6 Money Questions to Ask Your Partner Before You Commit (From Morgan Stanley) [3 Articles]
~ Friday, June 16, 2023 Blog Post ~
By Morgan Stanley Wealth Management, October 4, 2022
Thinking of taking the next step with someone special? Head off money headaches by taking time to talk about your finances first.
You’ve changed your Facebook status to “in a relationship” and you’re talking about moving in together. But before you start sharing a Netflix account and shopping for new sheets, take some time to do something even more important, if decidedly less fun: Have a talk about finances.
Yes, it sounds like a buzzkill, but the truth is, making a habit of discussing your shared goals and attitudes toward money may help strengthen your romance — especially in the long run.
By starting an honest and open conversation about this often touchy issue now, you’re less likely to run into major money-related road bumps later.
Here are six questions to help you come up with a financial game plan, zoom in on potential differences that should be addressed and, with some luck, avoid the kinds of issues that can lead to both financial and relationship headaches.
If you received a gift of $10,000 tomorrow, how would you spend it? Sure, it’s an unlikely scenario, but by comparing your answers with your partner, you’ll get a sense of what kind of money personality you each have and how you’ll need to negotiate on shared financial goals. Say your partner wants to invest his or her hypothetical windfall in the stock market while you’d prefer to splurge on a big trip. Maybe you split it and each use half for your own goal, but maybe you decide to invest it all now, with a goal of spending your returns on a trip down the road.
There’s no right answer. The point is to get you thinking about how you each think about money individually, and how you might handle it together.
Do you have any financial obligations I should know about? This one may make you both squirm, but when it comes to debts (college and/or credit cards) or family obligations (financial responsibility for a sick parent, for example) honesty is the way to go. Remember, there’s no shame in carrying some debt, as long as you have a realistic and strategic plan to pay it down. If your partner is evasive, defensive or unconcerned about his/her debt, you might wonder what he or she is not telling you.
What’s your money DNA? In other words, how did your parents deal with money issues? Were they a source of stress and family fights? Maybe they rarely discussed money issues? Often our upbringing colors our relationship with money, and it makes sense to understand what sort of financial baggage you and your significant other bring to the relationship. For instance, if your father squandered the family fortune, you may bristle if your partner is a free-spender, not because he’s being unreasonable but because it pushes your buttons. A rule of thumb: Agree to check with each other before buying something that costs more than a predetermined amount. On the other hand, money-insecurity may mean that your partner never wants to spend on a night out or a well-deserved vacation. Can you live with that long-term?
How do you envision dividing household expenses and who is going to be responsible for financial chores, such as paying bills, tracking expenses and managing the budget? Whether you set up joint checking and savings accounts, maintain separate accounts or go with a combination of the two is up to you. But you should discuss that decision ahead of time and how much of your income you will each contribute to joint expenses, as well as who will be responsible for the back end. It might make sense to split up the administrative tasks. Either way, make sure you’re covering everything and that you’re both comfortable with the division of labor.
What would you think of a prenup (assuming marriage is in the offing)? We know what you’re thinking: We don’t need that! We’re not getting divorced! And, anyway, neither of us is rich. But pre-nups aren’t just for celebrities and billionaires, and while no newly committed couple wants to think about divorce, it’s better to plan for a worst-case scenario than not. Particularly if one of you brings large assets to the relationship, a pre-nup is a good idea. But even if not, having one might make sense. Divorce is messy enough without potentially painful and drawn-out legal battles over money. Consulting with a lawyer about the potential need for one is a not a bad idea in any case.
What are your goals for the next five to 10 years? The next 20 to 30? Do you or your partner envision a promotion or changing careers in the near future? Do you plan to get married and have children at some point? If so, will one of you stay home to raise the kids while the other works outside the home? If you both work, how will you cover the costs of childcare? While events like these may be a long way down the road, it’s never too early to start planning for them and to make sure you’re both on the same page. Believe it or not, even retirement plans are worth discussing, as these long-term goals affect how you save and spend your money now.
A Final Word
You know what the Beatles said about love being all you need, and we agree. Still, couples argue about money. That’s a given. The more you talk about it early on the better you’ll be prepared to reconcile those differences later. A little awkwardness now could save you from a lot of heartbreak later on.
Sources:
https://twitter.com/MorganStanley/status/1657445604912513025/
Article #2: 6 Steps to Creating an Emergency Fund
By Morgan Stanley Wealth Management, December 15,2022
Having an emergency fund for unplanned expenses can save you from a bad situation. Here’s how to create and prioritize one.
Keeping a reserve of cash on hand in case of an emergency is essential. For many, it’s challenging to create a dedicated emergency fund and even more difficult to maintain.
