4 Ways Giving Makes You Better With Money

It sounds counterintuitive, right? Manage your money better by giving it away! However, there are some vital reasons why consistently giving makes us better financial managers.

Before we get into those reasons, let’s clarify what we mean by giving. Giving does NOT include purchasing an item for someone on a credit card which you cannot pay off immediately. Borrowing money to purchase something is not a giving, it’s spending. Giving does not involve debt.

It might be easier to substitute the word “giving” for “donating.” You cannot donate something you don’t own. So for the purposes of this conversation, when we talk about giving, we’re referring to the idea of donating our time, talent, or resources that we own. We are not referring to spending.

Giving isn’t just for holidays or celebrations, it should be part of your monthly budget. I teach my clients a Spending Formula to Win with Money and base their budget off of it.

Giving doesn’t always need to be financial either. Sometimes, you may be living on just enough to get by and in those cases, you can still give, but it may just be more with your time or your talent.

Now that we’re clear on the definition of giving, let’s discuss four reasons giving makes us better with money.

1. Giving Fights Our Natural Selfish Impulses

Besides “Dada” one of the first words my son learned was “mine.” You don’t have to teach children the concept of ownership, we’re hardwired to be selfish. You do, however, have to teach children to share and to give. Giving is a perfect way to counteract our natural selfish impulses. By giving first, we’re fighting the impulse to spend (and overspend) on ourselves.

Have you ever had the experience of taking $100 out of an ATM and then two days later you only have $10 left and have no idea where the money went?

If you give $10 first, you’ll be much more diligent out how you spend the remaining $90.

2. Giving Makes Us Happier

Social science research has shown us that we actually derive more pleasure from giving than we do from spending on ourselves. Our brains are hardwired this way, the act of giving produces endorphins (hormone released in the brain responsible for feelings of euphoria).

When you give consistently in a way that is meaningful to you and you know has impact, it has a greater positive impact on you and your happiness than ‘retail therapy’ for example, which is often followed by feelings of guilt and often greater debt.

3. Hoarders Never Win Financially

My father taught me a lesson when I was around 10 years old that I will likely never forget:

He placed a $1 bill in my hand and told me to hold it as tightly as I could. With one end of the bill inside my clenched fist, he pulled the other end to make sure he could not pull it out of my hand. He said, “Hold it tightly and don’t let go! If you let it go, I’ll take it back!”

He then pulled a $20 bill out of his pocket and tried to place it in my hand. Unfortunately, because my fist was clenched so tightly, he could not put the $20 bill in my hand.

He said, “If you’re tight and stingy with your money, you’ll block the universe from blessing you with more. The only way I can give you this $20, is if you open your hand.” I went from a clenched fist and opened my hand flat as he put the $20 bill in my hand.

If you think to yourself about the people in your life that you would drop whatever you’re doing to go help, they are likely the most generous people you know.

4. What You Do With Little, You’ll Do With Much

Finally, there’s a common limiting belief that if I just made more money I would give more. Some people believe that wealthy people are inherently selfish. I can tell you from my own personal experience that money simply amplifies your existing values and beliefs. Money, much like alcohol, can be a ‘truth serum’ which removes your inhibitions. There are generous wealthy people and there are wealthy jerks. There are generous poor people and there are poor jerks. The truth is that if you’re a giver and you give of your time, talent and financial resources when you have little, you’ll do even more when you have more resources.

Giving consistently isn’t just a nice thing to do, it’s a principled approach to managing our finances that has benefits far beyond the dollars themselves.  

5 Lessons About Money You Didn’t Learn in School

April is Financial Literacy Month and the purpose is to bring awareness to basic principles of personal finance. American children and adults routinely fail basic financial literacy questions and personal finance is not a part of the vast majority of schools’ curriculum.
This month, however, we encourage you to take a step back and consider on a high level why financial literacy matters more now than ever. If you can understand the big picture why you need to be diligent about your dollars, then getting into the weeds is not as daunting. Here are 5 lessons about money you didn’t learn in school.

1. Your finances impact nearly every aspect of your life

Money shouldn’t be worshipped, but rather respected. Respecting money means understanding how it works and how it impacts your life. Money is simply a resource and you must utilize that resource wisely. The decisions you make with your money directly impact your family, friends, your home, your health and your job.
Some of our most important decisions in life are made by age 35 (level of education, career, marriage, kids, first home purchase, investment decisions). If you make these decisions without fully understanding the financial implications, it can seriously impact your ability to build wealth.

