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Financial trauma

Rachel said her parents “worked as hard as [they] could and saved and saved and saved. You didn’t go into debt unless it was good debt: which was buying a house.”

As a young adult, she eventually purchased a home but struggled to manage the mortgage when she lost a job. Her only solution was to find a job in another city while her ex-boyfriend lived in the home she owned rent-free. These experiences have left Rachel with underlying anxiety issues around money.

Brian had similar experiences prior to his relationship with Rachel. His ex-wife accumulated considerable credit card debt which he eventually paid off during a messy divorce process.

Based on this experience, Brian decided to keep his finances separate and private going into his second marriage with Rachel.

Psychologists believe financial trauma can have long-lasting and detrimental impacts on a person’s relationship with money and their personal financial strategy.

Two-thirds of adults have experienced some form of financial distress or trauma, according to a survey conducted by Experian, which means Rachel and Brian’s experience isn’t out of the ordinary.

In fact, even Sethi admitted some of his money habits are shaped by his parents. He said his mother was “a master coupon cutter” just like Brian.

However, the couple may be exacerbating their financial issues by avoiding difficult conversations around money.

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The need for more communication

Although they’ve been together for eight years, Rachel and Brian keep their finances completely separate. In fact, Rachel doesn’t even know how much Brian earned as a lawyer or what his net worth was before their conversation with Sethi.

Brian admitted that his “Italian pride” and traditional mindset prevented him from giving his wife greater insight into the family’s finances. However, the lack of clarity made it difficult for her to accept his plan to retire within 18 months. “Since I don’t know anything about his income, I don’t know if we’re prepared,” Rachel explained.

This arrangement is somewhat common. Only 39% of couples combine their finances, according to Bankrate, while 46% of adults surveyed by Empower revealed that they don’t discuss financial matters with their long-term partners or spouse.

Had they discussed their finances more openly, Rachel and Brian maybe would have felt less anxious about early retirement. For example, Rachel was shocked to learn that the family’s combined annual income was $270,000 — which puts them in the top 7% of American household incomes. Furthermore, the couple has assets worth $2.3 million in aggregate.

By all measures, they can afford to retire early and stop obsessing over money. However, Sethi believes the biggest barrier is psychological. “The numbers on the page are uncorrelated with how you feel about money,” he told them.

At the end of the day, Sethi said, there are a “lot of different paths to a rich life.” In order to find the “best life,” however, you have to do these three things: acknowledge how you feel about money, run the numbers and have a series of healthy, joint conversations with your partner about finances.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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