A 2022 Bankrate survey found that only 44% of Americans would be able to cover a $1,000 emergency from their savings. Furthermore, respondents say rising inflation is causing them to save less for unplanned expenses.[1]
You’re Not Exempt
Even if you keep a large running balance in your checking account or own a high minimum credit card, you still could benefit from having an emergency fund. It should be separate from your day-to-day cash to make sure it’s there when you need it. Borrowing to cover an unexpected expense can be the start of a financial hole that’s difficult to dig out of.
If you dipped into your emergency fund over the past few years — or never had one in the first place — make it a priority in to set aside sufficient emergency savings.
Here are six steps to create and maintain a proper emergency fund:
- Consider using a basic savings or money market account. Ideally it can be linked to your checking account. You want the money accessible in a day, but not in an instant. You want this money to stay safe and liquid. It should not be invested in stocks or even bonds, where it may be subject to market risk2.
- Look for an account that pays you back. Some savings vehicles offer a small annual yield. It’s important to note that some of those may have minimum deposit or balance requirements. Shop around. Make sure there are no annual fees.
- Save enough to cover three to six months of expenses. The amount you need in the account for your own emergency fund will vary depending on if you have a number of dependents (you need more) or a spouse with a job (you may need less), or wealthy parents you can ask for help (again, you’d need less). If you have one income, are self-employed and have a family to support, you may want up to eight months in an emergency fund (and don’t neglect health and disability insurance).
- Start small. If you don’t have that kind of cash on hand, set up an automatic transfer of, let’s say $100 a month, into the account until you reach your target.
- Only tap the account for true emergencies. This could include your car breaking down, losing your job, the roof starting to leak, or a large medical bill.
- Replenish the account if you draw on the funds. Unplanned expenses aren’t one and done. They may even come in threes.
Even if you typically don’t incur an unplanned expense for years, you’ll still benefit from knowing you have a comfortable cushion in the event of an unexpected expense.
Connect with your Morgan Stanley Financial Advisor for help building or maintaining your emergency fund.
Footnotes
1Source: Survey: Less Than Half Of Americans Have Savings To Cover A $1,000 Surprise Expense, Bankrate, Jan. 19, 2022, https://www.bankrate.com/banking/savings/financial-security-january-2022/
2You could lose money in money market funds (MMFs). Although MMFs classified as government funds (i.e., MMFs that invest 99.5% of total assets in cash and/or securities backed by the U.S government) and retail funds (i.e., MMFs open to natural person investors only) seek to preserve value at $1.00 per share, they cannot guarantee they will do so. The price of other MMFs will fluctuate and when you sell shares they may be worth more or less than originally paid. MMFs may impose a fee upon sale or temporarily suspend sales if liquidity falls below required minimums. During suspensions, shares would not be available for purchases, withdrawals, check writing or ATM debits. A MMF investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or other government agency.
Disclosures
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or instrument, or to participate in any trading strategy. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Information contained herein has been obtained from sources considered to be reliable. Morgan Stanley Smith Barney LLC does not guarantee their accuracy or completeness.
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Source:
https://www.morganstanley.com/articles/how-to-build-an-emergency-fund
Article #3: Planning Today to Help You Thrive Tomorrow
By Morgan Stanley Wealth Management, November 15, 2022
Having a wealth plan can help you on your way to achieving your goals. But what happens when you take your planning process a step further?
What matters most to you? Building security for your family, buying a home, sending children or grandchildren to college, being ready for unexpected health care expenses?
Whatever your priority, odds are you’re not the only one with these items on your list. Cultivating one’s standard of living was a concern for 56%. Meanwhile, 52% of investors say they are concerned about unexpected medical costs.
Financial goals and a focus on how to achieve them can span generations. Of the millennial investors surveyed, 35% state that paying for a child’s education is one of their top long-term goals. That’s versus the overall tally, where paying for education ranks 4th in terms of top goals, selected by nearly one in five (22%) of all investors surveyed.
Aligning Your Priorities with Your Wealth Plan
It’s never been more important to create a plan that can help secure your future and guide you to your goals. Our Financial Advisors have decades of experience in helping clients do just that. And, we’ve launched Morgan Stanley Goals Planning System (GPS), an innovative platform that links your financial information to your top concerns and priorities.
Our objective is to help you chart a course that will help get you where you want to be, with the flexibility to adjust as personal situations and markets change. Call a Morgan Stanley Financial Advisor to learn more about Morgan Stanley GPS and how it can create a wealth plan that focuses on what’s important to you.
