Broke Bliss
TIP: MONTHLY BUDGET MEETINGS
When Terry and I first got married, we didn’t really budget. I had just moved back from NYC and although I’d made six-figures, I wasn’t very disciplined with my spending. Not to mention that living in NYC isn’t cheap – the rent for my 400-ish square foot apartment was $2,287 per month. Yikes. Terry also made great money, but… same – we were in our mid-20s and didn’t know what we didn’t know.
We were spending about $900 per month “eating out.” Whaaaat?
We were in a season of transition. I was working part-time for start up companies as we were preparing to launch The League, and Terry was winding down his training practice at gyms around the city so that he could be all in at our gym once it launched. I remember thinking “We don’t really have anything extra at the end of the month. What’s the point of budgeting?” This is embarrassing to admit, but it took FOUR YEARS and a whole pregnancy for us to get serious about tracking our expenses, and guess what we discovered? We were spending about $900 per month “eating out.” Whaaaat? Yeah. And we were completely unaware. Okay, I can already feel your judgement, so I’m just gonna say what you’re thinking: “How ridiculous!” Right. It was out of control. Because we weren’t budgeting, we didn’t actually know where our money was going. This is why it’s never too early to start!
These days, we sit down each month to review the previous month’s budget. We look at our income streams, fixed and variable expenses, and the bottom line. And we adjust our future budgeted numbers based on the trends. For example, if we’d been budgeting $30 per month for dry cleaning, but we’ve gone over budget the last couple of months because Terry is on video more often, we increase the amount we budget for dry cleaning. The idea is that we plan to bring in more than we spend, and we hold ourselves accountable for staying within reason.
Disclaimer: I’m about to share some of our budgeting strategies, but it will not work for everyone. It’s just what’s working for us right now. Maybe it will spark dialogue between you and your spouse, or serve as a template for something better that fits your situation! Let me give you an example: I took Dave Ramsey’s Financial Peace Seminar. LOVED it. I also didn’t think all of the principles worked for our family. For instance, he follows a cash system, but our family uses a credit card, and we pay it off in full each month. This has allowed us to fund several vacations using only credit card points (boom shackalacka). BUT if we didn’t have the discipline to pay off the credit card in full every month, carrying the debt would not be worth the points-paid vacay. So, you can take the parts of our strategy that work for you and leave the parts that don’t.
So how did we get that $900 per month eating out budget down to $300 per month?
Herein lies your freeeeedom in marriage when it comes to money: PERSONAL ACCOUNTS.
When we looked into it, most of that $900 was individual eating out. So, we decided going forward, all of the individual eating out will come from that individual’s personal account, and we only jointly pay for family eating out.
We didn’t have personal accounts at the time, so we easily set them up with our bank. This is our money process and how our personal accounts work:
All of our income is automatically deposited into one account. Let’s call it our JOINT account. This is the main account out of which our family lives.
All of our JOINT expenses are paid from our JOINT account. We break this up into:
fixed expenses (mortgage, internet, utilities, etc) which are about the same amount month to month and
variable expenses (eating out, groceries, healthcare, etc) which can change month to month
(This is the fun part!) Each month, we allocate a certain amount to go from our JOINT account to our PERSONAL accounts. Let’s say, for this example, it’s $100 per month. At the beginning of every month, $100 will go from the JOINT account to Ashley’s PERSONAL account, and $100 will go from the JOINT account to Terry’s PERSONAL account. **Some couples choose to split the personal allowance by percentages based on spousal income. I don’t love this because it can make the lower income earner feel slighted if they contribute to the household in a way that doesn’t provide a direct income stream, but may cut expenses, like a stay-at-home mom. The goal of this is to empower each spouse.
The beauty of the personal account is that you have the freedom to do what you want with that money! If you want to spend it all every month, that’s cool! If you want to save up and spend it on a $400 pair of shoes in four months, that’s cool too! THERE IS FREEDOM HERE! It’s really beautiful. You don’t have to feel bad about how you spend your money because you and your spouse have agreed to this system. You’re not arguing about personal purchases your spouse made because you have created space and boundaries around this. The two of you get to decide what constitutes personal vs joint expenses.
What about saving?
