156: Financial Red Flags in Relationships

0:00Hey, everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify, brought to you by Public.com. My name is Austin Hankwitz and my co-host is Robert Croke. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million and I'm a multi-millionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. As you can see right now, we are sitting in Spotify's studio here in New York City. Major shout out to Spotify for allowing us to film an awesome episode while we're here in town for a couple fun events.

0:38So, Robert, what are we talking about in today's episode? We're talking about money red flags in relationships and not the obvious stuff like don't date someone with 100K in credit card debt, which would be insane, by the way. I mean the subtle patterns that show up early and predict major relational problems down the road. That's what we're covering today. I'm excited for this episode, Robert. We just had a red flag episode, red flag, green flag. Now these are specific red flags for relationships, money, all that stuff. Very timely right now. So why don't you kick us off with the first red flag as it relates to money and love?

1:12Well, before we get into these red flags, if you're in a romantic relationship right now, please take note of what these red flags are and figure out if they apply to you. If they do, please understand these red flags are a sign of what's to come. You need to get ahead of these as soon as you possibly can, because the number one reason for divorce are money problems and money fights. Money problems and money fights. If only we could align on those things, I feel like a lot more people would be happily married, Robert. Gotta have these tough conversations, and that leads us into the first red flag, which is financial transparency.

1:47This is one we've been talking about for years that people need to do and really have the tough conversations because so many couples lack this. I've watched couples who've been together for two, three, four years, and one person has no idea what the other person even makes and no idea what their debts are. And I think that is the key. I'm not saying everyone needs to dig in each other's business early on in a relationship, but you at least need to have this understanding as you move further into the relationship and get more serious. And so many of these people don't know what their partner's money goals and aspirations are.

2:21And if you can't talk about money when the stakes are low, you definitely won't be able to talk about money when stakes are high, like going through a pregnancy or buying that new home. So I think it's critical. Have the conversation. Have the transparency. Yeah, it's the transparency and the lack of transparency, right? That's just as important. Couples who don't discuss finances before marriage are 30 % more likely to argue about money regularly throughout their marriage. But what really predicts problems is having different attitudes about their debt. So you've got one person on one side who sees credit cards, kind of like we do, as a tool.

2:56They put everything on the card. They pay it off every month. They get the points that they're supposed to be getting. They think they're being smart. Then on the other side, you have this other person who sees credit cards as borrowing from their future self, and they'd rather not touch them. So neither are like necessarily right or wrong, different strokes for different folks. You say personal finance is personal all the time. But if you never talk about the core differences in your money habits, specifically here with some credit cards, you're going to have conflict. This is how resentment starts.

3:24You don't want to go into a marriage with resentment. It'll build. So please have the conversation so this never happens to you. And you definitely don't want to be in a relationship where you start keeping score. We see this all the time in content on Instagram and TikTok, where the guy's trying to go golf and the girl's trying to go do yoga or whatever it is. And it's tit for tat with the money related to it, that is why the transparency is so important. So let's get into red flag number two, normalizing overspending. I think this one is a really, really rough one because overspending gets treated as normal or even inevitable, especially when it's backed by comparison.

4:02Everyone I know lives like this. Everyone has a car payment. Everyone carries a balance. And that's how lifestyle creep really sneaks up on people and ends up burying them in a position where they can't get ahead and get financially free like we want them to be because of this red flag. And they don't consciously decide to overspend. They just slowly raise their baseline to match what they see around them. We talk about this all the time where we live in this comparison-based lifestyle because of Instagram and TikTok and everything we see on the internet. And it's just really difficult to overcome this because you're seeing that highlight reel.

4:37And that is a really tough thing for people. And almost half of American credit card holders, 47 % of them are carrying a balance month to month, and they don't even have a clear plan of how to pay that off. And some even worry they may not be able to make the minimum payments. We talk about this all the time, the difference between using credit as a tool and using credit to overspend and not stay on budget and stay on task. Yeah, I think the comparison call out is the most important in my opinion, because while one person in the relationship, and this is me in my relationship, I just don't care what people do, what people have, where maybe the other person might feel like they're not living life to the fullest.