2. The American Dream can easily turn into a debt nightmare

Many of us were sold a 20th century model of ‘making it’ in America. The formula included – get good grades, go to a great school, get a good job, buy a car, get married, buy a house, have kids. That advice worked well for previous generations, but let’s look at what that formula may cost you today.

  • Undergraduate College Degree (Tuition, Fees, Room & Board, and Books)
    • In-State Public college averages $25,290/year = $100K+ for 4 years
    • Private College average $50,900/year = $200K+ for 4 years
  • Average starting salary for college graduates – $50,359
  • Average cost of a new car: $33,560
  • Average cost of a wedding: $35,329
  • Median home cost: $199,200
  • Cost of raising a child (Birth to 17): $233,610 or about $14K/year

These numbers are not intended to scare you or to imply it’s impossible (although the fact these numbers represent averages is pretty scary). It is possible to do all of these things, however, if you don’t fully understand the financial implications of these decisions, your American dream can easily turn into a debt nightmare.

3. You’re on your own financially, no employer or government will save you

If you’re under the age of 50, you likely don’t have a pension and Social Security is not guaranteed. A pension is basically a financial arrangement with a company which would fund your retirement (as a percentage of salary) in exchange for a certain number of years of service. That’s where the “get a good job with benefits” advice came from. Except for a limited number of government jobs, pensions are practically extinct, so you are on your own for retirement. There is also no such thing as a secure or guaranteed job, so you need to prepare for that as well. You’re working for 40 years (ages 25-65) to fund not working for 30 years (ages 65-95). You need to find a way to save 30 years’ worth of income in 40 working years. Don’t wait until your 40’s to start thinking about retirement investing. Also, don’t assume you can work into your 70’s either, your health may not accommodate it.

4. Delayed gratification can change your financial future

Personal finance is much more about behavior and mindset than money and math. It takes self-awareness and discipline to walk into Target and only purchase the one item we went there for. We are not rational when it comes to money and we must understand ourselves well enough to counteract it. The principle of delayed gratification is very important to be savvy with money. We live in a fast transacting world where we can have nearly anything in 24 hours, but building real wealth is still a slow methodical process. Even though you may want something now and pull out the credit card, it’s almost always a better idea to wait and pay cash. People who build up their delayed gratification muscles and sacrifice immediate wants for the long-term benefit are the true winners when it comes to money.

5. College education has not adapted to the 21st-century economy

The cost of college has risen over 200% in the past 30 years, however, the value of the education is not twice as valuable as it was in the 90’s. While the economy has changed dramatically in the past 30 years, college curriculums haven’t. This does NOT mean college education isn’t worthwhile, however, if you believe your college education is all you need to be prepared for a 21st-century economy, you may be sorely disappointed. Here are just a few vital 21st-century skills needed regardless of major.

  • Financial literacy – Budgeting, saving, credit, debt, investing
  • Entrepreneurship –Building formal structures and processes to create value for others
  • Communication – Public speaking, Writing, Storytelling

Your education shouldn’t end with a diploma. If you want to be successful in any area of life, you should be a continuous life-long learner. Understanding how money works and how to maximize your financial resources to live your life on your terms should be near the top of the learning list. Financial literacy is simply learning to be a good steward of your financial resources.

Have More Finance Dates With Your Partner

As a couple, it can be difficult to get on the same page financially and agree upon sensitive financial topics. We may have different backgrounds, experiences, personalities, and preferences when it comes to money. Fortunately, there are ways to stay on track, keep focused and have fun. My wife and I have monthly check-ins we call Finance Dates. We’ll describe what they are and why they’re important.

What Is a Finance Date?

My wife and I have a monthly Finance Date on the calendar to check in on our financial progress from the previous month, assess our current status, and review our progress toward our annual goals. There’s an element of the past (what we did last month), the present (where are we now) and future (where are we trying to go). This keeps us laser-focused on our financial goals so that we can make adjustments along the way, as opposed to setting the same goals and resolutions year after year.
One of the advantages of being in a relationship is having a built-in accountability partner. It is an opportunity to leverage each other’s strengths to keep making progress. For example, for Finance Dates, if one partner is more of a planner and detail-oriented, they could take the lead in organizing the finances. I’m a personal finance nerd, so reviewing our spending, updating our budget, tracking our net worth and forecasting ahead is actually fun for me. If the other partner is more free-spirited and spontaneous, they can take the lead in organizing the date. Whatever your strengths are, BOTH partners need to be involved in understanding and agreeing upon your financial goals. It is essential that each person understands all the financial accounts, where they are, how to access them and their purpose. Just because one partner takes the lead in organizing doesn’t absolve the other partner of their responsibilities. Talking about money doesn’t have to be stressful, judgmental and depressing. It can actually be fun!

