Simple Marriage

Emergency! Is Your Money (and Your Marriage) Ready?

Post written by money and career columnist Dustin Riechmann of Engaged Marriage.

What stands between your family and major financial trouble?

Hopefully, it’s not just a credit card or a home equity line.

In many cases, married couples have only a small cushion (if there’s a cushion at all) to carry their family in the event of a loss of income or a major expense.

Once you’ve taken care of any nasty consumer debt, it’s time to prepare for those inevitable rocky times that lay ahead. After you get an emergency fund in place, you’ll be ready to face those costly home repairs, unexpected medical bills and periods of unemployment.

You won’t like it when an emergency strikes, but you’ll be prepared and ready to cover the financial impacts without resorting to debt. Let’s build a full emergency fund!

How Much Should We Save?

As a general rule, most families should have approximately 3-6 months worth of expenses in an emergency fund. It’s important to understand that this not 3-6 months of income, and it’s not inclusive of all the money you spend in a typical, non-emergency month.

To calculate an appropriate amount, go through your budget and decide on a line-by-line basis whether each expense is something that you’d need to cover if you were faced with unemployment. Once you have that monthly “bare-bones budget” amount, multiply it by a factor of 3-6 and you have your goal.

The 3-6 month time-frame will allow most people to regain meaningful employment if they are faced with a job loss. While unemployment isn’t the only potential emergency out there, it’s certainly a relevant threat for most people and this amount of savings will also cover most reasonable “expense” emergencies that you may face.

So, should you save 3 months, 6 months or something in between? Well, your personal amount should be based on your exposure to risk as well as your risk tolerance.

If you have two stable jobs and a fairly “calm” life with little volatility in your expenses, then 3 months is probably sufficient as long as that amount makes you comfortable. On the other hand, if you are a one-income family with lots of little kids around and you feel like trouble is always lurking, you should shoot for 6 months of expenses. At the end of the day, it’s a judgment call.

Where Should We Save It?

While I recommend that a small portion of your emergency fund (around $1,000) should be kept close to home at a local bank for super-fast access, most of your fund should be allowed to work a little harder for you. In most cases, we’re talking about many thousands of dollars (often tens of thousands), and there is decent money to be made through interest earnings.

Just to be clear, you should not be investing this money and putting it in any real risk. Your emergency fund is effectively an insurance policy you’re keeping between yourself and financial ruin. There is certainly a place for investing, but we will not be using our emergency fund for those efforts.

That said, there are options out there that pay better rates than your local bank, offer reasonably fast access to your money and keep it safe. My personal favorite is an ING Direct Savings Account. ING is a great company who pays strong, market interest rates on your money while keeping it FDIC insured and very accessible. Do a little research and find the best solution for your family.

When Should We Use It & What Happens If We Do?

Once you have a nice emergency fund stashed away, you may wonder just when you are supposed to take money out of it. Well, you don’t want to tap into your emergency money unless you have an actual emergency that you couldn’t foresee.

For example, regular home maintenance should be part of your budget and not something you need to take from your emergency fund to pay for. And you know your car insurance is due each year, so that’s not a good use of these funds. On the other hand, you can’t plan for a broken leg or a job loss, so when you have a true emergency, tap into your account and feel good that you are prepared.

Once you get your full emergency fund in place, you’ll probably want to move onto investing, paying off your mortgage and meeting some other financial goals. If (or when) you do encounter trouble and you have to take money from your account, you’ll need to pause these other goals temporarily and redirect your “extra” money each month back into building your emergency fund until it’s back to your comfortable level.

Without question, this full emergency fund requires a lot of money to complete, but if you keep the same intensity that took you through paying off your debts and redirect that “debt snowball” money each month to your savings, you can absolutely do this.

Once we completed this step, my wife and I felt a true sense of financial peace in our family. We’ve needed it several times and, although spending lots of unexpected money is never fun, it’s great to know that you are financially ready to face most of the nasty stuff that life will throw your way!

Bring peace to your marriage by building your own full emergency fund.

(photo source)

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Marriage and Money: Do You Have a Plan?

Written by Dustin · 18 Comments

‘He who fails to plan, plans to fail’, Proverb

When you got married, did you and your spouse sit down and develop a plan for your family finances?

I am a big believer that those who are proactive achieve the most success, and I have experienced this to be true in the area of money and marriage almost without exception. For the first several years of our marriage, my wife and I basically coasted along and didn’t give much thought to our money.

