Relationships and Money, Couple 4: Patricio and Carmelita

Today’s Relationships and Money spotlight is a guest post from my good old friend Patricio and my wonderful new friend, Carmelita. Because being a priest comes with unusual benefits (housing) this management strategy might resonate with some of you whose jobs have perks outside of typical paychecks and benefits. Patricio and Carmelita also are adjusting to future parenthood, which means changes in money priorities. Enjoy!

 

Subjects: Patricio, 30 a priest in the Episcopal Church and Carmelita, 26 a barista at a local bakery & coffee shop.

We have been married for a year and a half, are expecting our first kid in October and have a puppy just a little bit older than our marriage.  My work provides us with a nice two-bedroom house and covers all of our utilities except for cable (they keep 1/3 of what my salary on my paper is in exchange for this).

I make about three times as much as Carmelita.  Since my work provides housing our main financial concern right now is the baby on the way.  I drive a small convertible, not even close to a family friendly car, so replacing this is a baby-related cost we’ll have soon.  Getting our own place is a long-term goal, just one we fortunately don’t have to think about any time soon.

Since I graduated from seminary I have meticulously kept track of my of all my income and expenses on a nifty excel chart I found online and adapted to my needs.  After we were married we added Carmelita to the bank accounts I already had but she kept hers since she already had direct deposit set up and her parents would monthly deposit money to her account as their way of paying for a car they bought her before we were married.  This made keeping track of our expenses overly complicated, every month she would cut me a check to cover our credit card bill* and my nifty excel chart was off because money was all over the place.

 

At the beginning of this year her work changed over their payroll so we took advantage of this and streamlined our stuff.  Her old account is now basically an emergency fund, nothing is going in to it (the car was paid off at the beginning of this year) and very little comes out of it.  Our income tracking is now accurate and as long as I spend a little time each week or so at it so is our expense tracking.  We don’t really work with a budget instead I know the trends of what we spend and what we earn and we’re able to make that work.  We easily can see if we’ve been dining out too much, or if we’ve been spending too much money on stuff for the house, or whatever, and lay off whatever that is, or on the flipside if we haven’t gone out to eat in a while we can treat ourselves to something particularly nice.

 

By doing this, we have been able to donate ten percent of our income to our church, and a little bit more on top of that to various charities we care about.  Most months we have been able to put aside $500 into savings.  Carmelita has no student loan debt and I am down to about $5-6 k owed.  We overpay the amount on this by $50 each month, so I think my next payment is technically due sometime in 2016 and it will be paid off within the next two years, about five years ahead of schedule.  Another great part about my job, speaking financially, is the Episcopal Pension Fund.  As a priest, whatever parish I work for is required to contribute 18% of my salary to my pension.  I am able to contribute more, and have in years previous and plan to again but stopped this year since I began serving at a new parish and haven’t set it up yet.

 

A strict budget wouldn’t work for either us, we wouldn’t be good at constantly keeping track of what we’ve spent so far and how much we have left to spend.  But using our system and paying attention to trends in our spending we’re able to do most things we want to and still put aside a good amount.  Of course having a kid is probably going to change all this, but we’ll figure that out when it’s time.

 

*We charge almost everything, which I know can be dangerous.  We pay off the bill completely at the beginning of each month though.  So we have no interest on it and get points like woah!

 

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How to Afford Your Social Life

 

Hi, readers!

I spent my leanest years in some pretty rockin cities, and I didn’t let a shortage of cash get in the way of my social life. There are lots of ways to have a really good time without spending too much money- you just have to be clever about it. Here are my best tips about having an amazing social life while not going broke.