How Do You Make Finance Dates Fun?

Use your Finance Dates as an opportunity to celebrate! Any time you set long-term goals, it’s really important to celebrate the small wins. The small wins are what keep you motivated along the path to achieving the big goals! Paid off a credit card? Celebrate! Saved $200 by making breakfast and bringing lunch to work? Celebrate! Paid off a student loan? Celebrate! Increased your credit score? Celebrate! As the liquor commercials say, Please Celebrate Responsibly! This is where the strengths of the more spontaneous, free-spirited partner can come in! Ice cream and a mid-afternoon dance party at home? Yes, please! Your favorite evening go-to romantic activity? Oh yeah! Be creative and find ways to enjoy the process of moving toward your goals. Even if there isn’t all that much to celebrate on paper, the very fact that you two are coming together to review your finances and discuss how to improve is, in fact, a WIN!! Consider all the couples that are not doing it!
We know that finances are one of the top reasons for divorce and the biggest source of stress for most individuals and couples. We created a Finance Date checklist to help you in these discussions and recommend a monthly cadence to both improve the relationship and make progress on your financial goals. Use your advantages as a couple to turn that potential source of stress into an opportunity to get closer and celebrate each other!

5 Topics All Couples Should Agree On Financially

Let’s be honest, money is emotional and complex! It impacts nearly every aspect of our lives and most certainly impacts our relationships with our significant other. Since money is still such a taboo topic in our culture, miscommunications can create small cracks in the bonds of our relationships. Like a small crack in a windshield, it can expand over time and damage the entire windshield. However, it’s also true that small cracks can be repaired simply if they are identified and corrected early.
When thinking about finances as a couple, we must understand that we’re partnering two people with different backgrounds, experiences, goals, and values when it comes to money. A couple partnering their finances is essentially entering into a business partnership, with the exception that businesses typically have a formal written contract which stipulates the rules each partner must abide by, most couples don’t have a written contract. In absence of a written contract, we need to come together to have a common understanding of some fundamental questions.
Before we get into those fundamental questions, let’s be cautious about how we set up these conversations. Personal finance is just that, personal. When we’re having conversations about money, they can be extremely intimate and bring up emotions of shame, defensiveness, guilt, and even anger. Do NOT corner your partner in an interrogation room Law & Order-style with a bright light asking intimate financial questions. You want to create an environment that is safe, positive, private, honest, and free of judgment. This is also not just one conversation but should be several and ongoing. Make it a finance date! We’ve created a checklist of items to discuss to make sure you can cover all your bases.
[convertkit form=5115696]
So let’s get to the questions! The following are 5 topics couples should agree upon financially.

1. What are our financial values and priorities when it comes to money?

As we mentioned before, we have different priorities and values when it comes to money. One partner may view money through the lens of power and control. For example, they may be a meticulous planner and want to maximize every penny. The other partner may believe money enhances their experiences and relationships. They may see money as a means to see more and do more. In this situation, one partner views their partner’s financial behavior as controlling/limiting and the other partner views their behavior as undisciplined and wasteful. If we only view our partner’s behaviors through our own frame, it can create a purely biased and unbalanced view that can create many small cracks in the bond. It’s important to discuss these views openly and come to terms with what your joint values and priorities are.

2. What are our individual and joint financial goals?

After discussing your values and priorities, then you can discuss financial goals. Goal setting is important individually, but it’s even more important as a team to ensure you’re both rowing in the same direction. Your goals have to be specific, written and shared.  An unwritten goal is called a wish. Can you think of any successful teams, businesses or organizations that don’t have specific written goals? Come up with your financial goals individually and then bring them together to set joint financial short, medium and long-term goals.