There was always a little money in the checking account, and we never missed a payment on our rent, cars, student loans or other debt. The money thing was no big deal.

Well, about five years ago, we woke one day to the glaring realization that we had accumulated a lot of debt along with virtually no savings. There’s nothing like a double-line on a home pregnancy test to make you quickly reassess where you stand financially. When we looked under the surface of “everything seems fine,” we received a hefty dose “oh crap, not so much!”

It’s Time for a Plan

For us, that day marked a turning point in our family’s financial condition. We took an honest assessment of where we stood, held hands and decided it was time for some major changes in the way we handled money.

Over the course of the next three-and-a-half years, we paid off nearly $55,000 to become debt-free in our marriage (other than our home mortgage) for the first time. There are many reasons why you might want to consider a similar goal, but today’s post is about something much more universal.

You need a plan.

Whether you want to retire at 40 or just keep your car from getting repossessed, your financial situation and, most importantly, your marriage will improve if you develop a plan for your money. When you tell your money where to go instead of wondering where it went, you take control of your family’s financial success.

The Big Three: How to Make a Money Plan that Works

1. Talk

If you’re single, it’s easy to create a plan and get started immediately. Well, if you’re reading this, there’s a good chance that you have someone you need to coordinate this thing with.

Typically, one spouse is going to have their “aha” moment first. It could be an inspiring story you read online, your first bounced check or the 100th call from a bill collector. Regardless of where the seed gets planted, change is coming.

Well, when you’re married, a financial plan is only as effective as the most reluctant spouse wants it to be. To get started, you need to discuss just exactly what you hope to accomplish for your marriage and family.

Use some of your Couple Time to ask each other, “What’s our plan all about?”

2. Lock Arms

Once you’ve discussed your goals, it’s time to start taking action. And the key to effective action when you’re married is a little word with big implications: Unity.

I’m a firm believer that the biggest key to a successful financial game plan is being on the same page before you begin and then making adjustments as you progress to make sure you stay on track with each other.

So what does unity look like? Well, it depends on your relationship, but how you handle your bank accounts will be a good indication of where you stand.

I have to admit that I used to have a pretty cut-and-dry view on this topic. However, thanks to you fabulous Simple Marriage readers and our active community back at Engaged Marriage, I have opened my mind.

I invite you to read the most popular post on my site called “Should Married Couples Have Joint or Separate Bank Accounts?” and consider the variety of intelligent (and very passionate!) opinions in the post and comments. To me, the bottom line is that you need to operate your finances from a central plan, which brings us to the dreaded “B” word.

3. Write It Down

Once you’ve talked it over with your spouse and committed to approach your finances with a unified mindset, you’re ready to physically create your financial plan. Your plan will likely grow over time and include a variety of short, intermediate and long-term goals.

However, at its core, your plan needs to have a specific map for how you will handle your income and expenses. And it needs to lay this out before you actually receive your income and then spend it (it is a plan, after all).

You guessed it, the base of any effective money plan is a monthly budget. I’ve written previously here about the benefits a budget provides for your marriage. If it’s the key to financial success and it’s great for your relationship, why doesn’t everyone use a budget?

You probably have your own reasons, but I know that we didn’t have a budget for years because we were ignorant about what was happening to our money and we liked it that way! Another big issue, which actually popped up for us again recently, is the feeling that preparing a budget takes too much time and effort.

Well, trust me when I tell you it doesn’t have to be that way. There are many fantastic budget software options out there, and we recently found a system that makes it easy and really meets our family’s needs. Plus, it has a cool name: You Need A Budget!

Whether you choose a slick computer program or a simple legal pad and pencil, please just get started so you can lay the foundation for your family’s financial success!

Share Your Plan (or Lack Thereof) with the Community!

I really want to hear your thoughts on this subject. I was frankly enlightened by the feedback I’ve received here previously on financial issues, and I would love to hear how your own family handles the issue of financial planning.

Please leave a comment sharing whether you have a money plan and how you and your spouse address the need for unity (or don’t). Thanks!

(photo source)

18 comments, add yours

Why You Want a Debt-Free Marriage

Written by Dustin · 23 Comments

Debt-Free Marriage When I wrote an article recently telling the story of how we paid off $54,500 in debt, the response was very positive, and I heard from a lot of people who were in the process of shedding their debt (or at least wanted to get started). However, the reasons that I heard for becoming debt-free were mostly focused on the usual, more material motivations.

