call (800) 258-0060 to get a copy.
Problem - poor communication
The number-one problem that is prevalent with people today is poor communication. This is true in many relationships that exist between doctor, spouse, children, staff, and patients ... but it is a disaster when it comes about with regard to money matters between spouses. They avoid having regular talks about money like the plague. They don`t talk openly about their finances. If they did, it would help to banish bad feelings and bring misunderstandings out in the open. I guarantee you that if you put all your problems out "on the table," discuss them openly, and learn how to compromise, the result will be a stronger relationship.
Solution - one-on-one
The first step toward heading off or resolving financial disharmony is to establish open, honest communication. Start by scheduling a getaway weekend every three to four months with just doctor and spouse by themselves. The statement that can be used as an opener to discussions is: "How are we doing?" Take turns talking about how your money personality developed. You should share with one another your fears, hopes, and dreams regarding money, as well as your concerns about each other`s money habits. When you approach the issues in this manner, you are partaking in the best form of communication, which is "one-on-one."
The biggest danger to avoid is letting the conversation degenerate into a blame session. Accusations and hostility will generate nothing but more hostility. To keep the communication process positive, doctor and spouse need to focus not on who is responsible for their money problems, but on how they can solve those problems together. Therefore, the number-one ground rule is that there be no negativity in the discussions.
A nice approach would be to acknowledge the positive aspects of one another`s money style. A saver, for instance, might admire a spender`s generosity and ability to take pleasure in the moment. The spender, in turn, might praise the saver`s ability to set priorities, plan, and delay gratification. A spender may admit a lack of self-control, while the saver may acknowledge that he/she worries too much. Such an exercise will foster understanding and bring you two closer together.
Problem - de-emphasize income
Most millionaires measure success by their net worth, not their income. In fact, the best accumulators of wealth I know do everything they can to minimize their income as they build personal net worth. Instead of taking their money home, they plow as much as they can into their practices, stock portfolios, and other assets. Why? Because they realize, very astutely, that the government doesn`t tax wealth; it taxes income. The more you bring home for consumption, the more the government takes.
For the years you have been working for wages, a certain amount of money has entered your life. Doctor and spouse should ask themselves, "What have we got to show for it?" What do you have to show for all those dollars that have entered your life? There is an implied challenge in this phrasing. The amount that is left in your life now is your net worth.
Solution - emphasize net worth
This exercise can be a shock to your system, so be prepared. You will be calculating your net worth, perhaps for the first time in your life. Brace yourself. You may discover that you are deeply in debt, and until this moment you have been unaware of the awful extent of it. Now is the time to face that truth. It`s like getting on the bathroom scale after the holidays. There`s a little sting to what you see, but now there is the chance to make some changes in your life. On the other hand, you may make the delightful discovery that you are in a position to be financially secure. Many people have made some life-changing directions from doing this step.
When you start planning, it is very important to assess your present financial condition. When you determine your net worth, you are taking a "snapshot" of where you are today. You determine the value of the assets that you own and the debt that you owe (short- and long-term liabilities). Your net worth is the difference. Also review your savings for future college education, present investments and rate of return, pension plans, parental support obligations, and current levels of insurance coverage, etc. Review your current level of practice overhead, productivity, and profitability, and determine the value of your most valuable asset, your practice.
Problem - no focus
Can you fit into this picture? So far your financial life has had very little conscious direction. Financially speaking, you have been like someone driving around without any destination - burning gas, spinning your wheels, and getting nowhere. You may have many happy memories and souvenirs, but only a few tangibles that could be converted into cash (cars, boats, planes, condos, etc.). You have no clue about where you want to go and have no overview of your financial status. For so many years, you have been toting around physical and emotional loads that weigh you down terribly because of not planning where you want to go.
The typical doctor makes enough money to be truly rich, but lacks the proper mind-set to develop a wealth-building attitude. Most have it all wrong about wealth. Wealth is not the same as income. If you make $1 million a year and spend $1 million, you`re not getting wealthier; you are just living a high lifestyle. Wealth is what you accumulate, not what you spend. Wealth is more often the result of hard work, perseverance, and, most of all, self-discipline.