5:16So that comparison, the highlight reel, you got to make sure that you are on the same page as to what and how you want to live your lives together. Being on that same page about lifestyle expectations ahead of time, right? Having those conversations helps to ensure that these fights don't happen because one person in the relationships thinks that they should be driving a Range Rover and spending their summers in Italy. And the other person knows that they just can't afford to do that. And remember, if your reference point for happiness keeps moving, you will never arrive. If your lifestyle is growing faster than your financial literacy, debt fills the gap.

5:50So, Robert, we've talked about the first red flag, which is financial transparency or maybe the lack thereof. The second red flag, of course, being normalizing this overspending, have very different ideas on how you guys want to live your life. Two major red flags when it comes to money and relationships. So round off the episode with our third red flag. Red flag number three is value by cost. Our final red flag is how people respond to doing something free or low cost. For example, you suggest a picnic in the park or maybe even a hike and they act like you insulted them. We see this on Instagram and TikTok as well where everything's got to be this expensive first date.

6:28And that is a mistake to me because what they're really saying is I measure value by cost. And I really want to sink in on this and really dial in. I measure value by cost. I think that's a huge mistake. And if that's how someone thinks, then anything that doesn't cost money is going to feel like it doesn't matter to them, which sometimes becomes unsustainable really fast. And it creates this dynamic where you're constantly spending to prove you care. I've been in this situation before where I feel like it's this perpetual hamster wheel where if I don't spend more and everything isn't this glamorous, bougie date or accommodation that I'm not doing enough.

7:08And that is a huge red flag and probably the biggest red flag, I think, in this episode for people in relationships. Because you don't want to get in a situation where you can't just have a lazy Saturday afternoon and enjoy a picnic or something fun or going for a hike or something like that. Because then you're just always going to be on the chopping block. How much did this person spend? Is it enough? And I feel like that is just a recipe for disaster. Yeah, my fiance and I, we just did no spend January. And it was awesome. Lots of just random little trips and things here and there around Nashville to keep us entertained.

7:43It's one of those things that if you can enjoy each other's presence as friends, you don't have to be spending money to hang out. You don't have to be experiencing a concert or going on a vacation. You guys can just be together watching a movie, going for a walk, like walking the dog and drinking some Spindrifts. Like, lock me in on that one. Now listen to this one, Robert. couples who equate spending with love have higher rates of what's called financial infidelity, hiding purchases, secret accounts, and undisclosed debt. Recent surveys show that 40 % of people in relationships admit to hiding a purchase from their spouse or their significant other.

8:19About 20 % have a credit card or an account their partner knows nothing about. And honestly, those numbers are probably low because people are underreporting the stuff anyway. But even taking it at face value, that means a huge percentage of couples are operating on some level of financial dishonesty. And it usually starts small. They hide that$50 purchase or that$100 purchase, whatever it might be. But the pattern, the financial infidelity pattern is what actually matters. You got to look out for that. It's a major red flag. And for me, I think it starts with the little things. If you're hiding small things, it means you don't trust your spouse will understand.

8:56And to me, that's just going to be a recipe for disaster where you're going to hide more and more and more, or you don't want to be accountable for your decisions to spend the money and lack of trust compounds. We've talked about it all the time, that keeping score gets worse and worse. And now you're not just hiding the purchase, you're hiding your anxiety about money and your spending habits and your actual financial future and the picture of what that looks like for yourself. And your spouse is making decisions based on incomplete information because you're hiding the little things and potentially the big things.

9:29I always say personal finance is personal, even when it comes to relationships, but I still think the conversation has to be had on both sides so there aren't any unmet expectations. 100%. Every time you avoid a money conversation in a relationship, you're not just avoiding the discomfort at the moment, you're teaching yourself that money is too uncomfortable to talk about. You avoid the Valentine's Day conversation, then you avoid talking about summer vacation, then you avoid the conversation about whether you can afford the apartment you want. And pretty soon, money is the thing that you guys are just all tiptoeing around here, and the stakes keep getting higher and higher.

