Money and Relationships: My Squeeze and Me

As my loyal readers will know, I moved in with my main squeeze two months ago. It has been just lovely, but it did bring up some new areas of discussion. We are not just roommates, but we are also not married and do not have legal rights to each other’s property. We aren’t ready for joint accounts yet, but we do have a lot of joint expenses. The bills at his/our place are a little higher than what I was paying before, but it is also a much better location and has a number of perks (like I get to live with my dreamy boyfriend).

Figuring out how we wanted to handle money together is not always easy, but we have had some good compromises and hopefully have figured out a system. It has been pretty pain free. (Ok, let’s be honest…it has been pain free for me because I love personal finance, but D does not love talking about money with me and I can see him squirming every time in bring up the subject with my excessive enthusiasm.)

So to give him a break from squirmily discussing our money, I will tell you all about the system we came up with:

-We set up a private googledocs spreadsheet (a la Lionel and Wilhemina) to track all of our mutual expenses. We put the receipts in a clip on the fridge and/or check our credit card statements, and fill in the spreadsheet each month. Whoever ends up having paid less writes a check to the other and then we start a fresh page of the spreadsheet.

-D is responsible for paying rent and utilities on time, because he lived here first so he already has the accounts set up in his name. We enter it in the spreadsheet and it goes into the overall expenses for the month.

-We pay the bills according to our take home pay. D makes a bit more than I do (but I negotiated my salary very successfully, I’m sure I’ll catch up soon!) so he pays a little more of the bills each month than I do.

We had a big discussion about whether we should divide the bills based on our take home pay or our pre-tax salary (aka, the number they tell you you are making when you get the job, not the amount you get on your actual paycheck). I contribute to my retirement accounts and my flexible spending healthcare account before I get my paycheck, but D is one of the lucky few who will get a pension when he retires, so he doesn’t contribute to a retirement account or a healthcare account.

I thought that I should be contributing based on our pre-tax amounts, because only I am benefiting from my healthcare account but (depending on our future together) either we both will benefit from my retirement savings, or just I will. D wanted to split bills based on our take home pay because he wanted to make sure I had enough to live on without feeling pinched.

It might seem a little ridiculous to be worried about this type of question because it doesn’t actually come down to very much money, but it it is important in our relationship that no one feels they are taken advantage of. This means that neither of us feels like we are paying more than we should, and neither of us feels like we always take out the trash.

Because we don’t know for sure where our futures will end up, it is hard to make decisions that deal with long term financial planning (like will D benefit from my retirement savings in 35 years? Hard to say.) It is difficult to be exactly fair with planning finances now, so we are doing the best we can and making sure we talk about it and we both agree.

-We have also started talking about long term savings goals together. We discussed the amount we are each putting aside (in separate savings accounts) for our savings goals, and we are in agreement on our savings priorities.

-I recently read that you should divide up tasks based on who is better at what in a relationship. In our case, that means I do most of the household shopping because I am a coupon rock star ($38 for $106 worth of home goods today, what what). He is an AMAZING planner, and he is great at taking advantage of Groupon deals and planning sweet dates and activities.

 

Our joint financial planning has just started, but I suspect it won’t be difficult to keep openly compromising. We created a system together, and if it doesn’t work, we will scrap it and create another system together. What is really important is communication, common goals, and that we care about each other more than we care about money. (Vomiting yet? Sorry not sorry!)

 

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Relationships and Money, Couple 3: Billy and Lilly

Subjects:

Billy, 28 and Lilly, 25. Billy and Lilly are newlyweds who married last May. They rent a house, share one car and have a good looking cat.

photo-2
Meow!

Billy makes about twice what Lilly makes. Billy and Lilly have a few financial goals that they are working towards. They want to buy a house. In a few years they want to have kids. They want to have enough so that one of them can stay home with the kids. To meet these goals, they live off of Billy’s salary and save Lilly’s.

Billy and Lilly have all of their finances in joint accounts. They put everything in Mint so that they can stick to their joint budget. Billy is responsible for paying the bills (and by “paying the bills” I mean licking stamps and addressing envelopes (or setting up automatic payments), not being the sole breadwinner). Both Billy and Lilly have the passwords and access to all of their accounts.

They have a generous “Newlywed fund” that they set aside for themselves each month for date nights, vacations, new furniture- basically anything that they will both be involved in that is outside of their normal budget. They also have separate personal budgets (which totals about 1/3 of the newlywed fund for each) that they can spend on whatever they want- clothes, movies, books, games. They don’t have separate accounts for these funds, but they have the money factored into their budgets in Mint and they just tag the purchases appropriately.

They both had savings (emergency funds) all set up before they got engaged, so when they got engaged they reverted back to their old ways of aggressively saving. They were able to save enough to maintain their emergency funds and also save enough for a lovely wedding. Because of that (and with some family help) they were able to get married debt-free (which is a feat!)

The only problem they have encountered is that it is very difficult to buy surprise gifts for each other because there is total transparency in their financial system. In Lilly’s words: “Our method of keeping gifts secret is to say ‘Hey, don’t look at the Amazon order history for a few days.’ ”

Billy’s and Lilly’s system works for them because they are both savers and have agreed to the same financial and life goals. They were able to start off their marriage debt free, which laid the groundwork for a solid financial future. Now if only they could stop spoiling the cat…

What to do when you win the lottery

…or get your tax refund.