1 Investor Poll Methods: The Morgan Stanley Investor Pulse Poll was conducted by GfK Public Communications & Social Science using the GfK KnowledgePanel — the only large-scale representative panel of the adult population in the US, for which members are recruited using a probability-based address-based sampling methodology. In order to maintain full representation of all adults, households without Internet access are provided computers and ISP as well. From August 15 to September 7, 2017, a random sample of approximately one thousand (1,001) respondents across the US were interviewed. In order to qualify for this study, respondents were required to have $100,000 or more in household liquid investable assets, be between the ages of 25 and 75 years old, and to be one of the primary decision makers in the household for financial decisions. Quotas were applied in order to obtain approximately one-third in each of the following categories: $100,000 to $499,000; $500,000 to $999,000; and $1 million or more in investable assets. Results were then weighted to age within each of these three asset classes using benchmarks from the Federal Government’s Survey of Consumer Finances data.
Regional oversamples of approximately 300 adults were surveyed in each of two US regions, Chicago and San Francisco, using a blend of samples from the GfK KnowledgePanel and other online panels. Respondents from these regional samples required the same screening criteria as the national sample, except that respondents had to live in one of the metro areas. The regional oversamples were then weighted using the same targets from the Survey of Consumer Finances as used to weight the national study. Also, respondents from the non-probability online panel sources were calibrated further to correct for some of their known skewed attributes, such as hyper Internet usage, to better represent the target population of HNW investors in these regions.
Lastly, an oversample of approximately 200 adults ages 25–35 with $100,000 or more in investable assets was surveyed using a blend of samples from the GfK KnowledgePanel and other online panels. Respondents from this sample were weighted using benchmarks from the Federal Government’s Survey of Consumer Finances data.
ABOUT GfK: GfK is the trusted source of relevant market and consumer information that enables its clients to make smarter decisions. More than 13,000 market research experts combine their passion with GfK’s long-standing data science experience. This allows GfK to deliver vital global insights matched with local market intelligence from more than 100 countries. By using innovative technologies and data sciences, GfK turns big data into smart data, enabling its clients to improve their competitive edge and enrich consumers’ experiences and choices. For more information, please visit www.gfk.com or follow GfK on Twitter: https://twitter.com/GfK.
The Morgan Stanley Goals Planning System (GPS) is a brokerage investment analysis tool. While securities held in your investment advisory accounts may be included in the analysis, the reports generated from Morgan Stanley Wealth Management are not financial plans nor constitutes a financial planning service. A financial plan generally seeks to address a wide spectrum of your long-term financial needs, and can include recommendations about insurance, savings, tax and estate planning, and investments, taking into consideration your goals and situation, including anticipated retirement or other employee benefits. Morgan Stanley Smith Barney LLC (“Morgan Stanley”) will only prepare a financial plan at your specific request using Morgan Stanley approved financial planning software. If you would like to have a financial plan prepared for you, please consult with a Morgan Stanley Financial Advisor.
To understand the differences between brokerage and advisory relationships, you should consult your Financial Advisor, or review our Understanding Your Brokerage and Investment Advisory Relationships brochure available at https://www.morganstanley.com/ourcommitment/
The Morgan Stanley Goals Planning System provides a snapshot of your current financial position and can help you to focus on your financial resources and goals, and to create a strategy designed to get you closer toward meeting your goals. Every individual’s financial circumstances, needs and risk tolerances are different. The hypothetical projections in the reports are based on the methodology, estimates, and assumptions, as described in the reports, as well as personal data provided by you. Because the hypothetical results are calculated over many years, small changes can create large differences in potential future results. The reports should be considered working documents that can assist you with your objectives. Morgan Stanley makes no guarantees as to future results or that an individual’s investment objectives will be achieved. The responsibility for implementing, monitoring and adjusting your investment plan rests with you. After your Financial Advisor delivers your report to you, if you so desire, your Financial Advisor can help you implement any part that you choose; however, you are not obligated to work with your Financial Advisor or Morgan Stanley.
Financial forecasts, rates of return, risk, inflation, and other assumptions may be used as the basis for illustrations generated by the Morgan Stanley Goals Planning System. They should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. All results use simplifying estimates and assumptions. No tool has the ability to accurately predict the future, eliminate risk or guarantee investment results. As investment returns, inflation, taxes, and other economic conditions vary from the assumptions used by Morgan Stanley Wealth Management, your actual results will vary (perhaps significantly) from those presented.
You should note that investing in financial instruments carries with it the possibility of losses and that a focus on above-market returns exposes the portfolio to above-average risk. Performance aspirations are not guaranteed and are subject to market conditions. High volatility investments may be subject to sudden and large falls in value, and there could be a large loss on realization which could be equal to the amount invested.
IMPORTANT: The projections or other information provided by Morgan Stanley Wealth Management regarding the likelihood of various investment outcomes (including any assumed rates of return and income) are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Morgan Stanley does not represent or guarantee that the projected returns or income will or can be attained.
Morgan Stanley and its Financial Advisors do not provide any tax or legal advice. Consult your own tax or legal advisor before making any tax or legal-related investment decisions.
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CRC# 5080983 (11/2022)
Source:
https://www.morganstanley.com/articles/goals-based-financial-planning