It seems that most people dream of paying off their debts to reclaim more freedom in their financial life. The idea of getting creditors off their back and having more of their income to save or buy things to improve their quality of life is very appealing. Honestly, that was a big part of why my wife and I decided we wanted to become debt free, and we achieved that goal (other than our home mortgage) two years ago.

I think the purely financial benefits are pretty clear and widely written about. Instead, I want to share with you some of the awesome marriage benefits that a debt-free lifestyle provides. While they weren’t our original motivation, our experiences in these areas have really grown our passion for getting (and staying) debt free.

5 Fantastic Benefits of a Debt-Free Marriage

1. Contentment

A funny thing happens when you get control of your money – you cling to it less. With financial freedom comes a renewed focus on the things that really matter in life. And when your values are in the right place, you depend much less on “stuff” and the false happiness that comes with it.

2. Communication

If you are married and you want to make substantial changes to your financial situation, you will need to talk…a lot. The process of getting out of debt will require a real intimacy with your spouse and a deepening of the trust between you. The spirit of teamwork you develop on your financial journey together carries over to other areas of your marriage as well.

3. Courage

If you have a lot of debt to pay off and/or you are already on a tight budget, achieving debt freedom will be a significant accomplishment. When you meet a major goal, it fuels your faith in yourself and your ability to work alongside your spouse. And it fills your relationship with the courage to face any challenge.

4. Change (for your whole family)

When you decide to shed your payments, you are breaking a cycle that most of us have witnessed throughout our lives, and you are setting a new example for your own kids. With a solid financial plan, you’ll actually have resources available to help with your children’s future, retire with dignity and have the freedom of time to spend more with your family.

Personally, the best benefit that we’ve experienced since paying off our consumer debt is an increased ability and desire to give. When we are generous with the gifts we’ve been given, we can change not only our own family tree but a little piece of the world as well.

5. Comfort

I will be the first to say that money doesn’t solve all of your problems, and no one should expect that debt freedom somehow brings instant happiness. However, we certainly do sleep a little better at night knowing that we owe no one (other than our mortgage company ) and we have a healthy emergency fund in the bank. This feeling of security and comfort is what financial peace is all about.

Debt Freedom Sounds Great, But How?

There are many great resources available to learn the mechanics of getting out of debt. For us, it was Dave Ramsey’s Baby Steps alongside a solid budget that provided the game plan we needed. I would encourage anyone interested in paying off debt and building a solid financial plan to pick up Dave Ramsey’s very popular book The Total Money Makeover.

Establishing a game plan and garnering motivation from these resources is great. However, I have to say that we have discovered the real key to becoming and remaining debt free: mindset.

You have to believe that it is possible. And you have to want it. Bad.

Read the five benefits above again, and talk to your spouse about them. If you have debt, take some time to discuss what would be different in your life if you paid everything off. Only you can decide if financial freedom and going against cultural norms is worth it for your family.

How bad do YOU want it?

(photo source)

23 comments, add yours

Budgeting For Lazy People

Written by Corey · 12 Comments

A year ago on Simple Marriage: originally posted July 20, 2008 and considering all the news about the economy this can be a good refresher.

I married a CPA. At the risk of offending the CPA society, your brains are just wired differently than the rest of us. That is definitely the case with my wife.

I consider myself to be fairly good with numbers, and I did well in Math back in school, but I’m not in the league of the CPA. Although I do find great pleasure when my checkbook balances and hers is off a few cents. She returns the joy by poking fun at how long it takes me to complete the 1 star Sudoku puzzle.

For the life of our marriage, she preferred to live within a budget. In the early years of our marriage I would enter the discussions kicking and screaming. I always felt a budget was far too limiting. I didn’t want to cramp my style.

Needless to say, my attitude helped get us in a financial hole.

The two most common topics fought over in marriage are money and sex. I’ve written plenty of times on the sex topic, now it’s time to tackle the money.

When it comes to budgeting, there are those that live by one and those of us that swear tomorrow we are going to sit down and write one out. The intention is honest, we just have trouble following through.

So how do you set up a budget you’ll actually follow?

Glad you asked. To begin, remember this one simple rule: Spend less money than you make.

Now that we covered the main idea, let’s create a simple budget that even the greatest procrastinators can follow (if they ever get around to it).

