Managing money can be challenging, but it can be even more so as a couple – especially if the two people involved don’t trust each other with money.
This is the case of a couple featured in a recent episode of Ramit Sethi’s podcast, I will teach you to be rich. Jamie, 45, and her husband Ryan, 35, have been married for 10 years and have three children. They live in the Midwest, earn around $245,000 per year, and have a net worth of $1,033,000 (1).
However, I feel like they struggle financially and tend to run out of money at the end of the month with no idea where they ended up.
A major stumbling block? Jamie lost her trust in Ryan after he made a series of major financial decisions without her. The biggest of these came two years ago, when Ryan, dissatisfied with his lucrative job in finance, took what Sethi called “the nuclear of nuclear options.”
Ryan suddenly quit his job and cashed out the 401(k) linked to it without consulting Jamie beforehand or telling him immediately afterwards. He compounded this by quitting his next job without informing her first and then borrowing from his IRA to finance the purchase of a classic car.
Ryan says he “hit a breaking point.” But now Jamie has a savings account that he keeps separate from Ryan to protect their money. She’s upset about having to pay off his credit card debt, and the couple’s money discussions often end in “arguments, threats of divorce and nothing changing,” Jamie told Sethi.
The couple wants to get their finances in order — and stop fighting — but to do that, Sethi says they’ll have to stop thinking of each other as individuals, adopt a shared vision and work as a team.
Jamie and Ryan’s situation demonstrates the effects that emotions, exhaustion and confidence can have in derailing the financial plans of even those who are relatively well off. The couple did not explicitly state whether Ryan was suffering from burnout at work, but he exhibits some of the behaviors of those who are affected by burnout.
Burnout or depression can lead to impulsive decisions, such as Ryan suddenly quitting his job and making more impulse purchases. It can also cause people to run up their credit cards, which Ryan was doing, and delay making responsible financial decisions, which he was also doing by transferring those responsibilities to Jamie.
As a result, the financial symptoms of burnout can be costly. For example, Ryan gave up a lucrative job that could seriously affect his lifetime earnings. He also cashed out his 401(k) early, which will result in higher taxes that year. It will also hurt his retirement savings because the tax-advantaged growth potential is lost for the money he withdrew.
For example, if he withdrew $10,000 which meant a 7% gain, then in 25 years he would lose a balance of about $54,000. Using the 4% withdrawal method, this would have provided about $180 more per month in retirement.
Most 401(k)s allow you to start making withdrawals without the 10% early withdrawal tax penalty at age 59 ½. Ryan is 30 years old and does not meet any of the early withdrawal exemptions in his 401(k), meaning his withdrawal will be taxed as ordinary income in the year it is taken and will be subject to a 10% early withdrawal penalty (2).
Read more: The average net worth of Americans is a surprising $620,654. But it means almost nothing. Here’s the number that matters (and how to make it skyrocket)
To get back on track, Jamie and Ryan will need to clearly communicate their needs and expectations to each other.
“When you’re hurt or taken for granted, you need to be patient, but you also need to express your needs that you have certain expectations in the relationship,” psychologist Ramone Ford, PhD, said in a Cleveland Clinic blog post (3).
Jamie and Ryan, for example, will need to work together to create new, shared goals and set boundaries to ensure that past behaviors that destroy trust are not repeated. As they try to regain trust, they’ll also have to start working on their finances – together. Fidelity suggests that couples start with an honest conversation about money, set shared financial goals, and create a shared budget (4).
They can still have individual bank accounts alongside that joint account if they wish. “Use the joint account for joint expenses like rent, groceries and bills,” Fidelity recommends. “Individual accounts can be used for personal expenses, giving each partner a sense of autonomy.”
Fidelity says this setup “helps prevent discretionary spending conflicts while ensuring transparency for shared finances,” which could help prevent Jamie and Ryan from playing the blame game with their discretionary spending.
Fidelity also suggests sharing financial responsibilities to keep both partners involved in their financial affairs, as well as creating a safety net by building and maintaining an emergency fund together. Life happens, so it’s important to have regular check-ins to adjust those plans as needed.
Jamie and Ryan will have to work on rebuilding trust and getting their finances in order, but they’ve already taken the important first step of asking for help and talking honestly and openly about money. If you need a reset with your partner, consider enlisting the help of a financial advisor or coach to help you get started.
We only rely on verified sources and credible third-party reports. For details, see editorial ethics and guidelines.
I Will Teach You To Be Rich – YouTube (1); IRS (2); Cleveland Clinic (3); Loyalty (4)
This article provides information only and should not be construed as advice. Offered without warranty of any kind.
