In March of this year I wrote an article titled Work Together which speaks about how married couples can optimize their financial lives through combining their personal finances. As I think about and prepare for my wedding this weekend, this is the topic that continues to come to the top of my mind to write about. Not only that, but one of my favorite podcasts published an episode around this topic as well. When I was gathering my ideas, I remembered that this is something I’ve written about before, but I didn’t realize how recently it had been. So, since this is top of mind for me this week, I thought I’d repost the article from March with some additional commentary.
Couples
Work Together
3 minute read
I think that financial planning should be seen as a team sport rather than an individual sport. It’s less like swimming or running or bicycling and more like basketball (the best sport – you can quit reading now if you disagree). Yes, you can have a superstar like Michael Jordan or LeBron James who can do a ton and maybe even carry the team to the championship, but ultimately you need a team that works together towards achieving a common goal to make all of the right plays and all of the right moves at the right times to be successful. A superstar can do amazing things on the court, but they can’t even shoot the ball without someone there to pass it to them from out-of-bounds.
“Talent wins games, but teamwork and intelligence wins championships.” – Michael Jordan
Optimize Your Financial Life
People differ in their opinions as to whether couples should combine their finances. If they’re not married, then I don’t think that a couple should combine their finances simply due the consequences of what could happen if they were to break up. Financial matters in a divorce can get pretty ugly the way it is with the laws there to protect each party. I’m not an attorney, but I assume there are even less legal protections if your finances are combined and you split up before you’re married.
On the other hand, there are couples who have been married for decades who still treat their finances separately. From my experience, I have realized that this often leads to not optimizing their financial lives. Obviously, this is a very personal preference and can be different from couple to couple. If you’re making smart decisions and being intentional with your finances, then combining them is usually more beneficial than keeping them separate. Not only does it force each person to be aware of the other’s financial situation and spending habits, but it makes things simpler.
Having all of your accounts in one place and investing your money as a household rather than two individuals can lead to quite a bit of efficiency, and likely better portfolio construction, which hopefully leads to better outcomes. If you have all of your assets in a 401(k) and your spouse has all of theirs in a Roth IRA, then it’s not optimal to invest in the same asset classes in each account. You can create a ton of tax-efficiency by grouping all of your investment accounts together and investing them as a household instead of looking at each account individually and investing them all the exact same way. You can’t guarantee the rate of return on your investments, so why not make them as tax-efficient as possible? Most people would rather have more money in their pocket than have to pay taxes.
Joint Cash Flow
Cash flow is one of the biggest factors that can make or break your financial plan. Do you live below your means? Do you spend more than you make? Do you know where your money goes?
Having a joint bank account can make it much easier to track spending and maintain a budget than having separate accounts, especially if those separate accounts are at different banks. Not only can a joint account help you to better track your cash flow, but it can also help you to hold each other accountable. Unless you have your partner’s login information to their bank account and login often, you may never know where their money goes and how much they spend. It’s a lot easier to login to one account and see the money coming in and going out for both you and your spouse than it is to have to have to login to multiple accounts.
Work As A Team
Treating your finances as joint isn’t enough; both partners need to be on board. There’s probably one financial partner and one non-financial partner in your relationship. If the non-financial partner isn’t on board with being serious about creating (or bettering) a good financial situation for the team and they aren’t interested in the goals that you have for your financial life together, then they could easily unintentionally wreck the situation.
Here are some things that you can work towards to have a successful combined financial life:
- Set goals for what you BOTH want your financial resources to accomplish for you (your goals may not be the same and you may have to compromise)
- Have frequent meetings to review your financial situation, identify opportunities to improve, and track your progress towards your goals
- Create a joint budget that includes all income and all expenses for both people
- Create a net worth statement that includes all assets and liabilities for both people
- Setup a joint bank account (some people like to have a joint savings and separate checking accounts for spending/fun money)
Couples who combine their personal finances can enjoy the benefits of creating efficiency in their financial lives and making sure that both people are successfully working towards common goals without sabotaging the greater good, hopefully resulting in a more successful outcome in a shorter amount of time than if each acted individually.
