“Coming together is a beginning. Keeping together is progress. Working together is a success.” – Henry Ford

According to the Cabaret movie soundtrack, “money makes the world go around” but it can also bring the most promising relationships to a grinding halt. Disagreements about money are credited with being the number one reason that relationships fail. Given that the divorce rate in Canada is around 41%, it makes sense that any couple considering getting married should talk seriously about money, and how they plan to handle it as a couple, in order to minimize conflict.

Men and women tend to view money very differently. Men often take more risks and don’t save for emergencies whereas women are often more conservative. Many men view their personal financial situation as a gauge of their own success which can lead to feelings of insecurity when financial trouble hits. Women, on the other hand, often associate money with security which can lead to a lot of fear when dealing with investment decisions and money problems. When you combine these differences in perspective with all the programming we receive about how money should be handled in relationships from the adults close to us as we’re growing up it’s hardly surprising that having a money conversation with a partner can be like navigating a minefield.

Last week I explored three arguments that couples have about money (according to a 2004 study by SmartMoney Magazine): merging money, dealing with debt and budgeting. Here are the other three:

How to best invest:

When a Financial Advisor is determining how best to invest a client’s money there are three key factors that they have to take into account: Purpose, Time Horizon, and Risk Tolerance. Money intended to fund a child’s education in 3-5 years should be invested very differently than money intended for retirement in 30-35 years. Similarly, someone who can tolerate their investments dropping 20% in a 12 month period will have a very different portfolio than someone who loses sleep over a 5% drop. Some people love to learn everything they can about investing and actively manage their own portfolio but the majority of us are much more passive and would rather leave the investment management to a professional advisor. No two people are the same and it’s important for couples to take each other’s level of interest, goals and risk tolerance into account when making investment decisions in order to find a solution that allows each person to be involved and lets each person sleep at night.

Related article: Principles of investing

Money secrets

Trust is a cornerstone of any relationship and keeping secrets from a partner is a surefire way to damage that trust. Hiding how much you spend, how much you owe or how much you have from your partner puts a strain on your relationship because it causes stress for the person holding the secret and creates conflict when the secret is uncovered. Money is an emotional subject and if we are ashamed, embarrassed or uncomfortable about our financial situation it can be very hard to share the truth with another person, even someone who loves us. The fear of rejection, criticism or losing face can drive us to go to great lengths to hide information in order to avoid conflict. Money secrets are at the heart of many relationship break-ups because oftentimes, the fact that the secret was hidden is more damaging than the secret itself. Relationships are about working as a team and supporting each other in making positive changes. Trusting your partner enough, to be honest with them (and being open and supportive so that they feel they can be honest with you) is a crucial component of building a healthy relationship.

Related article: Couples need to talk about money

Planning for emergencies

A contingency fund is an important part of any couple’s financial plan because it provides a safety net that dulls the impact when life throws a curveball. Whether it’s an illness, a job loss or an unexpectedly high bill, having an emergency fund can make tough times much less stressful by easing financial pressure. Couples often disagree over how much money they should put aside for emergencies and also over the definition of an “emergency”. An emergency fund isn’t intended to be a “last-minute vacation fund” or a “night out with friends fund” or a “too good of a deal to walk away from fund” but human beings are hard-wired for pleasure and it can be tempting to dip into that pool of money when an opportunity to spend arises. In order to avoid conflict, couples have to agree on how much money they need to put aside for emergencies to feel secure and they need to clearly define what the money is intended for and how it will be accessed when it’s needed.

Related article: Are you protected from financial disaster?

Effective communication is important in all aspects of a relationship and especially important when it comes to handling money. Taking the time to understand each other’s money psychology and money motivators and setting goals that you can work towards as a team will help a couple create a solid foundation to build their financial future on.