Love, Inc. The Romance in Finance

The 7 Most Important Money Decisions You'll Ever Make
by Mary Claire Allvine, C.F.P., Christine Larson

Money is a major cause of tension among modern couples because most fail to recognize that they are in business together. The 7 Most Important Money Decisions You'll Ever Make is the first book that teaches partners to apply skills and talents they already use at work to master their personal finances. The authors introduce a unique, revolutionary five-step decision-making process - complete with convenient worksheets and step-by-step instructions - to help couples take action toward realizing their dreams.

After you learn how this fun and surprisingly effective process works, you - and your partner - can work out inspired solutions to some of the biggest challenges couples face: wresting control of debt, maintaining your lifestyle if one of you loses a job, deciding whether and when to change careers, arranging for one partner to stay at home with the kids, and much more. Here is a powerful personal-finance plan that turns managing money into a shared romantic experience.

	PART I: BUILDING YOUR BUSINESS MASTERING THE FAMILY CFO SYSTEM

Jason and Sarah worked together for a year at a health care management company before they started dating.

"For our first date he flew me to Mexico and we rented a villa outside Mexico City," Sarah told us. A down-to-earth blond with high cheekbones and pale blue eyes, Sarah was wowed by the royal treatment.

For the next three years the couple traveled together whenever they could get away. A self-described skinflint, Sarah budgeted carefully for their trips... but noticed that Jason never paid much attention to what he spent. She began to wonder how he could afford their adventures.

Just after they decided to move in together, her worries came to a head.

"We were in Hawaii and I started asking how we were going to make our finances work. He just blew off the question. I pushed him on it—and it dawned on me that he just didn't pay any attention to money. He didn't have any savings and he truly didn't care," Sarah said.

She began to feel panicked as she lay on the beach. "My parents were divorced, and my mom never knew if we were going to have enough from month to month. I could never live that way again."

Right there in Hawaii she broke up with Jason and flew home early.

But within a few weeks she knew she had made a big mistake. She missed Jason's thunderous laughter, his stocky good looks, and his joy in wine, food, and friends. She called him. A year later, they were married. Sarah felt so guilty for the break-up that she avoided mentioning money again. They didn't merge their finances. They paid their own bills. Sarah funded her retirement to the max. For a while, things went OK.

Then Jason lost his job and started his own consulting business. He landed several clients right away and started making money. His success wasn't surprising; he exuded charm and competence. But all of Sarah's money anxieties came back with a vengeance. "I thought the monster was gone," Jason joked, "but then, four years later, I found out I was suckered."

Sarah laughed uneasily. "When it came back, it had a bigger, uglier head."

Sarah felt terrified. Jason had enough work for now, but would the jobs keep coming in? Would he pay more attention to his company's finances than he did to his own? Sarah felt they should slash their expenses just in case; Jason felt confident that everything would work out. Her constant nagging about money made him feel like she didn't trust him or respect his new business. They began fighting over almost every purchase, from a new entertainment center to the restaurants they ate at. Sarah wasn't sure the marriage would last. Something had to give.

Real Life and the
Family CFO Process

Most couples experience some tension over money. In fact, money is the single leading cause of fights among engaged people and couples in their first marriage, according to University of Denver professors Scott M. Stanley and Howard J. Markman. They also found that money fights were more intensely negative than other arguments.

MONEY MYTHBUSTER

"We Can Continue to Run Our Finances
like Single People after We're Married"

Many couples continue to make money decisions separately after they move in together or marry, but as Sarah and Jason learned, this works for only so long. Without referring to the big picture—your combined assets, all income, your total retirement savings, etc.—you won't be able to make effective joint decisions about your money. A couple who keeps everything separate is like a company where every department keeps its own set of books.

Several practical hazards emerge when each partner manages his or her own money without regard to the big picture. You might make redundant investments, hold on to too much cash, or make other decisions that fail to get the most out of your money. In fact, a study by Wright State University professor Dr. Larry Kurdek found that married couples who didn't merge their finances were more likely to divorce than those who combined their money.