Do I REALLY Need A Budget?
4 minute read
I don’t know if you really need a budget, but I do know that a budget can be an extremely helpful tool for most people. Most people never set one up or have any clue what they spend money on. They may think that they do, but they have no idea where their money is really going. It’s so easy to spend without thinking or to tell yourself that “it’s just this one time” or it’s “just a little more than I wanted to spend”. But those “one-time things” and “just-a-little-mores” can add up quickly when they become a habit.
At my job, I come across a lot of people who want to retire but have no idea how much money they need to live on. Not even a ballpark idea. They’ve just lived their life spending and saving without really knowing how much they do of either. I think that most people can adjust to the amount of money that they have available to spend, but sometimes what I estimate they’re spending now and what they’re going to be able to spend in retirement are miles apart. This could be a huge shock when it comes time for them to adjust their lifestyle and start living on much less.
This is one reason why I think it’s important to budget.
Budgeting for Singles
Over the past couple of years, I haven’t been as good at maintaining a budget and tracking my expenses as I would have liked to. It’s hard. It’s time consuming. It’s not the most fun thing to do. Sometimes it can feel too restrictive. Trust me, I get it.
When you’re single, I think that you can get away without having a budget, if you’re frugal and spend wisely. Unfortunately, most young, single people don’t fall into that category. Over the past couple of years, I haven’t used a very strict budget and I was able to save 27% of my income in 2017 and 25% in 2018. I just lived by the principles of frugality and spending wisely. So, I do think that there are people who can get by without budgeting and will be fine in the long-run, but I don’t think there are too many people who are as big of natural savers as I am.
Would I have been able to save more if I had used a budget and been stricter? Absolutely. But personal finance is a balance between living for today and saving for the future. I feel like I’ve done a pretty good job doing both.
Budgeting for Couples
I do think it becomes much more important to use a budget and track spending when there are multiple people involved. There are so many more things going on when there are two people and probably twice the amount of transactions to keep track of. This is especially important if you have separate bank accounts or separate credit cards that you use – it’s good to have all of that information in one place.
A “couple’s budget” not only allows you to have a good idea of where your money goes and who needs money to spend on what each month, but it can also help to keep each other accountable and make decisions as a team about what you want your money to do for you and where it should be allocated.
For those who are married, in a serious relationship where your income is viewed as joint, or who are engaged and will be combining incomes soon, I urge you to sit down and write out a budget. No, it’s not the most fun thing to do, but it will pay off immensely over the long-run. We always hear that money is one of the biggest reasons for divorce in America. Why wouldn’t you be proactive about making sure that doesn’t happen?
Progress, Not Perfect
If you’re not doing any sort of budgeting or expense tracking, then you don’t need to immediately go all in. Whatever you do doesn’t have to be perfect, just do something to make progress. Start with some easy steps and progress from there.
You could start by just keeping track of your spending for a month, evaluate where you felt you spent too much, and then work on it the next month. From there, you could implement a simple budget like the 53/30/20 rule where your after-tax income is allocated 50% to be spent on needs, 30% to be spent on wants, and 20% to be saved. Beyond that, you can use tools such as EveryDollar, Tiller Money, or YNAB. Making things more difficult usually isn’t the right answer because it’s intimidating and mentally fatiguing.
You’re gonna suck at it at first, it’s not going to be easy, and you’ll probably blow completely through what you thought was a realistic spending plan and not meet your savings goals. Don’t let that deter you. Use it as a tool to see where your money goes, evaluate if that’s where you really want it to go and if that’s what really makes you happy, and assess if your current spending is helping you reach your goals.
There are so many things that you want to accomplish and a lot of them probably require money. It’s your choice – you can be intentional and proactive with your resources to make sure that you reach your goals, or you can live life and hope that everything works out.
A little bit of discipline can go a long way.