3. What is our plan for managing debt?

Misuse of credit is one of the largest contributors preventing people from building wealth. Debt is essentially present borrowing against future income. Unfortunately, too often people find themselves in a situation where their future catches up with them, and their new present is unbearable. Living paycheck to paycheck can create ever-present stress because financially they are just treading above water, knowing that one uncontrollable change could cause them to start drowning. Working hard just to pay off debt from the past and not being able to take advantage of opportunities in the present or save for the future can put a serious strain on both the individual and the relationship. Discussing current debts, and being on the same page in terms debt that you may incur in the future (mortgage, business loan, student loan) is vital.

4. What is our plan for handling emergencies/loss?

You know the saying, $%*? happens! The question is not whether it will happen, but rather are you prepared for it when it does. Having an emergency fund is vital for anyone to have, but that’s just a first step. Once you’re in a committed relationship and are partnering your finances, you need to discuss how to handle a situation in which one or both of you are disabled or passed on. If you think those are difficult conversations now, think about how much more difficult it would be in the absence of these conversations afterward. Don’t add financial stress to grief.
Life insuranceDisability Insurance, Living Will, Healthcare Power of Attorney, and organizing confidential paperwork and passwords. These are examples of items you can take care of relatively inexpensively which go to piece of mind.

5. What is our plan to build wealth?

So you’ve sorted your values, set goals, managed debt and planned for contingencies, now let’s talk about wealth building. Most people who work simply exchange their time and skills for money. At some point, they may no longer want to continue that exchange. Some people call it retirement or financial independence, the goal for most people is to amass enough financial resources to have independent control over the use their time and talent. The best way to do that effectively is to plan, save and invest as early as possible. There are a zillion routes to get there; combinations of employment, entrepreneurship, equity investing, real estate investing, inheritance just to name a few, but you and your partner want to be on the same page in terms of what is the end game, how much do we need, and approximately how long will it take?
We created a checklist of items for your finance date and we are also developing an online course with live coaching to help couples dig deeper into some of these topics to get on the same page financially.
[convertkit form=5115696]
Discussing finances as a couple can be a very tough road to travel. There can be potholes, detours, roadblocks, speed bumps, accidents, and traffic. However, if you and your partner can agree upon where you’re going, how to manage challenges and which routes to take, it’s much more likely that both you will get there, together.
 

4 Reasons Financial Literacy is Essential 

April is Financial Literacy Month! The purpose of Financial Literacy Month is to bring awareness to and promote the importance of establishing and maintaining financial healthy habits. Unfortunately, in our country, financial literacy has not been prioritized as an essential topic of learning in Public K-12 or higher education. Too many are left to fend for themselves when it comes to managing money.

“College graduates spent 16 years gaining skills that will help them command a higher salary; yet little or no time is spent helping them save, invest and grow their money.”
Vince Shorb, CEO, National Financial Educators Council

1. Personal Finance is 20% knowledge and 80% behavior

There’s a big misconception that personal finance is about math. Some people will shy away from financial topics because “they’re not a math person.” This could not be further from the reality. Avoiding personal finance because you’re not a math person, is like avoiding learning to drive because you’re not a car person. You don’t need to know how to rebuild an engine to get a license and become a safe driver.
Personal finance is much more about the habits and behaviors utilized with our limited resources. Some of these are so ingrained that you may not even see them as habits.

  • Do you use cash or debit/credit cards?
  • Do you have a written budget monthly or do you just pay bills as they come?
  • How often do you check your financial accounts? Do you use an aggregator like Mint?
  • How often do you check your credit score? Credit reports?

Many of our personal finance habits are learned when we’re children. In many ways, we model what we see from our parents and older siblings. If you grew up in a household of spenders or if you grew up in a frugal household, you’ll likely carry some of those same habits today. In order to change those habits, we have to have the requisite knowledge of how to properly manage our finances, but knowledge alone isn’t enough. Much like weight loss, knowing which foods are healthy and how to workout is only the first step. Making the behavior changes into consistent habits is what makes the difference.

2. Some of the most important financial decisions you make are when you’re young

Another reason financial literacy is so important is because there’s another big misconception:  ‘We can deal with the financial stuff when we’re older.’ If you talk to just about anyone over the age of 50 about money, they will tell you they wish they had learned about managing their money when they were younger. The chief financial complaint of older Americans is that they didn’t start saving or investing early enough.