Keeping food/alcohol bills low

  • look at the menu before you agree on the restaurant. If you can’t afford it, suggest an alternative
  • sign up for Open Table and then make reservations for the group. You can earn dining points which add up to a free dining check when you have enough points.
  • pay attention to food costs- soups, salads, appetizers, sandwiches, hamburgers and pizzas are usually cheaper and can be as filling as an entrée. I can’t even remember the last time I could finish a whole restaurant hamburger, so there is lunch for tomorrow, too!
  • don’t drink to excess- learn to nurse your drinks. Alternating alcoholic drinks with nonalcoholic drinks will cut your bill in half, and you will feel better the next day.
  • cocktails are (almost always) more expensive than wine, wine is usually pricier than beer, and craft/imported beer is usually more expensive than domestic beer. Think about how much you plan to drink, and order accordingly
  • look for happy hour/appetizer specials
  • try to get separate checks when in a large group- no one intends to short the bill, but even though you would like to believe your friends all know how to add….evidence has shown time and time again that they can’t. Avoid the stress when possible.
  • avoid the extras- skipping an appetizer, dessert and beverage can cut your bill in half
  • eat before you meet your friends and then order something small or just a drink
  • look for Groupons or livingsocial deals for the restaurant you are eating at

Instead of going out, host at home

  • potluck dinner parties are an inexpensive way to enjoy meals with friends
  • having a barbeque and asking everyone to bring their own item to grill is another alternative
  • learning to make fancy cocktails at home is much more affordable than ordering them at bars
  • soups, tacos, vegetarian dishes and egg-based brunch dishes are inexpensive ways to feed crowds
  • ask guests to BYOB for dinners or house parties to keep your alcohol costs low
  • host a movie night with frozen pizzas, beer and popcorn to save on theater costs
  • game nights are a great way to spend time with your friends without spending a lot of cash. I especially like winter game nights because I never feel like getting dressed up for cold weather and then navigating bars with a coat.
  • if your house isn’t available for hosting, consider hosting picnics in public parks (check local laws before bringing alcohol)

Check out what is happening on weeknights

  • There is usually great local music available with no cover when you go mid-week.
  • Sometimes clubs/bars will have midweek theme nights (ie, Tuesday Funk Night, Thursday Line Dancing) that you don’t have to pay a cover for. They can be more fun than weekends!
  • If you have clever friends, check out trivia nights. Trivia is fun, and the prize for winning is usually money off of your bill. Less popular trivia nights= more chances of winning for you!

Getting around

*Don’t ever compromise your safety or the safety of others to save money. DUIs are expensive, hospital bills are expensive, car repairs are expensive, increased insurance is expensive, getting your car from the impound lot is expensive…and there is a lot more at stake than just money. Spend the tiny amount of money for a cab, choose a trusted designated driver before you leave home, or don’t drink. That is what adults do.

  • being the designated driver will save you cab fare and a bar tab. Often bartenders won’t charge for nonalcoholic drinks if you tell them you are the designated driver (don’t forget to tip)
  • if you know you will need a cab, consider taking public transportation there and then a cab home
  • sharing a cab will keep costs low
  • if your city has Lyft or Uber  you can usually get less expensive rides than a typical cab, and they often offer promotions.

General tips

  • If you take charge of planning events, you will have more control over how much you (and the rest of the group) spends
  • Keep an eye out for free community events- concerts, outdoor movie screenings, festivals

The point of having a social life is to enjoy time with your friends, and it should never make you go broke. Follow these tips, stay safe, and have fun!

Paying for a Gym Membership

I am a yoga addict. The benefits are plentiful- increased flexibility, lower stress levels, great strength training, better body awareness…I’m obsessed! (Just ask my poor boyfriend: every time he has an ailment I tell him that yoga will fix it).

Downward dog is wonderful, but paying $20 per drop in class is not. I find that paying for a month up front isn’t a better deal either- I just feel stressed about not going enough and wasting my money, and more stress is not what yoga is for! But I do believe that physical fitness is an area that it is worth spending money on, if it makes you more likely to stick to healthy habits. I sometimes do free yoga podcasts at home….but by “sometimes” I mean it’s happened twice in the past year. Evidence shows the free version is not going to work for me, so it is worth it to spend a little money to help me keep up with yoga.

Compounding the conundrum is the fact that getting to the nearest yoga studio would add an hour to my workout every time I go (car free living has a few downsides). I usually don’t have a spare hour in addition to my yoga time, so the chances of me going to that studio are slim….what to do?

