By Suzean Haumann, CFP®
Numbers of women who are economically active, either in formal employment or in entrepreneurial or trade ventures, have grown steadily in the past decade. The traditional family unit with a husband as the main breadwinner is changing. Having a joint income has delivered significant financial benefits to families.
Yet many spouses do not always approach family finances in a coordinated, sensible way. For many this approach works absolutely fine, until the unexpected occurs. A divorce, retrenchment or other unanticipated events quickly expose the fault lines of a relaxed money management style.
Five issues to focus on for sound money management for couples:
The household budget
Agony Aunty columns in consumer magazines are flooded with requests for advice about household finances. A husband complaining that a wife spends too much (even though she earns a salary of her own and contributes to joint finances); a wife saying her husband manages all the money earned in the household and she has little say; a spouse ‘hiding’ money in a separate account. A comprehensive household budget that lists all income and expenses (including savings) is an important starting point. Thereafter a decision must be made about who pays what. One spouse can, for instance, pay all costs related to children. e.g. school fees, sport activities, clothing; groceries; household assistants like a domestic worker, gardener or child minder, and entertainment costs like cable tv subscriptions, while the other pays the bond or housing costs, medical aid and insurance. How the expenses are covered is not that important, joint decision-making is.
Successful investing for couples requires setting joint investment goals as well as individual goals. Joint goals can center around long-term plans for retirement or investing in property (typically the family’s residence). Individual goals are important as statistics show that women outlive men by several years. Which means provision must be made for sufficient funds to manage the household or have enough for retirement for the surviving spouse. This does not mean a joint investment is the ideal way to go. As with setting a budget joint involvement is what is required. Using one adviser for both spouses is advisable as the advisor will make sure the investment strategies are aligned and that each individual’s personal investment approach and risk profile is considered. Having separate investment portfolios also provides protection if a spouse dies as the remaining spouse will have access to funds while the estate is wound up (if not married in community of property). Nobody gets married with the plan to divorce but again, statistics show that this is a reality. Individual investment portfolios will thus also have great value should that happen.
Everything does not need to be the same
Respect one another’s viewpoint. Men are often willing to make riskier investments while women may prefer a more moderate approach to investing. A share portfolio might be the perfect fit for him, but she is much more comfortable with a fixed investment. There is room for both with the correct planning. By incorporating the combined financial plan and seeing the same adviser these risk appetites can be incorporated to satisfy the needs and goals of each investor, make both feel comfortable and their opinions valued.
Be prepared that things may change
When you initially married your life looked different. You were young and at the beginning of your life. As you grow older there might be opportunities to make changes to your career or realise a dream. You might need to take a sabbatical to finish your studies, reducing your monthly household income and savings. Be open to your spouse about these opportunities or potholes. Make a conscious choice to talk about things that might influence your financial plan, see a financial advisor at least once a year to adjust the plan if needed.
Always have a will in place
Not having a will in place can be one of the most devastating financial events in the event of the death of a spouse. It creates a myriad of complications for the surviving spouse and could result in short term or even long term financial hardship. A will needs to be reviewed at least every three to five years or immediately when circumstances change. Something like the birth of a child, divorce, buying of property or acquiring an offshore asset, are matters that have an impact on estate planning and must be included or specified.
A spouse also needs to know if he or she is nominated as a trustee of a possible testamentary trust and be informed what the trust is set to achieve and what the expectations will be of the trustee.
Making money matters a family affair will not only contribute to household harmony, it also provides protection when the unexpected occurs.
Read more about the value of professional advice: Client and advisor relationship.
Suzean Haumann is a Certified Financial Planner® at Brenthurst Tyger Valley office. firstname.lastname@example.org