10:07You said if you can't have these conversations when the stakes are low, you're not going to have them when the stakes are high. Yeah, I did a one-on-one call recently with a woman that's in a relationship, a long-term relationship, and she said that they were engaged, but she had just learned that he had over$100 ,000 in credit card debt, and she had no idea this even existed. So I think that's important for everyone to make sure you have the conversation earlier than later so you're both on the same page. And if you haven't built the muscle for having hard money conversations when the stakes are low, you're definitely going to be in trouble when stakes are high.

10:42And the research shows that couples who don't discuss major financial decisions together are three times more likely to report being unhappy in the relationship down the road. So if you're making major life decisions in a vacuum, your partner feels excluded from your future and you feel like you're carrying all the weight alone and we don't want that. That's why we want you to follow this episode and do the things, have the hard conversations earlier rather than later so everyone knows where they stand in the relationship, especially as it relates to your finances. So let's bring this back to Valentine's Day.

11:16This one day, this relatively small decision can tell you a lot about your financial future with someone. The question isn't how much are you spending? The question is how are you making this decision? That is it. Are you sitting down together and talking about what would be meaningful to both of you and what you can actually afford? Or are you just doing what you think you're supposed to do and hoping it works out. Yeah, one is intentional and the other is reactive. And those two things might look identical from the outside, but they feel completely different in the moment. One is empowering, the other is draining.

11:51And if you're in a pattern of reactive spending, where you're just responding to external pressure without really thinking about whether it aligns with your values and your financial situation, that's going to show up everywhere else in your life. But if you can make intentional decisions about money, then you can spend less and feel better about it. You can opt out of things that don't serve you. You can build wealth because you're not letting other people's expectations drive your financial decision-making. And it's not about whether Valentine's Day is worth it or not. It's about whether you're making conscious choices or just reacting to pressure from your friends, society, and what the expectations are out there, and whether you can talk about it with your spouse or significant other.

12:34I think that's the key takeaway for me, because if you can't have a conversation about a$200 dinner without turning into a fight, you can't have a conversation about those big things we mentioned. But if you can sit down and say, here's what Valentine's Day means to me, here's what I'm comfortable spending, what matters to you, and actually listen to your significant other, that's a skill that's worth more than any amount of money and is going to help put you guys in the right place to make sure you're moving in the right direction on small decisions and big decisions so there's no secrets. So in summary here, our first red flag was the lack of financial transparency.

13:11Make sure you guys are talking about money, debts you might have, ways that you think about money, your money aspirations and goals, things of that nature. Our second red flag was normalizing overspending. One person over here thinks you should have a crazy inflated lifestyle. The other might not. And our final red flag was assigning value to the relationship in congruence with how much money is actually being spent on the dinners, on the car, on the experiences. Because if y 'all can get along when no money is being spent, y 'all are going to be just fine. I think the value by cost for me is the biggest red flag that I've seen over my relationships, over what I see on the internet nowadays, because you have to be able to enjoy each other's time, whether you're spending a bunch of money or not.

13:57And if one person in the relationship is always forcing, that you have to spend a bunch of money to have enjoyment and care for each other and have a good time, that is a huge red flag for me. And you should run if you're in that situation right now. So I think the big takeaway for me is if you find yourself in any of these situations, it's very important to start having those conversations with your significant other. Even if that person is already your spouse, maybe you have children with them, maybe you've never talked about money. Let this episode be your wake-up call. Write down on a piece of paper the three red flags we just went through and start thinking about your own life and then comparing your life to if any of these red flags start coming up in your relationship.

14:39Wait, do I know about my spouse's credit cards? Are they doing some financial infidelity? Does my spouse think that if we don't go on these two vacations every year that I don't love them, just begin to reflect upon this episode. Go take the time and as Robert says, take notes, take action, and you're going to be just fine with money. So Robert, before we jump to the Q &A section of this episode. Got to give a shout out to public.com, the investing platform for those who take it seriously. Because on public, you can build a multi-asset portfolio of stocks, bonds, crypto, options, and now generated assets, which allow you to turn any idea into an investable index using artificial intelligence.