Luckily, there is a gym on my block that has a few yoga classes each week. The gym itself isn’t especially appealing to me (rows of machines to help you exercise….I’d rather be outside!) but the unlimited yoga for a relatively low monthly rate is just what I’m looking for.

So I stopped into the gym and asked about their rates. This gym’s claim to fame is that if you pay an up front fee, you don’t have to sign a contract. You pay a month-to-month rate, but you can quit at any time. This sounded pretty reasonable to me, because I do know that unused gym memberships are a major way that Americans waste money. I also found out that there is a plan where I could pay a slightly lower monthly rate, but I would have to commit to a year. Here are the options:

  • Pay $99 up front and then pay $35 a month for as long as you want to be a member. No commitments here!
  • Pay $360 for the year (which comes to $30 per month)

Because I am me, I decided to crunch some numbers. I have already decided that I miss going to yoga, and I am going to spend some money to bring yoga back into my workout routine. Drop-in classes at the near-ish yoga studio are $20 each (and not as convenient). Do I want to keep it flexible (yuk yuk) and not commit? Or should I spend $360 up front?

Check it out:

Months Gym with no contract Gym with year commitment
1 $134 $30
2 $169 $60
3 $204 $90
4 $239 $120
5 $274 $150
6 $309 $180
7 $344 $210
8 $379 $240
9 $414 $270
10 $449 $300
11 $484 $330
12 $519 $360

At no point is joining the gym without a contract cheaper on a per-month basis. The first month alone costs $134!!! (6.5 drop in classes!!!) If you quit the gym any time before 7 months of membership, you will have paid less than the $360 needed for a year’s membership….so technically you would be saving money, but you also would have been paying a much higher rate for those 7 months ($50 a month!). After 7 months of membership, you are just plain overpaying! What might seem like a good deal at first (no commitments! How appealing!) is actually just a scheme to keep you from realizing that paying for 7 months of “no commitments” will cost you the same as 12 months on a contract…and signing a contract is like getting 5 months of gym time free!

I decided that the $360 up front is the best deal for me. $360 is the equivalent of 18 drop-in classes at the near-ish studio- so if I go to 1.5 classes a month (3 classes every two months) I will be breaking even. I try to go to yoga more than 3 classes every two months, so I think this will be the best choice. Now, off to get my downward dog on!

 

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!)

 

Paying for a wedding

Not in love? Not engaged? Not even dating right now? Living on a desert island with no hope of meeting someone you want to marry?

This post is for you.

The average age that women marry is 27, the average age that men marry is 29. The median cost of a wedding is $18k. (The average cost is $28k, but the VERY expensive weddings out there skew the numbers for the rest of us).

The number two reason for divorce is trouble with finances.

If you start your marriage off with $18k of debt, you are starting your marriage off on rocky ground.

Now, I am not a wedding planning expert. I have never been engaged and I have never planned a wedding (but I do watch a lot of Bridezillas, guilty pleasure). From what I understand, weddings very quickly escalate to being out-of-control expensive, even if you are still keeping things simple and aren’t a bridezilla. So while there are some things you can do to save money, I am not the person to lecture future married people on how to do it. (Except for my sister’s wedding we bought 12 vases from Goodwill for $4 total for centerpieces! Goodwill is an amazing place to buy vases. That is my only trick. And also if you are a bridesmaid, you should look at this website to see if you can buy/sell your bridesmaid dress, because really….you won’t wear it again and someone else can.)

There are a few ways to pay for a wedding:

1. Her parents pay

2. His parents pay

3. Marry rich and your squeeze pays (word of warning: my mom always says it is cheaper (in many ways) to borrow money than to marry for it)

4. Win the lottery

5. Start your married life off with lots of debt

6. Plan for it

I hope you know me well enough that I am going to encourage strategy 6.

Strategies 1,2 and 3 are all things that may reasonably happen….but as a full-fledged adult, it isn’t smart to expect your parents to foot the bill, and I have already shared my mom’s wisdom about marrying rich.

