Scenario: You have an extra $5,000 in your bank account. You're up-to-date on all your bills, and you're on track for savings goals, so you get to choose where to put that $5,000. You'd like to pay off the $5,000 remaining balance on a loan and get it over with. Your spouse wants to use $2,000 of it to get something for the house. Who's right?
That's the wrong question to ask, according to several financial planners.
It's Not About Right and Wrong
The situation described above isn't made up: A Reddit user posted about this dilemma, saying he wanted to save $250 a month by paying off student loans ahead of schedule, and his wife wanted to buy a Pottery Barn wine hutch she had been wanting to get for about a year. After a bit of discussion, she called his solution "boring, but practical," but wasn't thrilled about the idea, he says.
The resounding theme in the Reddit thread is that he should pay off the loan and that the wine hutch is an absurd thing to buy. With the limited information provided by the Redditor, a few financial planners thought through the situation, saying it's not that simple.
"There’s no right answer, which can be really hard — we want to be right," said Alan Moore, founder of Serenity Financial Consulting in Milwaukee.
"They’re both fine ways to do it. It just depends on the context." There are too many unknowns about this particular situation to analyze all the potential outcomes, and that really doesn't matter. People in these situations shouldn't focus on changing the other's mind; rather, they should make sure they're communicating well about financial goals.
"We all approach money in such a different way," said Karen McIntyre of Wescott Financial Advisory group in Philadelphia. "A lot of times it’s about 'What are the implications of your decision?' and let’s go down that path." She said showing people the long-term impact of their choices can help a couple arrive at the best choice for their overall financial picture.
Compromise Goes a Long Way
Sometimes it's not about choice A or choice B at all. Anyone who has ever had an argument with a significant other can attest to the fact that very little in relationships is black or white. "Most couples have the same goals: They want some security, they want to know their input is respected and they want some freedom and trust," said Jon Ullman of Montis Financial in Waltham, Mass.
"In the name of marital harmony, I think I’d just tell them to split the difference."
That's like putting $2,000 toward the wife's goal and $3,000 toward the loan — or maybe it's best to choose a different route completely, like adding to savings. Even though each party comes to the conversation with a preference, no one likes to enter into a discussion in which he or she feels the decision has already been made.
Several Redditors responded to the original poster saying it's a red flag that they hadn't planned what to do with the money ahead of time.
It's not a bad thing to buy seemingly frivolous things, as long as the other financial goals have been addressed. If you're behind on retirement savings, have credit card debt or don't have an emergency fund, a sudden windfall is a great way to jumpstart those goals.
If you're on track with everything, sure, go buy a wine hutch. "If you’re getting bored, it can be hard to stay on track," Moore said, referencing the wife's "boring, but practical" comment. "It’s amazing how freeing it can be when you’re not debating 'Do we pay down the debt?'" Of course, you only get that luxury if you're already planning well. There's some motivation to get on top of your financial goals.
Understand Different Points of View
In situations where one person is spending money that could be going toward a couple's debt or retirement fund, it's definitely something to address, but you're probably not going to get anywhere by trying to hammer what's financially "right" into the person who's doing it "wrong." "You just have to finally get really practical and say, 'Yeah it may be boring today but it’s going to be very boring when you can’t buy food or gas,'" said Linda Barlow, a financial planner in Santa Ana, Calif. "You have to bring it down to that and hope that something sinks in." Financial habits form way before adulthood.
All the advisers mentioned how differently a childhood can impact someone's financial perspective.
Even with two people who had parents with little money, you can get very different outcomes, like "I never want to struggle for money the way my parents did, so I'm going to save as much as possible," or "We never had nice things when I was a kid, so I want to enjoy those things now." They're both valid conclusions. "I have found that when you really understand where someone’s really bad idea is coming from, it makes perfect sense," Moore said.