Family Finance Transparency

Transparency is a hot topic among investors, whether talking about the financial well-being of public companies, investment funds, or executive compensation.  But have you thought about how transparency factors into your personal financial life?

Most of us have suffered significant financial setbacks, ranging from investment holdings to the equity in our homes.  There’s not much you can do about those losses at this point, but you can do something to reduce the stress that you and your spouse may be feeling.  I find that very few couples do a good job communicating about their personal finances, which results in one or both parties shouldering a greater burden or feeling more in the dark than they would like.  And this puts a lot of stress on a marriage.

About fifteen years ago, I made a big mistake.  On a business trip, I heard a story on CNN that suggested that Microsoft was on the brink of some big problems.  We had a small investment in Microsoft, and in an effort to protect that investment, I made the decision to sell it – without consulting my wife.  It turns out that the stock never suffered the way that news story had suggested it might, and in the late 1990s the stock made some big gains and my rash move was exposed.  After my wife asked me how much our Microsoft investment had appreciated, I had to admit that I had sold it, costing us thousands of dollars in the process.  I didn’t look so smart, and more important, she felt betrayed.

We made an agreement that we would not make significant financial decisions without consulting each other. We created a family “finance committee” and since that time, every time I want to buy or sell something, we sit down together and I make an argument in the context of our current financial condition.  She always asks tough questions (despite the fact that she was not very sophisticated on financial matters when we started) and she generally accepts my recommendations, but the critical things is that we are partners in our shared financial life.

marital-decisions

Many of us (generally the husbands) operate under the false impression that shielding our wives from the details of our family finances will reduce stress.  That’s not the case.  My wife and I have been well-served by sharing knowledge and responsibility for our financial life and I urge you to do the same.  Here’s what you can do:

  • Sit down and review your financial situation:  Cash in the bank, investments, equity in your home, as well as liabilities like mortgages, credit card debt, and any other liabilities you may have.
  • Review your budget together.  It is much more effective than criticizing spending or issuing edicts on regular expenditures.
  • Obtain agreement on any significant financial move before you make it.

Being partners has a couple important benefits for our marriage.  First, we make better decisions when we collaborate.  Second, we share responsibility for the outcomes – good and bad – which means that she is never in the dark about where we stand.  And this eliminates a lot of the tension that inevitably results when one party knows a lot less than the other. It will not recover the value you have lost over the last 6-12 months, but it will make your marriage stronger.

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