40% of Americans are counting on the lottery, sweepstakes, getting married, or an inheritance to fund their retirement
– Money Magazine

Money Management should be a required curriculum in Junior High, High School and College in every school in America. If the purpose of school is to train you to prepare you for the real world, it doesn’t get much more real that how you manage your money.
Decisions such as your level of completed education, financing higher education, choice of career, location, marriage, children, first home purchase are all decisions that can have a serious impact on your long-term finances and for many are decisions made while relatively young. Don’t make the mistake of waiting until you’re “all grown” up to take responsibility for your finances, you’re already making important financial decisions.

3. Companies are providing fewer guaranteed benefits and shifting risk to employees

We’ll spare you the history lesson, but companies used to guarantee retirement benefits in exchange for years of service. They’re called pensions and they are extremely rare today. Essentially, if you worked for a company for, say 25 years, the company would fund a percentage of your salary in retirement until death. It was completely managed and paid for by the employer.

46% of Americans have less than $10,000 saved for retirement.
– 
Employment Benefit Research Institute

Today, you are totally responsible for your own retirement. Which means you have to save enough money so that you live off your savings. If you participate in your employer’s 401(k), you might get some help from your employer in the form of a 401(k) match, but that’s optional.  You choose what to invest in, how much to invest or whether to invest at all. You have to fund your own account and none of the investments are guaranteed, so all the risk and responsibility of funding your retirement is on your shoulders.
If that wasn’t depressing enough, the safety net of Social Security will likely not be enough to live on for anyone under the age of 50 today, if it exists at all. It is essential that we fund and properly invest early and often to manage that big responsibility.

4. Consumer debt is devastating wealth

Another reason it is vital to learn and master your personal finances is that it has never been easier in to spend money we don’t have. We live in a consumerism culture and our natural inclination is to acquire more stuff. In generations past, cash was the major option. If you wanted to purchase something that you didn’t have cash to purchase, you had to physically walk into a bank, convince the banker for a personal loan and fill out loads of paperwork, and/or put up collateral.

60% of Americans spend about equal to or more than their income.
– FINRA Investor Education Study

Today, in order to spend money you don’t have, you can use a piece of plastic in your wallet or swipe your phone. You may never have to physically walk into a bank. Financial products like credit cards, leasing, payday loans, student loans, interest-only mortgages, adjustable rate mortgages are all products created in the last 30 or so years which allow more and more people access to credit. The downside of having access to credit is that if not used responsibly, it reduces the ability to save and leads to crushing debt. We only have to look at the most recent economic recession of 2009 to see the impact of having too much debt.
 
From a financial standpoint, it’s not at all a rosy picture. There’s no sugarcoating the fact that 76% of US Citizens are living paycheck-to-paycheck. 20% of them earning more than $100K per year. That means more than 3 out of every 4 Americans are essentially broke. This is why financial literacy is essential in order to avoid the traps that many Americans find themselves in. Again, financial literacy is essential, but it’s just the first step. One has to use that knowledge to change their mindset and their behaviors in order to be truly successful. Finally, financial literacy is a continuous process, it’s not one course, it’s not one topic, it’s ongoing. We hope you take the first of many steps in that ongoing journey.

Financial literacy is not an absolute state; it is a continuum of abilities that is subject to variables such as age, family, culture, and residence. Financial literacy refers to an evolving state of competency that enables each individual to respond effectively to ever-changing personal and economic circumstances.
– Jump$tart

3 Money Lessons for Thanksgiving

Thanksgiving is my favorite holiday. It’s a holiday with the least pretense or pomp and circumstance and is almost exclusively focused on family, gratitude and quality time (a.k.a. the things that really matter). That focus is also extremely important for our finances. There is no shortage of distractions when it comes to things we can do with our money, so here are three lessons Thanksgiving can teach us about money.

1. An Attitude of Gratitude

Pilgrims arrived and anchored near Cape Cod, MA in 1620 arriving just before a brutal winter, which many spent on the ship. Between the 66-day voyage and that brutal first winter, half of the 102 passengers and 26 crew members died. In the Spring, when the remaining passengers moved ashore, they were greeted by Natives, who taught them to hunt, fish, farm and survive in this new land. Thanksgiving’s history begins with a celebratory feast where Pilgrims invited local Native tribes to a feast to celebrate their first successful harvest. These were not people of wealth or high status, they went through a traumatic voyage and a brutal winter and lost many lives. One would imagine they would be heavily reconsidering their decision to leave everything they knew in England to risk life and limb for freedom and opportunity. They were grateful for their freedom, they were grateful the gift of life and they were grateful to their gracious hosts, who without them would have certainly not survived.