So as an independent, financially savvy adult, you must PLAN for how to pay for your wedding!

Now, this may be less than appealing. Why would you start saving for your wedding when you are still in the OKCupid-induced “I wasn’t sure whether to laugh, cry or run” phase of your dating life? Because you are smart. And you know $18k doesn’t grow on trees. And one day you want to have a wedding with an open bar. 80% of people get married by the age of 40, so statistically speaking, you will probably be one of those people. (No pressure, I’m just reporting facts here).

Here is a hypothetical timeline:

Age 23: Go on date with man who tells you he used to have pet rabbits but he accidentally drowned them.* Swear off of dating forever.

Age 25: Meet man who makes you laugh.

Age 25.5: Begin to suspect that the man who makes you laugh might be the man you want to make you laugh forever.

Age 26: Get engaged.

Age 27: Get married. Have open bar at wedding.

So when should you have started saving for this awesome wedding? Well, it depends on the other factors in your life. If you are having trouble making rent, you need to focus on taking care of the basics. If you are taking care of paying your bills, paying off debt, building an emergency fund and saving for retirement and you still have some disposable income- you can add saving for your wedding into your budget.

If you recall from my amazing post about Billy and Lilly, they saved as though they were still saving for their emergency funds. This is actually the most painless way to save for a wedding- after you have your emergency fund set up, keep saving at that rate until you have set up a wedding fund. You won’t even miss the cashola, because you weren’t used to spending it anyway!

If you feel like one day you are going to get married it is wise to start planning for that financially. You might want to save on your own, if you aren’t sure about who exactly you are going to want to marry (this is very smart but it is not very smart to mention your wedding savings plan on a first date…I would keep it under wraps, if I were you!) or you might want to start saving as a couple. (If you save as a couple you can each save $9k and take some of the pressure off!) One benefit of a long engagement is that you can use the time to adjust your spending for a year or two to save up for your wedding.

The point is- you can take some steps now (regardless of your dating status) to give yourself a financial leg up in the happy marriage department. Starting married life without wedding debt is a wonderful gift to give to your partner and to your future self.

 

 

 

*True story. Them=plural rabbits. I ran away in the middle of the date.

Money Saving Car Maintenance

Another post about cars means that I did not write it….this one is by Darius, my resident car owner and expert!

You’ve done it! You researched, test drove, budgeted right, and got a great deal on the perfect ride. You drive out of the dealership under all kinds of pomp and circumstance, then you rear end another car because you were trying to figure the radio controls out. Insert WTF face here! But, really, it is the most common cause of accidents on the road. New owners distracted by their shiny new car.

Car ownership costs are one of those nebulous things that can sneak up on you if you aren’t careful. Here are some things I learned the hard way.

After you buy your car, call your insurance company before you even turn the engine on. Then drive right into a parking spot, put it in park, grab the Owner’s Manual from the glove box and spend a few minutes reading about the stuff you want to use for the trip home. You can read more once you get home. Where the radio controls are and what they do, where the climate controls are, the windshield wipers, etc… This 10 minutes can save you up to $3000 worth of repair costs. Money well saved!

Maintenance That Will Save You Money

-Tire Pressure: Most modern cars will have a tire pressure monitoring system (TPMS) and will display the current tire pressure (and the optimal tire pressure). The only thing on your car that touches the ground are your tires. Tire pressure is critical for efficient motoring and safe vehicle driving so, when that little orange tire light with the exclamation point illuminates, DO NOT IGNORE IT. As an example; four tires on a car that are under inflated by only 2 pounds per square inch (psi) will cost you an additional $150 in fuel costs per year.

-Oil Changes: If the car manufacturer tells you to change your oil every 5,000 miles with a full synthetic. DO IT. Motor Oil not only lubricates your engine mechanicals but it also absorbs lots of heat and removes and retains engine deposits. That is why oil goes in a golden color and comes out jet black. If you don’t change your oil regularly, your engine will slowly destroy itself. The first thing to go will be your fuel economy followed by the engine seal that keep the oil where it should be. Finally, the metal components may sieze up. So, that $50- $100 oil change could save you $300 in additional fuel expense, $4000 in engine work, and up to $10000 for a new engine. Money well saved!

