Tuesday, May 20, 2008

Love, Money and Family: Where We Always Get it Wrong

By Dr. Boyce Watkins

People fall in love every day. Some fall in love forever, and some just love the idea of falling in love. We are all familiar with the bliss and agony of love, and our mating, dating and procreating choices define much of the quality of our earthly existence.

But many of us love in all the wrong ways and make short-term choices with serious lifelong consequences. For long-term relationships, reality eventually sets in, and we learn that LOVING together means LIVING together. The thrill you once got from a long, seductive kiss is replaced by the excitement of a good home appraisal or bank account increase. Financial insecurity and emotional insecurity become one and the same, as we find there is a strong correlation between financial deception and emotional betrayal. A big part of living is MONEY. According to a study by the Council of Relationships, money is the number one reason for divorce. This alarming reality is a strong reminder that not discussing the financial and practical dimensions of your relationship can cause you a lifetime of misery.

Some consider it taboo to discuss love and money in the same sentence. I consider it ESSENTIAL. While we might mull all day over a potential mate’s emotional compatibility, sexual compatibility, professional compatibility and spiritual compatibility, most of us don’t spend one second thinking about financial compatibility. Many couples step into serious relationships and marriage without knowing their partner’s income levels, debt levels, credit score, retirement savings, or any of the other significant pieces of information that are going to have a dramatic effect on their love life. Merging your life with a financially irresponsible person is like putting your children into a car with a drunk driver. Once you are in the car, your fates are inextricably linked.

Money plays a huge role in our quality of life, emotional well-being, ability to raise our children properly or ability to spend time together. Money can either be a tool to enhance your love or a weapon to destroy it. Many people have seen their love and relationships ruined by financial problems, financial deception or financial exploitation. How we manage, confront and conceptualize the power of money plays a huge role in how our relationships evolve. That is what Financial Lovemaking is all about.

You think money doesn’t matter in a relationship? Well, here is just a small list of ways that someone could ruin your life financially:

• A partner with horrible credit could keep you from ever getting loan.
• A partner with terrible spending habits can ruin a family’s financial security.
• A partner with a substance abuse or other costly addiction could deplete a family’s assets.
• A partner with unhealthy connections to deadbeat relatives, who always need money, may drain your assets.
• A partner that with an income that is too low due to a lack of education or poor professional choices could ruin you financially.
• A partner may steal money from you or borrow it without your permission and use it for something frivolous (i.e. a bad business investment, gambling, etc.)
• A partner who makes bad financial choices may get you into trouble with the IRS.
• A partner who decides to separate from you may end up dragging you and your money through a long and costly legal battle.

I just gave you the short list of ways that money directly impacts your love life. I am sure you can think of experiences you’ve had or those of your friends. In fact, I encourage you to visit our Financial Lovemaking blog to share your personal story on how love and money have impacted your life.

I am not here there to say there’s nothing going on but the rent. However, I can say that nothing else goes on if the rent is not being paid. So, good Financial Lovemaking is the necessary step to good love. Don’t forget that.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good.” He does regular commentary in national media, including CNN, NBC, CBS, MSNBC and BET. For more information, please visit www.FinancialLovemaking.net.

Saturday, May 10, 2008

Retirement 101: The early bird gets the nest egg

I spent last summer with the Center for European Economic Research. During this time, I had a revelation: America is headed for a horrific retirement crisis, unlike anything we’ve ever seen. The recipe for disaster is quite simple: Americans are not saving, the cost of health care is rising, pension plans are disappearing, Social Security is nearly dead, and people are living longer than ever before. A longer life only prolongs the misery of that life if you have not saved and prepared for your future.

I talk to college students all the time about saving for retirement, and I am sure that about 1/3 of them listen. I didn’t listen when I was in college, but I wish I had. If I had done so, I would know about the Financial Magic that takes place when you save and invest in the stock market over a long period of time. I’m not talking Harry Potter, but the Pot of Gold at the end can make your life as rich as a Hollywood block buster.

Let’s do the math: Assume that Angela starts saving for retirement at 45, Danny starts at 35, and Cindy starts at 25. All of them save till they are 65, each investing in the stock market, earning an average return of 10% per year. Angela earns the most on her job ($55,000) since she is the oldest, with Danny coming in second ($45,000) and Cindy coming in third ($35,000). But when Cindy is 35 and 45, she will earn the same amount as her older counterparts. Based on this assumption, all of them earn the same amount over their lifetimes. I won’t adjust for inflation, since this has been enough to absorb already (isn’t math annoying sometimes?).

Assume Angela, Danny and Cindy each save a measly 10% of their pay before taxes and have that money put into a retirement account that invests in a diversified portfolio in the stock market. By diversified, I mean that they don’t buy just one stock, they have their money spread out over a lot of stocks and all their eggs are not in one basket.

Let’s figure out the size of their nest eggs, shall we? Drum roll please: Angela, who got off to a late start, will have $348,041.50 in her retirement account, minus taxes paid when she withdraws the funds. Not good, not bad. It’s better than nothing.

Danny is better off. By saving 10% of his income when he earns $45,000 and then continuing to save when his pay rises to the level of Angela’s, Danny ends up with $864,826, more than twice as much as Angela. Good for Danny, he can afford to maintain his golf and cheeseburger habit.

Cindy is the smart one. Fresh out of college, she doesn’t spend all of her money at the club. Instead, she spends some of it planning for her financial future. Starting at 25 instead of waiting, how much doe Cindy have at retirement? A cool $1,907,340.54. You go girl. Instead of saving just 10% of her income, she may save 20%, which would effectively double this amount to $3.8 million dollars. Now, that’s Financial Magic at its best. Harry Potter has nothing on Cindy.

What’s my point? The point is obviously not for you to obsess over the tiny variations in numbers. My point is that by planning ahead, you can get ahead. If you are planning behind, then you’ll always stay there. Start saving early if you can, and if you can’t start early, then get started TODAY!

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging assets with your partner in ways that feel good”. He provides regular commentary in national media, including CNN, FOX, BET and CBS.