"Merging" doesn't mean you have to combine every account and asset—after all, each department of a company has its own budget. Many financially successful couples keep assets separate for very good reasons (estate planning, business obligations, etc.). But you need some easy way for you and your partner both to know how much money you have altogether.

The simplest way to start this process is to merge all your checking accounts into a single joint checking account. That will make it easier to communicate and plan together for expenses. It's simple common sense.

That's exactly what happened to Sarah and Jason. They didn't know how to manage their money conflicts, so they simply avoided them—until Jason lost his job and they couldn't ignore their problems anymore.

Of course, not all couples face tensions as serious as Sarah and Jason's. Money tensions can range from a simple disagreement over how much to spend on a new DVD player to ongoing battles over saving versus spending. Sometimes partners don't actually fight but are troubled by a vague feeling that they don't want the same things out of life, or that they won't be able to achieve everything they, as individuals, had hoped.

But whatever degree of tension they face, couples can achieve their goals together if they learn how to manage their conflicts. After all, some degree of friction is only natural when people of diverse skills, strengths, and points of view embark on a major project together. And yet thriving, successful companies and couples continue to find creative, positive ways to deal with that natural tension.

Just look around your workplace. Business is people, working together— with all the conflicts, stresses, competing egos and agendas, strengths and weaknesses that come with human endeavor. Business at its best helps people work together as a team, magnifying their strengths and minimizing their weaknesses through a combination of personal resources, professional conventions, and proven tools that help coworkers communicate effectively. Even the language and tone we use in the business setting is meant to foster smooth relationships between people.

That's why we want you to treat your family finances like a business. It's not that we want you to be unemotional! But we do want you to put your emotional energy where it belongs—into your dreams, your time together, enjoying your present and future. Not into fighting about money.

Completing the Merger:
Marrying Your Money

As Jason and Sarah would learn, bringing two lives together can be a lot like merging two companies. Think of your partnership as Love, Inc. There's a definite advantage in joining forces: Together you can achieve your goals with more ease, certainty, and happiness than you could separately. At the same time, couples and companies alike face real challenges when they come together. Each side has a unique way of "keeping the books"—of spending, saving, accounting—and of making important decisions. Each brings to the union his or her own culture and staff (friends and family, sometimes kids), equipment (cars, furniture, CDs), and standard operating procedures.

One notable difference between companies and couples, however, is that many life partners find it difficult to talk about money, while business partners talk freely about finances every day. They make difficult money decisions on a routine basis without constant head butting or tearful fights. (Sure there are exceptions, but you wouldn't want to work for those companies.)

Again, it's not that the business world is unemotional—in fact, the best companies are filled with passionate people who care deeply about what they do. But by and large, business partners know when to sideline their emotions in order to make smarter, more effective decisions, and to keep the company focused on its objectives. They use an arsenal of well-established tools and procedures for making wise money decisions. They have specific staff assigned to important jobs, trained to use specific tools to keep the company finances in order. They communicate using terms and concepts designed to make financial discussions clear, objective, and above all effective.

In short, when it comes to making smart money decisions, good business partners put a premium on openness and cooperation. Life partners, when it comes to money at least, often don't. This is where our Family CFO approach comes in.

	Dollars Don't Matter I've worked with wealthy clients for years, and I'll tell you this: Forget money. Money is worth only what you do with it. Never make a financial decision without asking the question, "What do we want to do— with our lives, with our family, in the big picture?" The rest of your financial plan grows from the answer to that question.

Why Bring Business into It?

Sure, when you make a commitment to spend your life with someone, the last thing on your mind is money. You want to travel, buy a dream house, raise a family, live out your days together on the beach, or pursue whatever it is that binds your hearts together. Money seems irrelevant. But actually those dreams, hopes, and goals are the very reason you need to treat the financial side of your relationship like a business.

Here are three of the most important reasons why you need to start treating your partnership as a business right away:

1. Dreams are unlimited; time and money aren't.
Your hopes and plans for the future may be boundless, but for most of us our resources are finite. To get you where you want to go, it's smart to make strategic spending, staffing, and priority-setting decisions like a well-run business.