-Check Engine Light: When the little orange engine light comes on, get it fixed IMMEDIATELY. That one light is attached to a very powerful and sophisticated computer that monitors over 170 different functions and sensors. There is a reason it is there and a resaon why it came on. For example, your light comes on and you ignore it. The light came on because the oxygen sensor in your emmissions control system went bad. No biggie, right? Well, that sensor controls how much fuel is used by your engine under every condition. So, it may cost you more fuel every time you drive. On GM cars and trucks, if you have OnStar you can get the exact reason why your engine light came on. That is pretty convenient.

Maintenance You Can Ignore

-Gasoline Brands: All US gasoline has to meet a very strict federal standard. Some big name brands put additives in their gasoline but there is no real benefit to the consumer. The benefit is to the oil company in the form of revenue. Don’t be fooled by the name of the gasoline, it could cost you an extra $1500 per year. Also, if your car says it just needs regular gas in the owner’s manual, there is no need to pay for premium.

-Some maintenance is super easy to do yourself. Replacing windshield wipers at an oil change place can set you back $30-$50 a blade, but buying them at the store costs about $20 each. Just read the manual for the right type and then snap them on. Everyone can do that on their own!

-Aftermarket products: Just don’t do it! You want to put some 20s on your Cruze? Skip it. Remember that sentence above about cars needing to be efficient by law. When you change the parameters of the car, many things can go wrong. Bigger wheels are heavier. That means, more energy is required to get them moving, stop them, and turn them. You car was not designed for that. So, those fancy wheels and tires you bought for $600 could cost you up to $500 in extra fuel every year, $900 for a brake job you wouldn’t have needed before, and up to $2000 for new suspension components. Besides, bigger wheels make your car slower (unless they are made for exotic lightweight materials which most of us can’t afford anyway).

You car is a big chunk of money out of your budget. Understand you car by reading the owner’s manual and take care of it just like the manual says and that car could run indefinitely.

A great story to read about:

http://www.telegraph.co.uk/telegraphtv/10324972/1966-Volvo-clocks-up-world-record-three-million-miles.html

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!

Relationships and Money, Couple 2: Lionel and Wilhemina

Subjects: Lionel (31) and Wilhemina (29)

Lionel is in graduate school and Wilhemina is working as a short term contractor. Lionel is living off of loans and Wilhemina is living off of her salary (which is variable depending on whether or not she can get a contract extension, but it is generally renewed every three-six months). They are not married but have lived together for almost three years.

Lionel and Wilhemina have separate finances. They track their joint expenses in a google spreadsheet, with a column for what Lionel owes Wilhemina, a column for what Wilhemina owes Lionel, what the difference is and who owes whom. This way, they only have to pay each other back when the expenses get unbalanced. Lionel is responsible for paying rent so Wilhemina usually owes him each month. This works for them because Lionel has more flexible expenses because his student loans are disbursed in two large chunks each year.

If they go out to eat and intend to split the meal, one of them can just pay for it and the amount owed goes into the spreadsheet. This way they don’t have to worry about cash or writing checks to each other all the time. They have an easy online money transfer system set up so they actually never write each other checks at all.

When they first moved in together, they tried to keep track of groceries and other household expenses on the spreadsheet. They discovered that the expenses usually came out about even each month, so they decided to just take turns grocery shopping and not worry about tracking household costs.

The exception is if one of them has a big grocery trip (stocking up on booze, trip to Costco)- then it will go in the spreadsheet.

If they are having a date night and one person is treating the other, that does not go into the spreadsheet. They can always spot each other cash without worrying about one person being taken advantage of. Neither person feels like they always pay- they already have an easy system set up so that it is very easy to split the bill. This system has been working for them for a few years.

This system works for Lionel and Wilhemina because they have similarly tight budgets, similar spending habits, they don’t worry about counting every penny, they can each spend their own money on what they choose, and neither partner is taking advantage of the other.

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