Book Review: Smart Couples Finish Rich (Cdn Version) Part 6

24 May

Step 8 – 10 Biggest Financial Mistakes for Couples

1 – Having a 25-year Mortgage.

Strike 1 for my husband and I.

Bach does a great job in highlighting the differences between 25, 18, and 15-year mortgages. The main difference is reduced interest costs – potentially saving you hundreds of thousands of dollars. This is long-term savings so although your pockets won’t get heavier (they’ll actually get lighter), this is a serious decision that even affects your anticipated retirement date.

My husband and I are actually up for renewal on our mortgage at the end of 2010. Through other readings I became aware of this simple slip-up, so Bach again drove the point home and we are definitely going to be changing this in our books.
[Update: Just sold our property; in the market for another mortgage and we’re aiming to purchase in 2 years. We will be regularly consulting with our financial advisor while mortgage shopping. What’s been great is that our advisor is rarely unaware of any financial tidbits we pick up (good thing I think).]

2 – Not taking credit card debt seriously.

Strike one and a half.

In both good and bad ways, my husband does not even own a credit card… As for me, while attending university/college and maintaining three jobs to pay for tuition, I indulged and rewarded myself on occasion. Unfortunately, these rewards have taken the toll and 3-years post-graduation I am still paying these off.

This is one of our goals in our marriage – to be (bad) debt free within the next five years. The sooner one addresses this mistake the faster and more stable your financial portfolio can progress.
[Update: Able to pay off all of our credit card debt with the sale of our property this year! Yay :)]

3 – Trying to get rich quick by day-trading.

The lesson emphasized here reinforces the knowledge that accumulating real wealth takes more than just months, or even years; it takes decades. Impatience runs rampant in most people hence pitches of quick earnings are truly tempting but painstakingly false promises. Bach relates day-trading (stocks) to gambling and presents eye-opening statistics that hit home and stay there.

We haven’t purchased a stock yet, so although this isn’t really applicable to us at the moment, Bach’s point was duly noted as we had a hard time disagreeing with this practice.

4 – Buying stocks on margin.

In simpler words – borrowing to gamble…

This follows one of our personal financial policies – if we can’t put the cash up front to make an investment, we can’t afford the loss if it fails. This also automatically places you in a grantee/debtor position and as Bach points out – if your financial advisor/broker is urging this practice find yourself a new one.

5 – Not starting an educational savings plan soon enough.

Strike 2 and a half.

Before this of course, Bach strongly advocates developing your Security Basket first. Without this, your children could graduate debt-free only to look forward to another financial burden of carrying their parents through retirement. I don’t think anyone would want this for their children.

My parents were never able to support me through my post-secondary education (I would even argue that it was for the better anyways), and while it was tough – I’m glad they didn’t. I learned how to be self-sustaining at a very young age and it has and will always continue to be an invaluable skill. I also learned the value of education – I had no life for these years, but when I graduated it was the greatest accomplishment of my life – and I knew I could expect the same out of every major life decision in front of me. I’m going to repeat this lesson with my children – there are so many bursaries/scholarships out there for those who will fight for their education. And while it will be a difficult task for our children to find the funds, I feel there are many more avenues of needed support that we can levy…

Bach notes that universities and colleges are expensive… and getting more so every year. I agreed with this statement as I remembered the strain of continually rising tuition as a student. For those who decide to support their children through educational savings, Bach reviews multiple investment options depending on how much time you have ahead of you, including Registered Education Savings Plans (RESP), Canada Education Savings Grant (CESG), and alternative Mutual Funds.

For an extensive listing of scholarships and other sources of financial support is the Scholarships Canada website.

6 – Not teaching your kids about money.

As we all know, unless you attend university in any field of finance and economics, you likely haven’t learned many of the basic economic principles that should be taught in high school. This is a very sad reality for most of us.

Canada needs a mandatory national standard for financial education, but until then everyone should recognize the need to educate our children about money. Bach recommends sharing your investment strategies with your kids on a regular basis. Don’t be afraid to share your financial successes and mistakes as well.  Kids are always interested in becoming rich so learning about money is actually quite a hit. Recent surveys show that the average child spends four and a half hours a day on electronics – even 10 minutes of that time each day will have an enormous impact on their lives furthering their knowledge of money.

My husband and I are avid supporters even though we haven’t had children yet. If there’s one thing we agree on about raising our future children, it encompasses educating our children in finance. We both have just learned the basic economic principles through our marriage of four and a half years – we hope to install whatever we learn into our children every day. Unfortunately, not so easy with Chuck Norris.

7. Neglecting to sign a prenuptial agreement.

Strike three.

Prenups outline who walks away with this vs. that.  According to Bach, those with substantial assets tend to approach this objectively before marriage. Bach also notes that more than half of all marriages end in divorce – wow – personally I prefer to think of it as almost half of marriages are successful.