Solution - written financial goals
Since their focus has been entirely on dentistry, many doctors don`t begin with clearly defined goals for their money. A win-win proposition for doctor and spouse would be to clearly define and write down your financial goals. So, my advice is to start setting your goals now, regardless of your age. Decide how much money you want to accumulate and by what age. The primary goals also should include providing for a financially secure retirement, meeting educational obligations for your children, as well as assuring a comfortable lifestyle. Other common goals include eliminating debt, saving for a home, weddings, etc.
Each person should write down financial goals, including everything from the simple purchase of a big-screen television to a life-changing goal such as a college savings plan. With separate lists in hand, the couple can then create a joint list, which is then prioritized, implemented, and evaluated periodically (PIE) to determine if you are on target.
Problem - no financial game plan
Once you have clearly outlined your financial goals, a game plan must be established to meet these goals. Unfortunately, there are some roadblocks. Hopefully you try to save with some leftover money after you have taken care of your bills. It doesn`t work. You try personal budgets, and they don`t work. I reiterate: trying to save from what`s leftover doesn`t work, and the personal budgeting approach (like dieting) seldom works. However, a practice budget (through percentage budgeting) is a must.
Solution - "pay yourself first"
Meeting each of these financial goals and being able to save for your future financial security can be vastly simplified by establishing a monthly payment amount necessary for each goal. The strategy is to "pay yourself first." I can`t tell you how powerful and meaningful those three little words are. How can you become financially independent if you don`t pay yourself first? Believe me, wealth beyond your wildest dreams is possible if you follow this golden rule. Investing 10 percent of all you make (early on) in long-term growth stocks will make you a very rich person one day. This is a painless way to save where you barely notice the money is gone and working for you!
Whether you are saving for a down payment, a car, a trip, whatever, the most effective thing is to have the money come out of the practice finances and be forwarded to your bank electronically before you have a chance to spend it - out of sight, out of temptation to spend.
Problem - implementation
Once you have determined the monthly payment amounts necessary to fund the doctor`s retirement, the children`s education, the elimination of debt, and to reach any other financial goals, the next step is to make sure the required payments are made each and every month. Though the concept is deceptively simple and highly effective, it needs to be monitored and given proper attention. Who would have a more vested interest than a spouse?
Solution - spousal involvement
Accepting the responsibility of this task presents a wonderful opportunity for the spouse to become knowledgeable about the personal and practice finances. With the help of QuickBooks Pro 2000 software, this also gives stay-at-home spouses a feeling of autonomy and self-worth that they might not have otherwise. Now the doctor is free to concentrate on more important matters, such as improving the performance of the practice, which is critical in today`s uncertain environment.
Another benefit of spousal involvement is keeping conflicts to a minimum, because both doctor and spouse will have full knowledge of the family`s finances - income, expenses, savings, investments, and that four-letter word debt. Why should the spouse have full knowledge of practice finances? What happens if the doctor drops dead and the surviving spouse knows nothing about their personal and practice finances? Or vice versa?
It`s okay if one spouse is the primary money manager, as long as the other agrees and is aware of how the finances are being handled. The best relationships I have seen are those in which spouses share the financial responsibilities of both the practice and personal finances and all other decision-making on an equal basis. When uncertainty abounds, increased emphasis should be placed on putting your financial house in order. Using the process outlined above, you can be assured of reaching your financial goals successfully.
Problem - not understanding compounding
It takes much less money to reach your goal than you think, thanks to the extraordinary power of compounding. For example, if from age 35 to 55 you save $30,000 a year, you will accumulate approximately $1,780,000 and get an average annual rate of return of 8 percent. You can take out $9,000 (post-tax) every month until age 75 (20 years). While you would have put in a total of $600,000, you will be withdrawing a total of $2,900,000. By comparison, if you started saving at age 40, you would have approximately $840,000, less than half as much. If you wait until age 45, you would have approximately $420,000. By waiting 10 years, you lose the opportunity to have accumulated $1,300,000.