2. Money decisions get easier instantly.
Simply recognizing that your relationship is a de facto company goes a long way toward resolving the tension involved in money discussions. In our experience, once couples think of their relationship from a business perspective—that the way they handle their money isn't a matter of moral good or bad but just a simple business proposition—many emotional issues disappear, or at least lose some of their negative energy. Meanwhile, the more you use business terms and tools, the easier it becomes to make good decisions.

3. You're already in business together, whether you know it or not.
If you live with someone, you've probably already worked out a clear division of labor. It's likely that one of you functions as the Facilities Manager— the one who fixes things, takes out the garbage, mows the lawn. Then there's the Communications Director—the partner who makes most of the phone calls and social plans. And don't forget the Office Manager, who stocks up on staples; the Human Resources Manager, who makes sure the chores get done; and, of course, the corporate Chef, who keeps the fridge stocked and cooks most of the meals. If your finance department is not in order, however, you'll eventually have trouble in every department.

Webster's unabridged dictionary defines company as "a number of persons united for the same purpose"; business is "that which occupies the time, attention, and labor ... for the purpose of profit or improvement." When you and your partner agree to throw your lots in together and work cooperatively to achieve your dreams, you're starting a business in the truest definition of the word—you're uniting to achieve a joint purpose, and you'll be devoting a lot of time and labor for your mutual improvement. You're in business, all right—the business of life.

Reality Check from Christine

The Language of Love? When Mary Claire first told me to treat my marriage like a business, I was pretty skeptical. I mean, it's a nice analogy, but it doesn't sound very ... well ... romantic. Besides, I'm a champion of plain speaking. I naturally resisted using financial terms like cash flow statement and net worth projection rather than everyday language like budget and How much money will we have? I went along, though, because Rich and I were so frustrated when we discussed money. It took some getting used to, but in the end, using the lingo and logic of business made us more objective and less emotional when we talked about money decisions. It gave us an easy shorthand that made our money talks simpler and clearer, which meant fewer disputes, a healthier relationship, and a better shot at achieving our dreams. And that's pretty romantic after all.

Building a Partnership for Life

Building a successful partnership—whether it's personal or commercial— doesn't happen overnight. As you work together to achieve your goals and make your dreams come true, you and your partner need to answer the following three questions:

    1. What business are you in?
    2. How should you assign responsibilities?
    3. What are your standard operating procedures?

While we'll help you find your unique answer to each of these questions, keep in mind that over the years those answers may change. Your goal is to create a strong and sensible partnership that can adjust to growth and change.

"What Business Are We In?":
Convening the Board of Directors

Believe it or not, few companies are in business solely to make money. Most business owners start their companies for the fun, the excitement, and the satisfaction of steering their own venture. They set out to solve new problems, to offer higher-quality services, to create better products. If they do it well, they make money. But money is a yardstick to measure progress, not the real goal. This is even more true in personal relationships.

Managing your money wisely means having a clear vision of 1) what you want to do—go back to school, have a family, start a rock band—and then 2) what you need to get there—money for tuition, financial security, an electric guitar. Most couples get this backward; they focus on financial assets (what they have) to the exclusion of their real goals (what they want to do), which makes it impossible to make wise financial decisions. Only by thinking about your life goals can you really make your money work for you.

In the business world it falls to the Board of Directors to establish a vision and set priorities for a company. In chapter 2 we'll train you and your partner how to be an effective (and loving) two-person Board.

"How Should We Assign Responsibilities?":
Creating the Organizational Chart

Committed couples, like businesses, need an efficient division of labor. Companies have salespeople to sell products and bring in cash; a chief executive officer (CEO) to oversee strategic long-term planning; a chief operating officer (COO) to run the day-to-day business; a chief financial officer (CFO) to track finances; and other key personnel. If these roles aren't clearly assigned, the company quickly dissolves into chaos. For example, if it's not clear who's in charge of spending money, expenses may careen out of control or vital purchases might not get made. If no one's assigned to report on income and expenses, the company won't have a clear picture of its financial situation and won't be able to make strategic decisions. If no one's clearly in charge of paying the taxes, the company executives could land in jail. Corporations large and small depend on their organizational chart to make clear who's responsible for what, who reports to whom, and how all parts of the company relate to one another.