I knew you would ask. We agree on an amount to save from our JOINT each month as a fixed expense. It is automatically transferred to our online savings account (heyyyy higher interest rates!) each month. So again, there’s no guilt in using your personal account for what you want since you’re jointly saving. Also *automating* savings is the jam. You’re saving without having to even think about it.
Another perk of the “personal account” system is that you get more disciplined. In most relationships, there is a natural “spender” and a natural “saver.” When the spender has to pay for their every morning Starbucks or that monthly fancy hair appointment themselves, things tighten up real quick!
Be gentle with yourselves. This is a process. You won’t get it right the first time.
Okay, so where do I start?
If I had to choose the first three steps for a money plan, it would be this:
Build an emergency savings. Start with $1,000 and don’t let it dip below that level (60% of Americans don’t have $1K in case of an emergency). Then grow it to 3-12 months of living expenses. 3 months could work if you have a really stable job. 12 months makes more sense if you lack job security — you’d have more of a cushion if you lost your job. Note: Depending on risk aversion, one could argue that holding too much cash in a savings account isn’t wise, as your money could work better for you if invested in the stock market, real estate, etc. These are higher yielding, but also more risky. For example you could gain 1.9% in a “safe” online savings account vs 7-10% in the risky market.
Pay down debt. This comes after you’ve established an emergency savings, because if you use all of your money to pay down debt and something bad happens, what is your option? Get in more debt. Financially speaking, it makes more sense to pay down the highest interest rate debt first (credit cards) because the longer it takes for you to pay it off, the more interest you pay over time. This is called the avalanche method. Alternatively, you can pay off the debt with the smallest balance first using the snowball method. Psychologically, this proves to be the better option because we can pay off small debts faster, which can be more motivating as you work through the process. Some would disagree, but I’d also consider paying off “bad” debt first, then tackling “good” debt:
A “good” debt example: your mortgage. It’s usually a lower rate and the asset appreciates over time (the value of the house increases).
A “bad” debt example: an auto loan. The value of the asset depreciates as soon as you drive it off the lot.
Get a life insurance policy (because generational wealth is where it’s at), invest, set goals for your kids’ education and your retirement. Okay, that’s like eight steps in one, but I couldn’t leave any of it out. I could go on and on, but the best advice here would be to consider a financial planner. Especially if you have a lot going on with your finances, or if you’re in transition (starting a business, having a baby, etc). We’ve worked with our friend Helen at Capital Benchmark Partners for almost two years now. I can’t say how grateful I am to have found her. On our last call, she got Terry and I so fired up that it birthed some new ventures we’re working on and excited to share soon! Helen has helped us navigate our entire financial picture, answering questions like:
• How much should we save monthly to retire by 65?
• How much should we save monthly to put our kids through college?
• Based on our situation, how much should we have in an emergency fund?
• What are pros and cons of different accounts, like a 529 Plan?
Whew! It can feel like a lot to work through, but how exciting is it that you get to build this strong foundation with your spouse? Be gentle with yourselves. It is a process. You won’t get it right the first time. It took us a while to get really comfortable talking about money and working together on this. Remember that you're on the same team and you’re both doing your best with what you have.
Cosigning a loan for your significant other is almost always a bad idea.
SINGLE SPIN: Start saving now! Again, you will be one complete person when you become married, so don’t wait for marriage to save you (or your finances)!
Start now — even if you start with $20 per month, that’s something! Your future self will thank you.
NAME your savings account: “Wedding”, “Starter House”, “Honeymoon.” Claim it!
Keep it balanced. You can live yo life and be future-focused. You can splurge here and there and save. Create good habits now!
DATING DOSE: Keep things separate until there’s a ring on it. This is why: you might break up. While Terry and I were dating, we briefly discussed sharing a phone bill. We thought it would be cute. I don’t remember why we never did… it was probably the Holy Spirit, because we broke up soon after. For like a year and a half. A joint bill would have been another layer of awkwardness and complication to work through. If years after the break up, your credit score would still be affected, don’t do it (read: cosigning a loan for your significant other is almost always a bad idea).
On the other hand, I don’t believe it’s ever too soon to talk about money – particularly your financial goals. If you’re on a date and the person doesn’t have any financial goals, maybe that’s a red flag! Remember dating is setting the foundation for marriage, so it’s good to be intentional. We’re not wasting our extremely precious time, energy, money, emotions (the list goes on) with someone who isn’t on the same page long term.
