Smart Couples Finish Rich, Revised and Updated

by David Bach

  PRENUPTIALS ARE NO ONE ELSE’S BUSINESS

  One final word on the subject: you have a right to keep this private. If you and your partner agree to sign a prenup, it’s no one else’s business—not your best friend’s or your parents’ or anyone else’s. Don’t feel you have to explain it or justify it. As long as the two of you are comfortable with the agreement, that’s all that matters.

  MISTAKE NO. 8

  Not having a greater purpose beyond the two of you.

  So far in this chapter, we’ve talked about educating your kids about money and saving for college. Earlier in this book, we talked about investing and buying insurance and how to build a million-dollar retirement account. All this is important—essential even. But as important as it is, there are things more powerful than money when it comes to ensuring your long-term success as a couple.

  Most successful long-term relationships share similar traits. Having worked closely with hundreds of couples, I’ve noticed over the years what the really strong ones have in common. They recognize the vital importance of patience and compromise. They possess common values and goals. But perhaps most striking of all, the really solid couples, the ones who seem happiest and most fulfilled, all seem to have dedicated their lives together to some greater purpose. This greater purpose can be many things. For some couples, it’s a religious calling. For others, it’s a charity or some community project.

  I think we all have an urge to give our life some greater purpose. Unfortunately, it’s all too easy to get so busy working and trying to get ahead that we convince ourselves this greater purpose is something that can wait until we have time. Maybe next year, we say, or the year after that, or when we retire.

  I’d like to suggest that you and your partner stop putting this off. Sometime in the next 12 months pick a greater purpose together and dedicate a little time (and maybe even some money) to following through on it. Find something that is not for the family directly but involves the family.

  Many people say they don’t give their time to some cause or charity because they don’t know how (or where) to get started. If that’s your challenge, try one of these websites. All are run by nonprofit organizations devoted to matching up willing people with worthy causes and or assisting with your giving.

  www.give.org

  www.helping.org

  www.idealist.org

  www.independentsector.org

  www.nvoad.org

  www.volunteermatch.org

  www.score.org

  www.nationalservices.org

  www.charitynavigator.org

  www.charities.org

  You can also call your local chamber of commerce or town council. You’ll be amazed how many organizations need your time and help locally.

  MISTAKE NO. 9

  Not figuring out who’s responsible for what.

  I can’t tell you how often couples at my seminars ask me for advice about how to divide the financial responsibilities: Should they have joint accounts or individual ones? Who should pay which bills? Should their paychecks be pooled or kept separately?

  When Michelle and I got married, we thought the answers to these kinds of questions were obvious.

  “Honey,” I said, “you keep your money in your account and I’ll keep my money in my account, and I’ll pay most of the bills and you pay some of the bills, and then eventually we’ll open a joint account and start a savings plan for ‘our’ money, and then if we go on a vacation…”

  “No, honey,” Michelle said, “we should put all our money in one account. After all, we’re married now and everything should be together because we love each other and that’s what couples who love each other do, plus it will be great to really know how all our money is being spent.”

  Oops, maybe it wasn’t so obvious.

  In fact, as I told you at the beginning of this book, Michelle and I had our first fight over this issue. The point is that you shouldn’t assume that both you and your partner are somehow automatically on the same page when it comes to the question of how you are going to organize your finances and who is going to be responsible for what. If you haven’t already done so, the two of you need to sit down together and specifically work all this out. The alternative is chaos and potentially major strife.

  Now, there is no one “right answer” as to how a couple should organize their finances. But having worked as a financial advisor to hundreds of couples (not to mention being married myself), I feel safe in offering the following general guidelines.

  Each partner needs his or her own money. Regardless of whether or not you both work, each of you should maintain your own checking and credit-card accounts. If Michelle buys me a gift for my birthday, I don’t want to know what she paid for it. I also don’t need (or want) to know every detail of where she spends her money. It’s not my business. By the same token, I want my own space when it comes to how I spend money. It’s not a matter of hiding anything; it’s that we all need a certain amount of privacy. Having our own accounts gives us a very necessary sense of personal space.

  Each partnership should have an “our money” account. While each partner should have his or her own separate bank account, if the partnership is long-term and committed, there should be a pooled or joint account as well. This account can provide the funds for all the household bills. It can also be where your security-basket money ultimately gets saved. Michelle and I actually have two “our money” accounts: one for our security basket and one for our dream basket. We pay our bills from our “security basket,” making sure we always have at least three months of expense money saved (after the bills are paid).