Many couples don't define their responsibilities or assign important duties, and as a result only tasks with immediate, external deadlines get done. Couples like this eventually pay bills and taxes, but they put off strategic investments, overlook investment opportunities, and ultimately waste money.

To thrive as a family, you and your partner need to assign and complete key financial tasks. In chapters 3 through 5 we provide detailed job descriptions for such indispensable positions as Cash Manager and Investment Manager, and even offer a quick quiz to help you determine which one of you is suited to what job within your own Office of the CFO.

"What Are Our Standard Operating
Procedures?": Getting the Job Done

Every business relies on certain standard operating procedures to make sure that day-to-day tasks as well as longer-term projects are handled smoothly, consistently, and reliably. Even the smallest companies train new employees on company policies and procedures to make it easier for them to work with everyone else in the company.

Not so with most couples. Partners typically bring different financial habits and ways of thinking and talking about money into the merger. This lack of common procedures and language can undermine clear communication and complicate decisions.

As you assume your respective Family CFO roles, we'll help you master a common vocabulary for talking about money and to create your own reliable system for making consistently intelligent financial decisions.

Tracking Your Progress

After answering the three key questions of partnership and following through by forming and staffing your own Office of the CFO, you'll do what the board of directors at any well-run company does: you'll look for proof that you're moving toward your overall goals. Companies keep careful track of their progress, publishing quarterly results and annual reports to keep their shareholders apprised of their financial health. Likewise, couples should be aware of how much money they have in the bank as well as the state of their investments, the size and sources of their debts, and similar bottom-line numbers. We'll encourage you to collect and quantify these in regular Cash Flow and Net Worth statements.

But having the numbers on paper isn't enough. You need to know how to use those numbers to help you predict the likely outcome of competing financial options. In chapter 6 we'll walk you through our Family CFO Five-Step Forecast, to help you plan for different financial scenarios the same way companies do. The chapters in Part II give solid guidance on making the important life choices that couples face together—buying a house, changing jobs, having kids, planning for retirement—as well as on how to handle touchy situations like excessive debt or the unexpected loss of a job, in each case using the Five-Step Forecast to help you achieve your dreams. Finally, in Better Sex through Financial Management, we'll review how the Family CFO process can draw you closer together. Our hope is that as you achieve your goals together, you'll begin to see the romance in finance. After all, what's sexier than making each other's dreams come true?

THE FAMILY CFO SYSTEM

1. Convene your Board of Directors—Identify and prioritize your short- and long-term goals.

2. Staff your Office of the CFO—Appoint and train a Cash Manager and an Investment Manager.

3. Generate two regular reports—Update and report monthly or quarterly with the Family CFO Cash Flow and Net Worth statements.

4. Apply the Five-Step Forecast to all major financial decisions.

5. Return to Step 1 at least once a year.

Fiscally Ever After

So what happened to Sarah and Jason?

After talking with us, Sarah realized that they needed a business system to give her a greater sense of control. She and Jason agreed that she would take over as the family's CFO. She merged their accounts and began preparing monthly Cash Flow and Net Worth statements, which she showed to Jason.

At first he didn't take much interest in the reports. But as he saw their savings begin to rise, he began to pay attention.

"When I showed him the numbers, my arguments about why we shouldn't buy an expensive barbecue this month made a lot more sense to him," said Sarah. "Before, he thought I was just paranoid. Now, I can point to the numbers and say, 'If it doesn't come in, it can't go out.'"

Meanwhile, Jason began using the numbers too, to show Sarah how they could manage to afford another big trip but still work toward their other goals.

"Sarah doesn't get as upset anymore," he said. "And she seems less worried—and more willing to trust me."

© 2005 by Mary Claire Allvine and Christine Larson. All rights reserved. No Part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any other information storage and retrieval system, without the written permission of the publisher.

About the Author

Mary Claire Allvine, C.F.P., has given financial seminars at the University of Chicago Law School and is a principal in a prestigious Chicago financial planning firm.

Christine Larson is a seasoned speaker and panel moderator at financial conferences and teaches seminars at the University of California, Davis. She has contributed to publications such as Forbes FYI, Glamour, The Wall Street Journal, and Smart Money.