The money lesson here is gratitude. Gratitude is free, unlimited and enhances your life immeasurably.

Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos to order, confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend. – Melody Beattie

2. The Beauty of Simplicity

There are only three requirements for Thanksgiving – food, family, and fun. Each one of those can take different forms. Whether you have a turkey or go vegetarian. Whether you have a traditional family, or your own community, and fun can mean anything from falling asleep watching football on the couch to card games and uncomfortable conversations about politics. Either way, there are no religious requirements, expectations of gift exchanges, costumes, candy, ceremonies or fireworks. Thanksgiving is simply about spending quality time with the people you love and sharing a feast. There is a simplicity of Thanksgiving that makes it so appealing and universal.

The money lesson here is that money is just a resource if we break it down to its simplest form. Money doesn’t define who we are and it does not make us better than anyone else. Money doesn’t have to be complex and complicate our lives. If we use money wisely, we use it as a resource build or enhance things of real value like time, relationships and community. The very same things we are grateful for on Thanksgiving.

 

3. Death to Black Friday

Commercial interests have all but ruined Christmas, but over the last decade, those same commercial interests have made a full push to commercialize Thanksgiving. People are actually leaving their loved ones to stand in line at a retail store overnight to buy products. Think about the irony of leaving the dinner table after giving thanks for everything and everybody in your life to stand in line at a store overnight to buy more stuff.

[bctt tweet=”Don’t go from being grateful for what you have on Thurs, to buying things you don’t need on Fri!” username=”moneyspeakeasy”]

Make no mistake, Black Friday is a retail scam. It’s been proven that major retailers steadily raise their prices in the weeks and months before Thanksgiving for the appearance of steep discounts for Black Friday. Let’s not forget the reason for the season – Thanksgiving is about spending time with your loved ones, not camped outside of Target or Wal-Mart. One more benefit to not Black Friday shopping is that fewer employees will have to work crazy overnight hours on a holiday! Let these folks spend time with their loved ones.

So for this Thanksgiving, both with your loved ones and your wallets, be thankful for what you have, enjoy the things that really matter and let’s all sleep in or play flag football on Friday morning!

Financial Infidelity Part 2: How My Lie About Money Almost Ended Our Relationship

 
Money is one of the leading causes of stress in relationships. In Part 1, we discussed how and why financial infidelity occurs and how to overcome it. Part 2 is a personal story from my wife, who had to confront and overcome struggles with money in order for our relationship to survive and thrive. Continue reading “Financial Infidelity Part 2: How My Lie About Money Almost Ended Our Relationship”

Financial Infidelity Part 1: Why We Lie About Our Finances

Money is one of the leading causes of stress in relationships, however, it’s not necessarily money itself that causes the pain, but rather the lack of communication and transparency around money. Whether you are the financial cheater, the victim or just looking for ways to avoid it all together, it leads us to the same question – How do we prevent and overcome financial infidelity?
Often times our shame around money can lead us to behave in ways that are totally outside of our character. The shame of not being able to afford our lifestyle, the shame of being irresponsible with credit cards, the shame of not being as “together” as everyone thinks we are. You may be the ‘responsible’ person in your family. You stayed out of trouble, you got through school, you got a good job, but no one knows that even with your salary, you are barely getting by – and no one sometimes includes your significant other.
Often times in relationship arguments, there is the paradigm of the perpetrator (the person that did something wrong) and the victim (the unknowing recipient of the wrongdoing). We strongly suggest that perpetrator/victim could be the wrong paradigm in most cases of financial infidelity. First, let’s define financial infidelity and then talk about reasons why the perpetrator/victim model may not help you overcome it.

Financial Infidelity – The willful and deliberate concealment of financial transactions from a partner in a relationship in which there is financial interdependence.

Financial interdependence can be as simple as splitting the cost of a meal or complex as completely combining your finances. When people in a relationship begin to have joint financial transactions, it creates expectations which require communication and transparency.

The Perpetrator/Victim Paradigm

If someone is walking down the street and gets robbed. The victim has no responsibility to the thief. Anything the victim could have done differently to prevent the thief from robbing them is irrelevant. The thief committed the crime, gets 100% of the blame and goes to jail. Financial infidelity is often not that cut and dry, so before you condemn your significant other to relationship jail, consider there may be a different way to approach the problem.