Solution - start saving early.
It is never too late to start saving. Think of saving and investing as your number-one financial obligation each month. You have more time remaining today than you will ever have again. Time also allows us to make up for errors in judgment that we may make along the way.
Once you have saved money, you place a different set of priorities on what you want. Eventually, you will be able to do everything you truly want to do, rather than just satisfying your impulses. Remember that your purpose in life is not to save - it is to be able to do what you want to do when you want to do it.
It comes down to your personal priorities. A simple rule of thumb is to save at least 10 percent of your gross income. As you earn more, increase this percentage. You can always find the money to meet this goal if you are absolutely determined to do so. Don`t overlook small, but constant, saving opportunities.
Problem - more is better
Participants in our seminars, whatever the size of their incomes, always say they need "more" to be happy. Even people who are doing well financially are not necessarily fulfilled. When I ask, "How much money would it take to make you happy?" can you guess the answer? It is always "more than I have now."
So here we are, the most affluent society, and we are stuck with our noses to the grindstone, our lives in a perpetual loop between home and our practice. Our mindset is always yearning for something that`s just out of reach or over the horizon.
We build our lives on the myth of "more is better." Our expectation is to make more money as the years go by. Eventually, it is our desire that we will have more possessions, more prestige, and more respect from our community. More is better; this is the motto that drives us. It`s the motto that leads us to trade in our cars every three years, buy new clothes for every event and every season, get a bigger and better house every time we can afford it, and upgrade everything from our stereo systems to our lawnmowers simply because some new automatic widget has been introduced. As a result, you get deeper in debt and often deeper in despair, which leads to chaos and stress. The "more" that was supposed to make life "better" can never be enough.
Solution - determine how much is enough
There is a very interesting place, one that provides maximum fulfillment, and it is the secret to life. It`s a word we use every day, yet we are practically incapable of recognizing it when it`s staring us in the face. The word is "enough." In this place you have enough for your survival ... enough comforts ... and even enough little "luxuries." When you discover this place (it is different for every doctor and spouse), you will have everything you need; there is nothing extra to weigh you down, distract, or distress you ... nothing that you have bought and never used and are slaving to pay off. "Enough" is a fearless place. It is a trusting place ... an honest and self-observant place ... a place that provides a more intellectual, emotional, and spiritual life. It will help you appreciate and fully enjoy what money brings into your life.
Once doctor and spouse discover what is "enough," they will rid themselves of all their old financial maps, thereby making them and their children less dependent on the material things in life. Until you can think independently, you can`t be independent. Until you can deliberately and dispassionately question your own inner road map for money, you will be stuck in a classic financial dead end. Stay tuned.
There are 10 guidelines that doctor and spouse must incorporate into their lifestyles to avoid the risk of confrontation over money. They are listed below. Quiz yourself. If you have more than two "Nos," you could possibly be one of the seven in 10 couples who don`t see eye-to-eye on financial issues. If this is the case, you need to persevere a little harder to resolve your differences over money.
Yes ___ No ___ We plan together written personal goals that will help increase our net worth 15-20 percent annually.
Yes ___ No ___ We evaluate our "game plan" periodically - we have "getaway" weekends every three to four months.
Yes ___ No ___ We talk openly and have developed open and honest communication. We are dedicated to truth and reality.
Yes ___ No ___ We know how to constructively deal with the pain that goes with problem-solving financial issues. We don`t avoid it.
Yes ___ No ___ It is not a problem for us to compromise. We mutually agree that there is a limit on the amount of money we can spend.
Yes ___ No ___ We exercise self-discipline and delay immediate gratification.
Yes ___ No ___ We are proactive responsible adults.
Yes ___ No ___ We live below our means.
Yes ___ No ___ We "pay ourselves first," whereby we are able to fund monthly all of our financial goals like payables.
Yes ___ No ___ Spouse is knowledgeable about both personal and practice finances.