Tuesday, March 5, 2013

Frugal Newlyweds Financial Guide Part 3: Mutual Goals

Today we are going to continue down the path to starting a financially healthy relationship.  In Part 1 you were to meet up and learn about your fiance or spouse's financial genealogy.  Your childhood experiences with financial matters will come out in your relationship and it is good to learn and understand that your backgrounds may be different, but that is ok.

In Part 2 you were to meet up and work on combining your finances.  This requires a level of vulnerability that can bring you closer. You learned the nuts and bolts of combing through each of your different accounts and what you can expect as you work on name change paperwork.  I included a helpful spreadsheet to make this step easier.  Hopefully you started a mint.com account and have been tracking your finances.

Today we begin part 3, setting mutual goals.  This step is a step that successful marriages come back to often.  It is not something to be checked off a list.  Today you need to set some mutual financial goals to work on together.  I cannot emphasize enough the importance of writing these goals down and putting them up someplace in your house.  As a math teacher I love graphs, so I have kept track on a combination of mint and a basic excel spreadsheet.  Here are a list of goals that (I think) you need to tackle in order of importance.

Goal #1: Eliminate debt.  Debt can be a huge boulder in your marriage.  It can rip your marriage apart faster than you realize (I'm talking Indiana Jones type of boulder action).  The worst part is that it can be a wedge to drive you apart, but instead you need to work together to kill it.  The basics for eliminating debt are as follows.  List all of your debts along with the % interest.  If you have a really high rate on one credit card and a low rate another see if you can transfer the debt over.  Start attacking full force the debt with the highest interest rate.  You want the miraculous power of compounding interest working for you not against you.  Once that debt is gone choose a new one to attack.  Another method is to work on the smallest debt first.  Dave Ramsey has a lot of good info on removing debt.  He has a CD called Dumping Debt: Breaking the Chains of Debt that delves deeply into this touchy subject.

Goal #2: Create an Emergency Fund.  Poop happens (that is my school rated version;)) and you need to be ready for it.  Cars crash, pipes leak, appliances randomly stop working, trucks break down, etc., etc., etc.  You don't want to be in a bind every time one of these things happen.  These situations are enough stress as it is for a marriage so you don't want to add financial stress on top of it.  

Talk over with your partner what you think is a comfortable cushion.  Don't be surprised if their number is a lot different than yours.  A common amount suggested is three months living expenses, however in this economy you might want a bit more if either of you are in an unstable career.  If you are the type to pull from this fund for non-emergencies put the money in an account with a bank that is far from you and only keep an atm card (not the credit card/atm combo), that way you have to drive across town to get the money.

Goal #3: Start saving for your house/car.  If your car is on its way to the parking lot in the sky, don't wait until the end to start thinking about your next car.  Start saving now specifically for your next car.  Essentially make car payments to yourself that way you don't have to get ripped off with interest.  I can't imagine not paying cash for a car.  You might even get a discount for paying in cash.  I know someone who wrote what they would pay for a car (in cash) on the back of her card and walked away.  They called her the next day.

If both of your cars are in good shape and you plan to buy a house in the future, start saving for your house.  If you are happy renting, don't worry about it.  I think there is too much of a push to buy a home most of the time.  My husband and I didn't buy a home until I was able to get a job closer to where we live.  I used to commute and it just made more sense for us to wait to buy until we were more certain of where we wanted to live.  During that time we had a lot of discussions about saving for a house and retirement- you can read about it here.

Goal #4: Save for retirement.  I really debated combining this with goal #3 because the power of compounding interest shows how important it is to start saving for retirement early.  I could write and write and write about this (my students get to hear me rant on this all of the time), but I think this chart says it best.

I just read Smart Couples Finish Rich and although I think the title is really tacky it was one of the most refreshing finance books that I have ever read.  The author emphasized the importance of determining what your values are before figuring out how you are going to save for retirement.  He also encouraged making yearly goals that put those values in your life now.  For instance, if you value was "freedom" he might encourage that while you continue to save for retirement, that you also save for a vacation from work or start looking into jobs that will give that freedom now rather than having to wait.

I liked that take on it because sometimes the early retirement blogs kind of bring me down because they make it seem like all of the fun is only during retirement.  This book helped me see how to bring the values that I look forward to in retirement (freedom, creativity, security, giving back) into my life now.

Goal #5:  Fun stuff!  It has been said that "All work and no play makes John a dull boy."  My husband and I always go on spring break with his family.  I did not grow up going anywhere during spring break, so when we first got married this seemed like the most frivolous expense.  However, now we really look forward to it.  We have made some really good memories together as a couple and with his family during that week.  I wouldn't trade those past vacations for anything now.  They were worth every penny.

Sometimes you have to take a break from frugality and splurge, however you shouldn't do this willy nilly!  We plan ahead for this expense every year that way it doesn't add any extra stress.  Don't ever pay for a vacation like this by going in debt.  It just isn't worth it.  You could create your own vacation by enjoying some things that are closer to you home and cheaper.  We enjoy free entertainment for most of the year (free concerts, free athletic events at the school I teach at, free lake beach, library, etc.), so we decided it is ok for us to spend a bit to go with his family some place nice.  I don't suggest an expensive beach vacation unless you have reached goal #1 and #2 and have talked about and started working toward goal #3 and #4.

My husband and I plan to have kids some day and I want the ability to stay home for a while (I'm not sure whether I will, but I don't want to be forced to go back to work).  We put kids in the "fun stuff" category.  We know that they will bring with them lots of expenses, although I don't think near as much as the media likes to portray it.  However, we look forward to that time of our lives and have put them in our goal #5 category.

That's pretty much it.  Attack the debt, prepare for the unexpected, save for the big things, plan for retirement, and save for fun things now!  Next time, we will look at the importance of financial check ups.  Good luck!

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