Smart Couples Finish Rich: 9 Steps to Creating a Rich Future For You and Your Partner, revised by David Bach
Do you find yourself constantly arguing with your partner about finances? Perhaps not too surprisingly, this is one of the main factors leading to discontent in marriages. In Smart Couples Finish Rich, David Bach tries to change the financial narrative between couples. He laments that most couples rarely talk about finances unless they’re fighting about it. He aims to make finances less of a taboo topic for couples and allow them to take control of their financial situation, whatever it may look like.
Here are some of the best pieces of advice Bach offers in his book, and some actionable steps couples can take to shore up their finances:
1. It’s fairly normal for a couple to have different outlooks on finances. Everyone comes from a different financial background, and with that, have probably come to value and spend money different than your partner. Bach states that it’s not the differences here that leads to problems with marriage, it’s the failure to address them. It’s imperative to talk about each other’s financial expectations and be on the same page moving forward. It shouldn’t be taboo for a couple to discuss their financial situation, no matter how rocky it may be at the moment.
Take a moment to find out how much you know about your current financial situation as an individual and as a couple: What are your liabilities? What are your assets? What are your financial goals as an individual and as a couple?
2. Determine the true purpose of money in your life. This reminded me of Vicki Robin’s mantra of “your money= your life energy” in one of my previous posts. Bach states that money allows us three things: to be, to do, and to have.
Money allows people to live in a particular way that defines who they are; to take actions that help them create the kind of lives they think they want; and to accumulate things they think will bring them joy. If we spend too much time working on the last of these, we may find ourselves surrounded by things that no longer bring us much happiness.
Bach offers an exercise in this chapter that helps readers determine their five main values. These are cornerstones of a person’s life that will define who they are and what type of person they seek to be. By determining these five values, we can then make financial decisions that follow who we’d like to be and set goals to maintain these values.
3. Organize your finances. I personally found this to be the most helpful of the chapters in terms of an actionable step to enhance your financial situation. If you feel you’re disorganized or drowning in paperwork, Bach lays out an easy File Folder System to get all of your finances in order and in one place. (See our article about creating a personal filing system for more information.) Automation is great, but it can be beneficial to consolidate all of your paperwork into one cabinet for easy access, for both yourself and your loved ones.
Bach advocates for a 12-section system:
- Tax Returns: Dating back even years.
- Retirement Accounts: Quarterly statements from your IRAs, 401k’s and the sign-up package from your company retirement account.
- Social Security: Your benefits statements.
- Investment Accounts: All accounts that aren’t retirement accounts and include quarterly or annual statements.
- Savings and Checking Accounts: Where you’d keep your monthly banking statements.
- Household Accounts: With subfolders for your house title, home improvements (keeping receipts for any home-improvements), and home mortgage, for all your mortgage statements. If you rent, place your lease in this section.
- Credit-Card Debt and Other Liabilities: Include monthly statements for credit cards and college loans, car loans, etc.
- Insurance: Include policies and payments on health, life, car, homeowners, etc.
- Family Will or Trust
- Children’s Accounts: including all pertinent info on college savings accounts and other investments for them
- Real Estate & Other Investments
- Inventory Planner: Prepared by Bach is a worksheet which includes a running total of your net worth.
This may take some effort to prepare, but you’d have all your finances in one place, with easy access and reference for both yourself and your loved ones.
4. Build your retirement basket. Bach advocates for a 10% contribution of your pre-tax income each year towards your retirement accounts, at a minimum. He really advocates 15%, citing a Fidelity study which observed that an average person became a millionaire when they saved an average of 14% of their income. However, if you’re already struggling with your finances, 10% is a great place to start.
He recommends that most of this money go towards your 401(k) account before contributing to a Roth IRA account. Do your research on exactly what kinds of investments you’re making within these accounts.
5. Build your security basket. First and foremost, this includes getting your rainy-day funds in order. Things come up in life, such as losing a job or unexpected medical expenses. Bach advocates having a minimum of three months of expenses.
It can be up to 24 months of expenses. This doesn’t mean leaving it in a bank account that is only accruing .01% interest. Bach recommends placing this into a money-market account.
After building a rainy-day fund, Bach calls for planning your living will or trust. Also making decisions on different types of insurance, as preventive measures for yourself and family.
6. Build your dream basket. Don’t forget that life is to be enjoyed! Money can give you the opportunity to carry out your dreams, whether that be acquiring new skills and education, traveling, or starting your own business. Bach recommends setting aside a minimum of 3% of your income towards achieving a dream of yours or your family.
If it’s a short-term dream you’re hoping to achieve, such as a family vacation or class you’d like to take, consider a more conservative investment like a money-market account. If you have a long-term dream of starting your own business or getting a second home across the country, consider more growth-oriented investments.
7. As a couple, determine who’s responsible for what. It’s important to maintain transparency as a couple, and both should know the household cash flow, and have a say as to where the money is going.
Bach does advocate for both separate and joint accounts for a couple. It’s important for each person to have some sense of privacy with how they spend their money (you don’t want to know what your spouse is getting you for your birthday!) and to also have a joint account for your security and dream baskets.
Bach finally advocates for reaching out for professional help from a trusted financial counselor or advisor. It’s not a sign of weakness to seek help from a professional, but rather a strong step toward being comfortable with your financial situation.
If you’re struggling to get on the same page as your partner when it comes to finances, or feel you need to revamp your financial organization and allocations, this is a great place to start.
Finances shouldn’t be a taboo subject, especially between a couple. With a bit of analysis, organization, and goal-setting, couples can begin to feel financially empowered and begin to achieve their long-term goals.
Star Rating: 3/3 stars
Do you have any tips for fellow couples to improve their financial situation? Feel free to share below!