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One family, two portfolios

Five ways you and your spouse can bridge your differences and keep your finances on track.

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By Carolyn Bigda, Money Magazine writer-reporter

justin_kim_ritchie.03.jpg
3 fast fixes
Despite their different investing styles, Kim and Justin Ritchie can get a good start on the path to early retirement, according to Lee Baker, a financial planner in Atlanta.
1. Create a safety net
The Ritchies have $62,000 in a money-market fund. That's too much. They should earmark $10,000 to $15,000 of that for emergencies and invest the rest in stock mutual funds, since the market sell-off presents them with an opportunity to buy equities at a discount.
2. Give Kim some wiggle room
Since Kim wants to try her hand at picking individual stocks, Baker recommends that the couple set aside a small portion of the portfolio - maybe 5% or less - to let her satisfy her daredevil urges without risking the family's financial future.
3. Get a handle on the real risks
International funds have had high returns for the past several years, so Justin figured they were a safe bet. Wrong. "Those returns won't last forever," says Baker. Right now 40% of Justin's $22,000 401(k) is foreign stocks. Baker recommends he pare back his international exposure to 20%.
SUBMIT

(Money Magazine) -- At first glance, Justin and Kim Ritchie seem in perfect financial sync. The couple, who grew up on the same street in Georgia and both went to college in Atlanta, are saving more than half of their combined six-figure income so they can buy a bigger house in their hometown of Bonaire, Ga., cover college tuition costs for sons Giuseppe, 2, and Gianluca, 1, and retire together before they hit 60.

Just one problem: Currently the bulk of the couple's savings, some $62,000, is languishing in a money-market fund, and the Ritchies can't agree on the next step. Kim, 27, a production management specialist for the Air Force, says she has a high tolerance for risk. She wants to try for bigger returns on their savings, including buying individual stocks. Justin, 29, a sales manager for a multimedia company, is rattled by recent market losses.

Even the couple's visit to a financial adviser was a bust. After reviewing the plan, Justin was overwhelmed and backed out. "It felt too aggressive," he explains. Says Kim: "We're together in marriage, but we have different ideas about the way to go."

Alas, as the Ritchies are learning, being in love doesn't guarantee that you and your partner will be financially compatible. You might like to pay the bills as they come in and obsess over Quicken while your spouse tosses all the receipts. Maybe, like the Ritchies, you have different ideas about how you should invest.

Or you might have separate takes on long-term goals. A 2007 survey by Fidelity Investments found that some 30% of couples gave different answers about the age at which they'd retire, how they would live in retirement and whether they would continue working in old age.

Whatever the reason for the divide, these discrepancies can lead to financial trouble. If you and your spouse can't agree on your goals, it's inevitable that one of you will undercut your plans, and you'll find yourselves getting nowhere. If you're constantly hassling over day-to-day spending, budgeting for long-term goals is probably getting short shrift; if you aren't on the same page about investing, it's likely that your joint stock and bond mix is out of whack, leaving you with a portfolio that's overly risky or conservative. To ensure yourself a solid financial future, it's essential that you find common ground.

Put a price tag on your ambitions

Chances are you and your spouse have the same dreams, but you may not have a realistic idea of what it will take to achieve them. The higher-spending partner may simply not realize that the money he's frittering away is going to put the kibosh on, say, the second home the two of you have been hoping to buy once the kids go to college.

"It is a very powerful exercise to literally put your goals down on paper and talk about them," says Bill Ennis, a financial planner in Macon. In the Ritchies' case, Justin and Kim both wish to retire early, but they haven't discussed the type of lifestyle they want or how much it will cost to quit before 60.

Once you've created a list of goals and put a dollar amount on each, set priorities. "Look at how doing one goal would affect the probability of another," says Chicago financial planner Chris Long. "Put that way, it's usually easier to come to an agreement."

If you're at a deadlock over a specific decision - for example, you want to remodel the kitchen and your spouse doesn't - dig deeper and try to figure out why. You may find that there's a larger issue at stake; perhaps she is uncomfortable with taking on so much debt.

Or there could be unspoken goals: Maybe she's thinking she'd rather save for a larger home than put more money into this one. If you're still stuck, consider meeting with a financial planner who charges an hourly fee. Ideally, you'll be able to use his or her office as a neutral zone, free of the stacks of bills and impulse buys that stoke emotions. A planner can also help crunch the numbers that you need to commit to a mutual strategy.

Separate your cash...

Is your significant other's money-management style driving you crazy? Arrange for your paychecks to go into a joint checking account that you use to pay for household expenses, such as the mortgage and utilities, as well as to fund savings goals. Then move an agreed-upon amount each month into separate accounts for personal expenditures such as clothes, haircuts and the weekend golf game. That way you can go your own frugal - or spendthrift - ways judgment-free.

If one of you is more risk-averse than the other, you can also split up your investments. In both your retirement accounts, put the bulk of the savings in well-diversified mutual funds. Then tweak a portion - no more than 20% - of your individual pot according to preference. Maybe you'll add more bonds to your stash, while your spouse might get to take a gamble on that emerging markets ETF.

"It's really all one lump of money, but you can mentally divide it," says Meir Statman, a professor at Santa Clara University who studies behavioral finance.

...but not your knowledge

When it comes to managing day-to-day finances, it's natural to fall into roles that play to your individual strengths. If you're the meticulous one, it's fine for you to be in charge of paying the bills and let your wife, the market maven, run your portfolios.

But if your spouse has no idea what the heating bill costs and you have no clue what funds you have in your 401(k), you're setting yourselves up for nasty surprises and disagreements when she learns that you're running low on cash or you discover that you just lost a quarter of your savings when the market tanked. And you run the risk that one of you would be left in the lurch if the other became ill or died. Besides, you're likely to make better choices as a team.

In the Fidelity study, couples who said they were jointly involved in financial planning were more optimistic and better prepared for the unexpected in retirement. The quick fix: Swap roles once in a while and let your better half rebalance your portfolio or pay the bills.

"If you're vested in the outcome, you have to be vested in the process," says Nigel Taylor, a financial planner in Santa Monica, Calif. If you're keeping your finances separate, you can use online money-management services like moneycenter.yodlee.com to aggregate your accounts and allow both you and your partner to track spending, calculate your net worth or keep tabs on debt.

Create automatic checks and balances

Once you've agreed on a plan, design it to be easy to stick with. You're far more likely to meet your savings goals if you have a portion of your paychecks automatically deposited in the appropriate account, like an IRA or a money-market fund.

To rein in spending, set limits ahead of time. Agree that you won't make a purchase over, perhaps, $200 without consulting each other. Many banks will even send you text alerts when a purchase of that size (or some other figure that you specify) is made.

Hold weekly money meetings

If money is a sore spot in your marriage, you are probably inclined to keep discussions to a minimum. But you should commit to a quick once-a-week check-in - about 30 minutes - to go over routine things like paying bills or deciding immediate spending questions, says Ruth Hayden, author of "For Richer, Not Poorer: The Money Book for Couples." That way you can air concerns before resentments pile up.

You should also agree to meet for longer periods a few times a year to take care of bigger things like checking in on investments, rebalancing and re-assessing in case a new baby, a new job or an inheritance from Aunt Rose has changed your situation.

Armed with a new game plan, the Ritchies have agreed to take another look at their investing strategy. Says Kim: "I want us to learn how to make better decisions."

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