We Are Often Irrational When it Comes to Money

We are constantly making irrational decisions with our money. For example, if a $100 item is on sale for $40, we’ll convince ourselves we saved $60. We actually spent $40 and saved $0. We spend hundreds of dollars per year on bottled water that in most cases are not measurably better in any significant way to the water in our kitchen sinks. So let’s begin with the idea that we are not purely rational beings when it comes to money.
According to recent studies, the median lifetime earnings for a U.S. college graduate is $2.3M (average of $57K/year for 40 years). That’s almost $5 million for a couple who are both college graduates. $10K in credit card debt or $100K in student loan debt may seem overwhelming, and definitely not helpful in building wealth, but let’s also keep it the context of a larger perspective of $5 million.
 

We Have Different Money Personalities

We also bring different habits and perspectives to money in our relationships. ‘Opposites attract’ also applies to perspectives with money. Many times in relationships you may have a rebel and a conformist dynamic. The rebel lives in the present, appreciates spontaneity and enjoys the discovery. So one of the reasons they didn’t tell you about the $500 purchase beforehand is because they literally decided to make the purchase in that moment. The conformist, on the other hand, is more likely the planner, the one that actually likes to budget and craves organization and doing things ‘a certain way.’ (a.k.a. My way is right and your way is wrong)
Even without financial infidelity, those different perspectives are bound to create conflict. In order to mitigate some of those inevitable conflicts, communication and transparency need to be at the forefront.
 

Our Foundation for Financial Transparency is Faulty

The foundation of financial transparency and communication is the responsibility of both parties. Have you had “The Money Talk” in your relationship? A few questions to assess your relationship’s financial communication:

  1. Have you recently (within the past year) seen each other’s credit reports (not just the score, but the detailed report)?
  2. Do you sit down together and discuss your budget monthly? quarterly?
  3. Do you have a dollar limit that you cannot spend without your partner’s prior knowledge/approval? (even out of your individual account)

In many cases of financial infidelity, the answer to those questions will likely be no, thus the seeds of deceit were planted. In heterosexual relationships, for example, there are often rules of conduct regarding interactions with people of the opposite sex. As an example, dinner and drinks solely with a co-worker of the opposite sex may be inappropriate. Those boundaries will typically be made clear in the course of a relationship. Financial boundaries, however, are less likely to be addressed and without those boundaries, both parties are setting themselves up for failure.
 

Shame and Guilt Can Cause Us to Rationalize Deceit

If lack of communication and transparency are the seeds of financial infidelity, guilt and shame are the fertilizer.

“Shame is a soul eating emotion.” – C.G. Jung

Shame is a very difficult emotion to overcome and can often be at the heart of financial infidelity. For example, if the way one presents themselves to the public is connected to their financial success, admitting financial trouble is like admitting one is a complete fraud. This is another reason why the perpetrator/victim model is flawed. There may actually be multiple victims. It is often difficult to admit failure to yourself, much less a partner or spouse.

“The difference between shame and guilt is the difference between “I am bad” and “I did something bad” – Dr. Brene Brown

Shame can make a liar out of even the most honest person. The extent to which we internalize our actions makes it more difficult to discuss with others. If racking up credit card debt in our mind makes us a terrible human being (as opposed to someone that made poor financial decisions), we are much less likely to admit to someone we are a terrible human being.
Shame lives in hiding, through secrets and deceit. Anger, judgment, blame and contempt only make it worse. The only real way to overcome shame is through vulnerability in an environment of empathy, understanding, kindness and respect. If that sounds too mushy for you, then ask yourself two questions:

  1. Who have you revealed your deepest secrets to?
  2. Were they someone who you knew would be empathetic, kind, understanding and still love you regardless?

If you haven’t created a loving and open environment for your significant other, then you should have no expectation your significant other will be transparent about their shame.

It Takes Two

The perpetrator/victim model doesn’t often work with financial infidelity because the victim doesn’t have any responsibility to the perpetrator. There are certainly extreme cases of gross deceit, identify theft, fraud and financial abuse where perpetrator/victim model does apply (many of these cases are actually illegal). However, in most cases of financial infidelity, both parties have a responsibility to develop a foundation of open communication and financial rules of the road for their relationship. Both parties also have a responsibility to create an environment of mutual respect and empathy from which shame cannot grow.
Financial infidelity, particularly early in a relationship, can be a wake-up call and catalyst for both parties to grow together with their finances. That was certainly the case in my relationship with my wife, which we will share in Part 2.