Beside the downer key enforced through this noted mistake – a prenuptial agreement protects both sides in the marriage. My only disagreement lies in how would anyone know what your marriage (financially) will look like 50 years down the road? At least, that’s how far down we’re looking.

8. Not having a greater purpose beyond the two of you.

I found this “mistake” a well-rounded case. It’s so easy to get caught up in the routine of life, going to work, getting married, having children, etc… that it’s easy to convince ourselves that sometime down the road we’ll accomplish something big. Unfortunately, for most of us, that crash into reality could be the last push into a mid-life crisis, or even a divorce citing irreconcilable differences.

Bach notes that this greater purpose can be many things such as, a religious calling, a charity or even a community project.  Couples that dedicate their lives together to a greater purpose are generally the happiest and most fulfilled, building a solid relationship foundation.

My husband and I work on numerous projects – myself sometimes the team coach and administrator, my husband always stepping in as both director and supporter. If we didn’t have these dreams to work on, I really don’t know how we’d continue to grow together rather than separately.

9 – Not figuring out who’s responsible for what.

One of the biggest merges that occurs at the onset of marriage involves the finances. To have joint or individuals accounts…? Who will actually pay the bills and how will they be split? Even Bach describes his first marital argument over this very issue. And honestly speaking, this is one you don’t want to avoid tackling with your spouse. Bach offers general advice as there isn’t one schematic for every couple out there, including maintaining independent spending accounts for gifts and personal privacy; opening a joint account for household bills and even your security basket funds; and deciding who will pay for which bills to avoid missed payments.

B automatically handed over the financial reins the day we were married. He isn’t the type to track finances in any way so he was glad to relinquish that control. I accepted this role with pride and responsible determination. The trade-off included his awareness (I wasn’t going to curb our budget around his bad spending habits) and valuable opinions in every financial decision we approach (as I have quite the agenda set up for us).

So far this system has highlighted both advantages and disadvantages but we review, review, review… If we as individuals and in relationships evolve, why wouldn’t our financial strategies?

[Update: B has decided to drive for now – and I’m eager to take passenger seat. Diversity is good right?]

10 – Not getting professional financial advice.

Bach makes a solid point that the rich almost always use financial advisors. Why is it wise to rely on another professionals’ advice? Mainly due to time restraints – we don’t have the time to really dig into every piece of investment advice we stumble across (and there is a plethora of information floating around with today’s technology). And when you don’t have the time to actually perform, review, and monitor your investments, a professional advisor is great fit.

Mr. and  I went through three advisors to find the right one. Due to our initial lack of knowledge, networking and up-front cash to invest, getting the attention of a sound advisor was a difficult task. And when we started to see them slip through our fingers, we almost lost hope.

Through this search process, we actually became more and more aware of the impact of our finances and the world of investing. We did more research before we approached another advisor to ensure they met the needs we were bringing to the table.  We definitely don’t regret the process as it taught us invaluable insight – but I would highly recommend taking your time to research exactly what you’re getting into.

The more applicable knowledge you bring to the table, the easier your advisor can discuss your options, and most importantly, the more you will understand what your advisor has in mind for your financial platform.

Bach also presents the eight golden rules for hiring a financial advisor…

1 – Hire locally. You want someone that you can see in person and meet with at least once a year.

2 – Get a referral. Ask the wealthiest person you know; a referral is usually a foot in the door with a good advisor.

3 – Check out the advisor’s background. This should be practiced across the board for all professionals you will enter into a business contract with. Be wise and don’t assume your first advisor is your best friend.

4 – Be prepared. Have every pertinent document ready for review. If you’re not willing to expose your finances, you’re not ready to hire one.

5 – Know your advisor’s philosophy. Make sure they’re not a salesman and that they’re genuinely interested in an investment strategy that meets YOUR needs, and not their commission goal.

6 – Go with your gut. First impressions mean a lot. Mentally catalogue your impressions as you will probably know your final decision within the first meeting. This is a long-term relationship so don’t afraid to be picky (advisors actually use the same approach for their potential clients).

7 – Be prepared to pay for their services. Know how your advisor is being compensated and be sure this matches your expectations. There is quite a difference between commission and fee-based advice. Each are set up for different purposes, so be prepared for which direction you want to head in. Just remember, that paying a bigger fee does not guarantee better returns on your portfolio.

8 – No referral? Do your own research. Bach lists websites to help you find a financial advisor in your area as well as where to find background checks. Another bit of advice Bach notes is to find ways to say “thank you” when your advisor does a job well. Like any professional, relative, or friend, a simple “thank you” goes a long way…

As for our score, we hit 3 of 10 – not bad I must say – which goes to say that even though we’ve been proactively improving our financial foundation, there’s always something more to learn; we always find another tip or strategy with each new read!

What did you score out of ten? Do you have anything to add to or disagree with any of these practices?

~

Previous: Part 5

Coming next!

Step 9 – Increase Income 10% in 9 weeks

the Mrs.

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