  Spell out who’s responsible for paying which bills. I personally hate paying bills. Writing checks puts me in a bad mood. On the other hand, I also don’t like worrying about whether the bills were paid. When Michelle and I first got married I paid some bills and she paid others. Often, a bill would fall through the cracks, ending up in what I call “I-thought-you-paid-it land.” This is not a good place to be, since it leads to many arguments and quite a few late fees. In the end, Michelle and I decided that I’d pay all the bills. (I still hate doing it, but at least I don’t have to worry about whether or not it’s getting done.) Needless to say, we could have as easily decided that Michelle would pay them all, or that I would pay one month and she the next, or some other system. The point is that we sat down and worked things out. We didn’t leave our bill-paying to chance. Neither should you.

  Keep in mind that there are no hard-and-fast rules. If pooling all your money works for the two of you, that’s great. If keeping it all separate works, that’s great, too. Ultimately, you need to do what works for you as a couple. But it does need to work for both of you. In many marriages this single issue of how to handle the checking accounts and pay the bills is a monthly battle. You can’t have a great marriage or long-term relationship if every month you find yourselves fighting about who’s responsible for what when it comes to your finances.

  MISTAKE NO. 10

  Not getting professional financial advice.

  The fact that you have read this far into the book tells me you’re truly someone who is serious about money. As I mentioned earlier, very few people who buy personal-finance books actually get past more than a few chapters.

  By now, I would hope that you are very excited about your future and what you’ll be able to do with it. It’s also possible, however, that your head is spinning with all the information I’ve given you. Financial planning is not something you master in a day or a week or even a month. It’s a lifelong journey, and as is the case with many long journeys, it’s often best to hire yourself a guide.

  That’s how I think of financial advisors. They are like professional coaches or guides. You and your partner decide together where you want to end up, and then you go out and hire a professional to guide you along your path to living and finishing rich.

  Now, some people are born “do-it-yourselfers.” They simply have to do everything themsel
ves—including managing their money. If you’re one of them, I salute you. Hopefully, this book will make it easier to make smart decisions about your money. On the other hand, if you are the type of person who appreciates getting advice and enjoys working with professionals, then hiring a financial coach makes a lot of sense.

  THE RICH HIRE FINANCIAL ADVISORS

  The rich almost always use financial advisors. This is not my opinion; this is a fact. There are approximately 2 million households in the United States with a net worth of over $3 million, and the bulk of these families work with one or more financial advisors. What about the rest? According the Certified Financial Planning Board, more than 40 percent of Americans choose to work with a financial advisor. This is up from 28 percent in 2010.

  Hiring a financial professional to assist you is not a sign that you are weak or lazy. Smart, successful people hire coaches all the time. Serena Williams, one of the greatest tennis players of all time, still works with a tennis coach. She doesn’t say, “Oh, I know everything there is to know about tennis, I’m done learning.” She uses a tennis coach to keep getting better. Michael Jordan, the greatest basketball player of all time, was devoted to his coach, the Bulls’ Phil Jackson. Some of the world’s most successful CEOs now have business coaches.

  Why do successful people like these hire coaches? Because they know that to achieve extraordinary results you’ve got to keep learning, and a good coach makes learning a lot easier. A good coach gives you honest feedback and objective criticism, and can often see things about you that you can’t. In my own practice, my greatest value to some clients is simply in being honest and providing a wall off which they can bounce ideas.

  So how do you find a good financial advisor? It’s not always easy, and I can’t offer you any magic formulas. What I do have are Nine Golden Rules for Hiring a Financial Advisor, which should make the process easier and, in the end, help you hire the perfect financial coach.

  NINE GOLDEN RULES FOR HIRING A FINANCIAL ADVISOR

  RULE NO. 1

  Hire locally.

  I get requests from people all over the world asking me to manage their money. What I generally tell them is to try to find an advisor in their own backyard. You should consider doing the same. Why? Because if you’re going to put your wealth in the hands of a financial coach, you want someone you can work with face-to-face. In my opinion, it’s crucial that your advisor be a person with whom you can form a really strong relationship—and ideally meet with at least twice a year. As the years go by, we may all find ourselves routinely communicating via video conferencing, but in terms of building both confidence and understanding, there is no substitute for meeting personally with the individual or team that is handling your money.

  With this in mind, all the suggestions I am going to provide are intended to help you find a financial advisor in the general vicinity of where you live. This doesn’t mean he or she should be literally down the block. Depending on where you live, hiring someone “locally” could translate into driving a few hours to a nearby city. But, ideally, you shouldn’t have to go any farther than that to find someone really good.

  RULE NO. 2

  Get a referral.

  It may sound like a cliché, but the best way to find a top-notch financial advisor is to ask the wealthiest person you know whom he or she uses as a financial advisor (and ask if they trust and like their advisor). Then ask them, “Why?” This wealthy person doesn’t have to be a friend; he or she may be just an acquaintance, or even your boss. Most people are flattered to be asked for advice, and in most cases they’ll be happy to refer you to their advisor. What this means is that they will call their advisor on your behalf and introduce you. Generally speaking, unless you have a lot of money, you’ll have a hard time getting in to see the best advisors without this type of introduction. Which is where using a “robo-advisor” can come into play until you have enough money to work with a full-service advisor.