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15:59Again, that is public.com forward slash rich habits. Paid for by public investing. Full disclosure in the podcast description. All right, Robert. So our first question comes from Ryan. As a reminder for everybody, if you have a question for the show, we always answer your questions on, I think, every episode of the show now every week coming out. But if you have a question for the show, you can DM us on Instagram at richhabitspodcast, or you can email us at richhabitspodcast at gmail.com. Ryan over here emailed us. Ryan says, hey guys, my name's Ryan, and I'm a huge fan of the show and excited to be submitting my question to you.

16:32I've got an opportunity to invest in my company's employee stock purchase plan, so I need your thoughts on whether if I should participate and if it's a good way to save up and buy a house. For background, I'm married. My wife and I are both 25. We live in the DC Baltimore area where both engineers make a combined income of$250 ,000 a year. Currently have$275 ,000 invested between our 401ks, our Roth IRAs, and a$100 ,000 base. We also have a three-month emergency fund and we're completely debt-free. My company's employee stock purchase plan lets me purchase up to$21 ,250 per year in company stock.

17:11I will get the shares at a 15 % discount based on the closing price of the stock on the last day of the buying period. There is no minimum holding period for the stock, so I theoretically could get shares at a 15 % discount on the last day of the plan, and then the very next day sell the shares for an automatic 15 % gain at their normal price. This seems almost too good to be true, so I wanted to ask you guys as the experts here to see if I'm missing anything. Thanks for all you do. We are huge fans, and we are in a great financial position because of your podcast. It has truly changed our lives.

17:42Ryan, thank you so much for the kind words, my friend. And we're super grateful that you've been able to take notes and take action. And you guys are such high earners. Jeez Louise,$250 ,000 a year. Household income here at 25. Y 'all are crushing it. So what do you think, Robert? Do you think Ryan should buy into his employee stock purchase plan? Well, he's going to know more than we are about the inner workings of the company. What's the stock looking like? What's the growth looking like? All of those things. So if he loves the company, getting that 15 % discount is nice. But he also has to consider if he's going to do this flip trade that he's talking about.

18:15Is it too good to be true? Kind of because, and help me with this, but I believe there would be a short-term capital gain situation there that's going to eat up a lot of that versus a long-term capital gain. But I would really need to know more about the company itself. And is it a better play to buy it and hold long-term? Because they're already crushing it. They have all this money put aside. They've got the high yield savings account, all of this. And they're making a really, really good income collectively. So for me, I would consider the short-term capital gains tax that I assume they would have to pay on this flip trade versus long-term capital gains if they held it longer term and if the company is crushing it.

18:55Yeah. So just doing some math here. Assuming they are able to buy it at a 15 % discount and they put all$21 ,250 into their company stock. And then the very next day, they flip it for a 15 % profit. That profit is about $3 ,200. And then let's say they have an effective tax rate of 25%. So they're paying about$800 in taxes there on that short term. So they're talking about$2 ,400, which is, that's a lot of money to a lot of people, and including everyone listening to the show here, I'm sure. But Ryan, if I were in your shoes, there's something here about your question that stood out to me, which was, do you think that this employee stock purchase plan is a good way for us to save for a house?

19:41Yeah, you said if it's a good way to save up and buy a house. The answer is no. I don't think after taxes,$2 ,100 is going to be the needle mover for you on an annualized basis to go save up and buy a house. I think if you want to save up and buy a house, you should be actually and intentionally saving money in a high yield savings account. Or if it's over, call it two years down the road you want to buy, then that money is invested into index funds and it's riding the wave of the market, up, down, left, and right, and in circles. But over the next, call it two, three, four, five years, that's going to grow exponentially and you're going to use that as a down payment on a home.