Step 1: Have a conversation with your cash.
We place meaning on the things in life. Money is no different. What does your money mean to you? What value does it provide? Beyond money’s providing of the basic necessities like food, shelter, and keeping Mr. Tax Man from visiting, what’s your money for? Security. Fun. Power. Fame. Understanding the meaning we place on money can go a long way in helping you get your money under control.

Step 2: Where’s you money go?
Every budget begins with an understanding of where your money goes on a day-to-day basis. Don’t skip this step. If you don’t know where it all goes, you won’t be able to determine where you want it to go.

There are two ways to go about this step: the CPA way, where you track your spending for at least three months, inputting every penny in a multi-category, macro-enabled Excel spreadsheet, then pouring over every debit and credit each night, or can do this the lazy person’s way.

Lazy it is! For those who use credit cards for most of their spending (paid off in full each month of course) or if you use a debit card, review the monthly statements and categorize your spending areas. Some cards will do this already.

If you live on cold hard cash, write down all your expenditures for one week. You can then multiply these numbers by 4 (there’s that pesky math again) in order to get a rough idea of where your cash goes. This method obviously is leaving out the major monthly expenses like house, car, insurance and the like. Simply add these numbers to the monthly estimate. Simple eh?

If you chose the CPA way, at this point you would add up each column of the spreadsheet, run the macro/algorithm you’ve created in your spare time on Friday night, and analyze the results by running the final numbers through the statistical program you’re bound to have on your laptop.

Step 3: Plan to spend your cash.
Now that you have an idea where your money goes, it’s time to spend your hard earned cash. Not literally yet. Sorry. Instead, make a list of expenses for the upcoming three to six months. Things like vacations, car tune ups, or planning for paying off debt, saving, or investing in your favorite mutual fund. Do the same for long-term plans, two to five years out.

You now have a spending plan. Be sure to leave a little room for the unexpected cash you’re sure to need at times. Like when your car breaks down or your in-laws decide to move in for a few months.

Step 4: That pesky math again.
With your spending plan in front of you, add in items from your “wish list.” Then calculate what these items would run you on a monthly basis. For instance, for the upcoming family vacation, divide the total cost of the trip by the number of months until the trip. Viola, you have a way to prepare for the trip and pay for it as you go.

Step 5: Save money the no-brainer way.
This is really simple. Visit your bank and set up an automatic monthly transfer of money from your checking account to savings. This could be as little as $20 a month. No worries. Put something into savings every month.

Step 6: Cut out the frivolous spending.
The list of “must have” items is endless. In order to curb the frivolous purchase’s impact on your overall spending plans, try the “envelope” system. It’s easy:

Come up with a reasonable weekly amount you’ll allow yourself to spend in your biggest categories. (Those are typically “food” (or, depending on your lifestyle, get more specific such as “lunch,” “family dinners out”), “entertainment” (e.g. happy hours, movies, tabloids to pass the time), “transportation” (gas, parking, taxis, public transportation), “apparel/services” (dry cleaning, bangs trim, cute shoes.)
For guidance, consider that the four biggest budget categories for typical American household are housing (34%), transportation (18%), food (13%) and entertainment (4%).
Create envelopes for each of those categories.
Put the allotted amount of cash to cover a week’s or month’s worth of expenses into each envelope. (You don’t have to carry the entire wad with you every day, but do make sure you don’t cheat with extra visits to the ATM.)
Once the cash is gone, so is your weekly stipend.

Remember, once you get a handle on your finances, you’ll free up more time to worry and fight about other things. But look at this way, you’ll have more money to go out on a nice date in order to make up.

Thanks to the Motley Fool for the steps to this plan.
Photo courtesy auntsmack4u

12 comments, add yours

The Lazy Marriage’s Budget

Written by Corey · 7 Comments

Photo courtesy auntsmack4u

I married a CPA. At the risk of offending the CPA society, your brains are just wired differently than the rest of us. That is definitely the case with my wife.

For the life of our marriage, she preferred to live within a budget. For the beginning years of our marriage I would enter the discussions kicking and screaming. I always felt a budget was far too limiting. I didn’t want to cramp my style.

Needless to say, my attitude helped get us in a financial hole.

The two most common topics fought over in marriage are money and sex. I’ve written plenty of times on the sex topic, now it’s time to tackle the money.

So how do you set up a budget you’ll actually follow? Read more »

7 comments, add yours