  The truth is that really good advisors usually have account minimums—that is, they don’t take on a new client unless that client has some sizable amount of money to invest. But if you get a referral, the door that might have been otherwise closed gets opened. For example, if one of our top clients refers a friend or family member to us, that friend or family member is going to get red-carpet treatment at our office. We want to keep our top clients happy, and that means taking care of those they refer to us, even if the account is below our standard minimums. That’s the power of a good referral from the right person.

  RULE NO. 3

  Check out the advisor’s background.

  Nothing else matters if you don’t follow this rule. I don’t care how successful someone looks, how highly recommended the advisor comes, even whether his or her name is on the building—if you don’t check out your advisor’s background, you are setting yourself up for trouble.

  There are many advisors who appear to be successful, but who, in fact, are really nothing more than good salespeople. Some sincere-sounding advisors stretch the truth, embellishing their experience and educational background. Some very charming advisors have had formal ethics complaints filed against them. Some even have criminal records.

  There’s only one way to protect yourself against this sort of thing. In order to become licensed to sell securities, brokers and financial advisors have to pass tests and register with the National Association of Securities Dealers. So before you hire a financial advisor—in fact, before you even meet with one—visit the BrokerCheck site run by Financial Industry Regulatory Authority at www.brokercheck.org. It will tell you almost everything you’ll ever need to know about a registered advisor’s background: educational, work, and business history; licenses held and in what states. This website is now the best it has ever been as a quick resource to explore your advisor’s complete history.

  Perhaps most important, BrokerCheck will let you know if an advisor has any “disclosure events” on his or her record. A disclosure event is an ethics complaint or a criminal prosecution, and you probably don’t want to hire a financial advisor who has one. BrokerCheck won’t reveal the nature of any particular disclosure event that may be on your advisor’s record, but it does permit you to request additional information by mail and link you to the SEC website. Also visit www.investor.gov and then click on the Investment Adviser Public Disclosure section. Additionally, check out the SEC website at www.sec.gov. There’s an entire section on this website called “Protect Your Money—Check Out Brokers and Investment Advisors.” This section is fantastic and it goes into detail on everything you need to know, with direct links to additional resources to review your advisor’s background if he or she is an investment advisor and not a registered broker. If the advisor is a registered investment advisor, make sure you check out his or her “Form ADV.” There are two parts to the ADV, and the advisor needs to update these annually. You can also go to www.adviserinfo.sec.gov and look them up yourself. Individual investment representatives of an RIA are also listed here.

  There are many good advisors out there. I’m giving you all this detail to protect you from falling prey to one who’s not.

  RULE NO. 4

  Be prepared.

  Being prepared means that you have with you all of your pertinent financial documents. In Appendix 2, you’ll find a copy of my FinishRich Inventory Planner™, a document organizer that will help you figure out what papers you’ll need to bring to that first meeting.

  If you are uncomfortable sharing your personal financial information with an advisor, you’re not ready to hire one. Showing your financial records to an advisor is like exposing your body to a doctor. In order to be able to help you, the professional has to be able to conduct an examination. And don’t worry about being embarrassed. Just like a doctor, a financial advisor sees countless “patients”—and lots of them are probably much worse off than you.

  RULE NO. 5

  Always ask about the advisor’s philosophy.

  When you go to your fi
rst meeting, make sure to ask the advisor about his or her philosophy on financial planning and money management. A serious professional should have no trouble explaining his or her approach to planning and investing simply and coherently. If yours can’t do this, take your business elsewhere.

  What you definitely don’t want is a salesperson. A salesperson won’t lay out a philosophy. A salesperson will spend most of the time telling you what you want to hear. “Oh, Mr. Jones,” he or she will say, “you like stock trading, do you? Well, I’m a specialist in stock trading.” “Oh, you’re getting stock options? Well, I’m a specialist in stock options.” “Oh, you’re interested in buying an annuity? Well, annuities are all I do.”

  You probably think I’m exaggerating. I’m not. These kinds of responses are actually taught by old-school sales trainers. Someone who uses them is not the kind of advisor you want. You want someone who will spend most of the first meeting with you reviewing your financial and personal situation. Someone who will ask a lot of questions about you—your dreams, goals, and concerns. And not do a lot of talking (i.e., selling). Someone who doesn’t brag about performance. If an advisor starts promising you high returns, leave the office immediately and don’t look back. Too many advisors these days use the remarkable returns of the recent bull market to position themselves as investing wizards. Repeat after me…