20:14I don't think, to Robert's point here, flipping this little 15 % profit on $21 ,250 of company stock is going to be the needle mover for you to buy a house. If you want to do it and you believe in the stock, I would only do this if it was a way for me to invest into the company, right? That was my move. Let's say I worked for Google, right? Or Amazon or Apple, right? One of these companies that I really believe in for the next 5, 10, 15, 20 years. Then of course, I can get it at a 15 % discount and I'm going to hold it throughout my life. But you're treating it as a way to try and make a little extra money.

20:49You mentioned buying it, selling it the next day. I just don't think that$2 ,100 difference there that you're going to actually arbitrage from this is going to help you buy a house or not. If you do this for three years, we're talking about$6 ,000. Median house in America right now is half a million, right? That's not really going to move the needle. I think what's going to allow you to buy a house or not is to actually have a plan to save for a down payment. And then that is, call it invested for two, three, four years, or maybe it's in two years or less and you've got it just dumping money in a high yield savings account or using public.com for your earning some interest there with their T-bills and different products they've got.

21:22But at the end of the day here, the employee stock purchase plan is exactly that. It's a way for their employees to invest into the company they work for. And using the term invest there means you're holding it for several years or decades, and they're giving you a little bit of a discount along the way. I agree with that. And I think that's a great breakdown. And I think that they should just focus more on putting aside a certain amount of money every single month that goes into the bridge account. Had that be for their house fund in two, three years down the road, keep that money working either in the bridge account or the high yield savings and rock and roll, because I feel like this little swap trade is more of a chasing pennies, why dollars fly by kind of thing.

22:01And so I really like your breakdown on that. Yeah. Ryan's making$250 ,000 a year alongside his wife, which means you guys are taking home about$15 ,000 a month after taxes, after your 401k contributions, after your healthcare, like 15 grand. Yeah. Y 'all could probably carve out two, three, four,$5 ,000 of that, even living in DC, Baltimore area, and have the ability to save for a sizable down payment. I mean, you do that for two years, that's call it 60 to$100 ,000, depending on how much you're saving every single month. So I agree with you, Robert. I think you're, Ryan, trying to chase some pennies while you see the dollars fly by.

22:35Our next question comes from John R. also by email. Again, richhabitspodcast at gmail.com. John says, you guys talk about the 4 % rule as to how one should use their investments in retirement. It looks like the 4 % rule is only to ensure that the money will not run out over a 25 to 30 year period of time. How should I compute my freedom number if I plan to retire early, wherein it's almost guaranteed that I will live for more than 30 years? Will the 4 % rule still work or should I go down to 3 %? It's a good question. Will the 4 % work or should I go down to 3 %? I think it's more important if you're going to try and retire early.

23:14And again, we don't know your age based on this question. I would look at it as where do you believe at retirement your monthly spending is going to be? And then I would apply the 4 % rule to that. So for that reference, if you say, I'm going to need to live on$15 ,000 a month in 15 years when I'm ready to early retire, then you need to figure out how you can get from the 4 % of your portfolio to that$15 ,000 a month so you don't run out of money. And then you can adjust it down to 3 % if you wanted to, to help you be able to thrive and keep that same lifestyle. But I think it starts with understanding and make sure you add inflation in when you're doing this calculation.

23:58Use ChatGPT as your friend to figure out how much money are you're going to need in that portfolio to be able to extract the 4 % yearly and meet that$15 ,000 a month? Could you imagine$15 ,000 a month in retirement? That's a good, healthy retirement, if you ask me. Yeah. So John R., what a good question. So let's take a step back and think about the 4 % rule in general. The 4 % rule is essentially the Trinity study. It happened at Trinity University. Essentially what happened was a bunch of economists and smart people with calculators came together to figure out what's the ideal portfolio and withdraw rate from that portfolio to assume a sizable healthy retirement without running out of money for that 25 30 year period of time and they said 60 of the portfolio should be invested into stocks 40 of the portfolio should be invested into bonds and if you take out four percent of the total value of that portfolio every single year, you should be able to live off of the portfolio itself for that 25, 30 year period of time.