Suddenly you have a ton of money! Yeah! But what do you do with it? You are my wise and clever reader, so you know it is not smart financial planning to blow it all on a sports car. But this new money isn’t in your budget, so how do you fit it into your spending and your goals?

First, you celebrate! It’s exciting, you have a little spare cash! Go buy that jacket you have been dying for. Try that new restaurant. Replace your ratty old gym clothes with something that makes you excited to exercise. Make the celebration reasonable- it should be about 10-20% of your new ca$h money. Spending $500 on a new tv when you got a $1000 tax refund might be going overboard, but maybe getting HBO might be a nice splurge.

Next- look at your debts and your savings goals.

  • Can you pay off a credit card with this cash? Won’t that feel awesome, to not pay interest anymore?
  • Is it enough to make yourself an emergency fund? Then you won’t have to worry about unexpected expenses, and the amount you were saving already towards your emergency fund can go to feed the general pot.
  • Can you invest it in your 401k or your Roth IRA? Earn some crazy compound interest on this free money to make even more free money?!!
  • Should you use it to pay off some student loan debt?

If I were you, I would do a mix of the things above with my newfound cash- but you have to be wise about it (consider your interest rates, my friend). If you can pay all of your debt off- do it! But paying just some of your debt off all in one big chunk may not actually be the best choice.

What if the cash you just received is big for you, but it is just a fraction of your overall debt?

Suppose you are the newly graduated Dr. John Doe. Medical school sure was fun, but the average cost of med school is $170,000. Your monthly payments are almost $2,000. Yikes.

But wait! An unknown- yet extremely wealthy- elderly relative just died peacefully in his sleep. He was so proud of his great-great-nephew the doctor that he left Dr. Doe $20,000.

If Dr. Doe immediately puts that $20,000 into the balance of his student loans, he will now owe $150,000. His monthly payments will be a little over $1,700. Is that much better for Dr. Doe, who may be struggling to make his rent while working those crazy shifts as a resident at his new hospital?

Depending on Dr. Doe’s income, it might be better to save the $20,000 and to use it to make the monthly payments. He can make 10 months worth of payments with the $20,000. The total interest he will pay will be slightly more than if he had paid a lump sum off at once- but not by much (an $8,000 difference). I suspect that early in his career, Dr. Doe would value 10 months of being able to pay his bills worry free more than he will value $8,000 after he is an established doctor.

 

Moral of the story: when you suddenly come into some money, think about your overall financial picture. Paying off part of your debts all at once might not make sense if you are struggling to make monthly payments- but if it lowers them enough to ease some of the burden, then go for it! Look at the parts of your budget that are difficult for you (maybe you just can’t quite squeeze enough cash into your emergency fund) and use the newfound money to help with those areas that are challenging.

Congrats on that lottery win, by the way!

Love and Money

Firstly, I want the world to know that when I was googling “How do couples manage their finances” to do a little background research, one of the suggested searches was “How do couples hold hands”. That is sad. Let’s stop googling it, people, and just give it a whirl. The worst that can happen is a little clamminess.

In my life, I hope to have a happy, functional relationship with clear communication and expectations. I am sure you all hope for the same. However, a major reason for divorce is trouble with money….and no wonder! Money is complicated, it comes with a lot of feelings attached, and people have differing values and strategies and goals for dealing with money. Dealing with finances as individuals is tricky enough, let alone letting someone else into the mix.

Here is an example from just yesterday when my boyfriend and I were in the car and had this conversation:

BF: My free subscription to XM radio should have ended yesterday [but the car still is playing XM]

Me: Make sure you aren’t being autobilled for it. How much is it?

BF: About $6 a month.

Me: That is $72 a year! Are you going to cancel it?

BF: No.

Me: Seriously? You would pay $72 a year for XM radio? We don’t even like any of the stations.

[Silence]

Me: Ok, I don’t like any of the stations.

BF: Plus, there are no commercials. I think that is worth $72 a year.

(Later in the day the XM radio actually did get cancelled and we learned that XM also provides live traffic updates to the navigation system. In our traffic-jam-filled city, that is well worth $72 a year to me, too!)

See what happened there? We have different values and opinions when it comes to money and music and radio commercials. This was a tiny conversation, but every time we buy something out of the ordinary we are going to have to have a similar conversation (provided, of course, we are consulting our partners on our purchases). That is a lot of navigation to do! $72 a year really isn’t a big deal, but one day bigger purchases will come into the picture.

Since I started writing this blog, I have been asking many of the couples I know how they manage their finances. The answers I have been getting back have varied quite a bit- as have the structures of their relationships. As I am only in one relationship, I can’t address how other relationships deal with finances. After my initial worrisome google search, I discovered that the internet also thinks this is a complicated topic (I read quite a few depressing stories, which is why I am even more convinced that writing about this is important!) I am interested to hear (as are my readers, hopefully!) how some of you deal with your finances as couples. Do you think your system works? Are there any tips or pitfalls? Would you be interested in writing a guest post (or just telling me the deets and I’ll write it up for you)? Comment below or email me at twentiesinyourpocket(at)gmail.com if you want to share.

