A fool and his money are soon parted… True, but how about a couple and their money? How can couples go from fighting over money, or the lack thereof, to actually building wealth?? The secrets of power couples go way beyond celebrities. You don’t need a rapper or R&B wife to become successful in the money arena. There are so many aspects that play a role, but let’s just cover some oldies but goodies.
Learn about these four letters, they rule the financial world: FICO
A couple starting their life together with a low credit score is not doomed to fail. Their love can be strong with a weak credit score. However, your finances will be strained. Since money problems account for most divorces in the U.S., it would behoove you as a couple to know how FICO scores will influence your financial direction. Example, you and your partner have a score of 520-580 between the two of you. You get an auto loan of about $20k at 21% and as a result your payment is $541. Your partner has a loan for lets say $15 k at 19% with a payment of $389.11
As you can see, credit matters! With decent interest rates, you’ll pay less in total interest (what you pay to borrow money) and have a substantially lower payment. Let’s examine the prior example again: $20k loan, this time at 4% would be about $368 and for the partners loan, $15k at 4% would be $276.. Do the math and you’ll see that’s over $286 back in your budget. Wanna get deep? Take that $286 and invest it in a mutual fund or high earning money market. Let’s say you can get about 12%… you’ll have over $3900 at the end of the year. That’s just with those savings alone. It’s about working smarter not harder. That’s how power couples approach money.
Power couples are not mass consumers…
Sure, they purchase things like anyone else. But “keeping up with the Joneses” doesn’t have much priority in a power couples home. It’s about having cash flow. Staying within budget is what keeps the savings growing instead of the debt. Most consumers and many couples do the opposite. Their debt grows while their savings decrease, and all the while they haven’t put a lick towards retirement or 401k accounts. Why is that important? Because unless your goal is to be working at Walmart as a greeter at the age of 68, then you’ll need to have your retirement planned out. Unless you plan on winning the lottery! Good luck with that one.. You must plan ahead and get an understanding of what builds wealth.
Become familiar with this number: 36%
It’s what your debt to income ratio needs to be at for financial stability and to qualify for most lending at banks. Whether it’s for a home loan, or for a loan to start a business. Or if you’re a business owner and looking to expand and possibly get a line of credit, banks will be looking for this number. In easier terms, if your total debts (expenses) are eating up more than 36% of your income (pay), banks will consider you high risk. You will end up back in the case example from earlier in the article.
As a couple, take some time to educate yourselves on the ins and outs. Learn the terms, learn how they affect you. Make sure you’re on the same page financially. Black men have a terrible habit of falling victim to the “Fools gold” perception. We’ve fallen for thinking that somehow cars with rims, somehow equates to “money.” Considering that cars drop in value (depreciate), why are whips and a chain such a dream to some of us? It means nothing, what’s more impressive is having a solid portfolio and high FICO. Now you’re balling…
Till next time TRP! ~Nick C.