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Money Issues Create Stress; Money Fights Predict Divorce
Have you noticed that most of us leave high school to face the world or college with next-to-no understanding of the principles of successful money management? The idea that our spending should be carefully planned and based upon our income is quite unlikely to enter many of our minds. At that point in our young lives, the practice of differentiating our needs from our wants is unimportant. And so, many of us spend more than we have, and we buy more than we need, indulging ourselves with more than a few wants. We are encouraged in this by our marketing-driven culture and our own emotional needs.
Eventually, the realization comes for many that we are in a financial predicament, with mounting debt and limited income or even the loss of income. Stress is the result. This is bad enough if we are single, as this stress is likely to affect our relationships and even our physical health. For married couples, disagreements and fighting over finances are strong predictors of divorce, and the likelihood of divorce increases with the frequency of disagreement. On the other hand, when there is agreement about finances and financial decision-making is shared, the likelihood of future divorce is reduced. (Xiao, Jing J., Ed.Handbook of Consumer Finance Research, 2010, Chapter 20, "Marriage and Finance" by Jeffrey Dew).
If you and your marriage are experiencing stress (or even mild discomfort) over your financial condition, there is hope! There likely will not be a quick fix, but with good communication, discipline and determination to go the distance, the situation can often be reversed.
Where to start? First, seek agreement with your spouse that change is in order, and help is needed. Without a mutual desire for improvement, progress will be difficult (although not impossible). There are many financial counseling services available. Some are free; some are fee-based. Some churches offer budget counseling. Research for financial/debt/budget counseling on the internet will turn up some resources. Many of these websites have helpful articles and advice. Here are some examples of helpful websites:
The obvious fundamental principle is that your income and expenses have to be brought into balance, so that there is enough income to cover your necessities and minimum required payments. Generally stated, you will need to figure out how to increase income and/or reduce expenses (including debt payments) until balance is achieved. For most, this will require lifestyle changes - reducing expenditures to cover needs, but not wants. Modifications to lifestyle may be drastic depending on the situation, but they need not last forever. If you and your marriage suffer financial stress, changes must be made, and the sooner, the better.
A budget (sometimes called a spending plan or cash flow plan) is essential to bringing order to your financial picture. The websites above provide forms to help you do this. Your budget must be updated regularly (at least monthly) in agreement with your spouse. If you discover through the budget that you do not have enough income to manage your minimum requirements, you will have to make decisions about what is to be paid and what cannot be paid. Top priority should be given to expenditures for basic food, shelter (including utilities), transportation for work and clothing (as needed for employment). Other obligations which cannot be met require communication with creditors and requests for extensions.
Spouses working together on a detailed budget and sharing the decision-making have the greatest probability for success.
A critical decision to be made jointly is to stop borrowing. This includes the use of credit cards, with which you accept a loan at every swipe!
To enable you to stop borrowing, you will have to establish an emergency fund. Your budget must include an expenditure item for setting aside some funds for emergencies, and this must be done before tackling debt or making any payments other than the minimum. The lack of an emergency fund inevitably leads to borrowing. Avoid the temptation to use the emergency fund for anything other than unanticipated emergencies. Try to save money, sell stuff, work extra hours or jobs until you have at least $500 and preferably $1,000 in the emergency fund.
To review, spouses should collaborate to change lifestyle in order to bring income and expenses into balance. Create a budget and update it at least monthly. Establish an emergency fund, and quit borrowing. You are on your way to stress-free financial management.
The Seven Baby Steps adapted here from Dave Ramsey's website (http://www.daveramsey.com/ new/baby-steps/) provide a workable plan for financial success.
Steps 1, 2, and 3 are to be done in sequence. Steps 4, 5, 6 and 7 may be done concurrently.
1. $1,000 in an Emergency Fund
2. Pay off all debt except the mortgage. You need a plan for this. List your debts from low balance to high balance and work hard to pay off the first in the list, while maintaining the minimum payment on the rest of the list. Each time one debt is completely paid, that payment amount can be applied the next month to the next debt item in the list. In this way, the list of debts shrinks, and the money available for payments increases.
3. Increase the Emergency Fund to 3 to 6 months of expenses in savings. This is insurance against loss of income.
4. Invest 15% of household income into Roth IRAs and pre-tax retirement. When you reach this step, you'll have NO DEBT PAYMENTS (except possibly a mortgage), and a fully funded emergency fund.
5. College funding for your children. Be sure Step 4, providing for your own retirement, is ongoing before saving for college.
6. Pay off home early. Apply all of your extra money toward the mortgage. Life with no house payments is an achievable dream!
7. Build wealth and give! With no debt, it's time to build wealth and give as never before. Leave an inheritance for future generations, and bless others now with your excess. It is the best way to live!
Jama Martin, M.S., is retired from practice as a business consultant and meeting facilitator. As a volunteer, she has served as a personal budget counselor and has facilitated classes and support groups in personal financial management.