Here are some of the things that can add complexity to financial planning as a couple (mind boggling, really):

  • One or both of you have kids. Maybe you have kids separately, maybe you have kids together. Maybe one of you has a kid from a former marriage. Who pays for what? Does your new spouse pay for the stepkids? Even if it’s the simplest situation (you each made half of each kid) it’s still complicated.
  • You might be committed but not married. How do you deal with buying property when you don’t have the legal protection of marriage?
  • One of you might make significantly more than the other.
  • One of you might feel like it is your role to “provide,” while the other partner may or may not agree.
  • One of you might have huge amounts of debt. Is your partner expected to pay for the debt left over from your shoe splurge? Is that what partners do for each other when they love each other? Or is that your responsibility?
  • One of you might stay home with the kids instead of working.
  • You might think your partner buys stupid crap.
  • One of you might come from money (please send me information on how you got that trust fund).
  • One of you might want to go to school instead of continuing to work. Along those lines, one of you might want to switch careers to a more fulfilling but lower paying job.
  • You might be a saver, your squeeze might be a spender.
  • One of you might be much closer to retirement than the other (this could be particularly contentious in May-December romances).

You get the idea. Lots of pitfalls. But my general philosophy regarding finances is “Make a plan and try to stick to it.” The only thing that makes couples finances different is that it should be “Agree to a plan and try to stick to it and then communicate with each other.”

My boyfriend and I are moving in together next month and we began the conversation about how we want to handle joint expenses. We are dealing with a few of the complications I listed above (sadly, no trust funds) and we are going to have to work out a system that works for us. As soon as we come up with a system we feel awesome about, I will let you know! Until then, I look forward to hearing from you about how you deal with love and money.

New Year’s Budget Revolution Resolution!

The number two resolution for 2014 is to make a budget (right behind weight loss, which I have no advice about other than: stop eating so much ice cream for breakfast).

Hopefully you have already been reading my brilliant blog and are taking all of my amazing advice immediately. Right? Right?!?

If, instead, you have just been reading my brilliant blog and then intending to take my amazing advice at a later date….that’s ok too. But things won’t improve unless you take action, so let’s use New Year’s as an excuse for some action! Yeah! Plus isn’t improving the state of your bank account more appealing than getting up at 5 am in the icy cold tomorrow to run 5 miles? (why the heck do people do that??!)

Here is your New Year’s Budget Revolution Resolution Plan:

1. Set up at least two bank accounts: one for checking and (at least) one for saving. Make sure you aren’t paying any extra fees (because that is NOT a good way to start the New Year). Might I recommend Charles Schwab for checking and Ally or Capital One 360 for savings? Fill out the forms and call the excellent customer service numbers if you need help. This one takes a few days for the paperwork to go through, but it is worth it!

New Year’s Budget Revolution Resolution deadline: January 15. Yeah! Pour yourself a hot toddy, this was the most annoying part of your whole resolution!

2. Set up automatic bill pay for all of your bills. Never pay late fees again! Pat yourself on the back for being a financial whiz kid!

New Year’s Budget Revolution Resolution deadline: January 31.

3. Start tracking your spending. This one is ongoing, but thanks to Mint (or whichever tracking software you use) it should be painless (and if you are like me you will think it is fun to play with the graphs).

New Year’s Budget Revolution Resolution deadline: set up a budget tracking system by February 15.

4. Make your best guess at a budget (based on your spending) and do your best to follow it. Don’t worry if you don’t get it right at first, it is a marathon, not a sprint!

New Year’s Budget Revolution Resolution deadline: make a budget by March 15 (beware the Ides of March!)

5. Start paying off your credit card balance and use automatic bill pay to pay off more than the minimum each month. This will feel awesome! Make a plan and stick to it, and you can beat the system!

New Year’s Budget Revolution Resolution deadline: April 1.

6. Start an emergency fund. Again- marathon, not a sprint. You won’t suddenly wake up with a rainy day fund of savings- this may take a year or two to accomplish. When you start it, have money automatically transfer into your savings and then poof! You have completed step 6 of your Budget Revolution Resolution!

New Year’s Budget Revolution Resolution deadline: April 15 (tax day, boo!)

7. Start investing to earn some sexy compound interest! More information coming soon on where you actually are putting your money when you invest it.

New Year’s Budget Revolution Resolution deadline: May 15.

8. Review your budget and tweak it. In the red? Try slenderizing your spending (stopping eating ice cream for breakfast works here too, your ice cream bill will go down).

New Year’s Budget Revolution Resolution deadline: June 1.

What is this? Just halfway through the year and you are already done with your New Year’s Resolution?!?! You didn’t even have to get up at 5 am in the icy cold to go running? YOU ARE AMAZING!

Obviously some of these items will need updating or monitoring as your finances change in the future, but the hardest part is getting a system set up. Six months of baby steps to set up a system that will lead you on the path to long-term financial confidence- that is an awesome resolution!

Here’s to a financially savvy 2014!

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