Category Archives: Money Management

Why every couple needs a prenuptial agreement

This morning, I read this New York Times article on the importance of financial common ground in marriage. These are basic tips that we all know, but it got me thinking about the underlying theme of basic communication.The article discusses the importance of communication during marriage, but the groundwork for good financial communication begins before the wedding.

I am often surprised at how little my friends share financial information with their significant others. I’m not suggesting that you swap credit scores on the first date, but full financial disclosure is an essential part of engagement. It was easy for Tony and me to blend our finances because we started with so little; it’s more complicated for couples who have already acquired independent assets.

Drawing up a prenuptial agreement before marriage can help facilitate these discussions. A common misconception is that prenups are only for couples with huge amounts of wealth, or that their purpose is to protect one spouse’s assets from the other in the event of a divorce. In reality, a prenup outlines what will happen to all assets if you divorce, even normal assets like the equity in a home that you bought before you met your spouse.

The prenup has gotten a really bad rap, but it shouldn’t be viewed as a way to keep your spouse from getting your money if you divorce. If you come into the marriage with individual assets, a legal document that says what belonged to whom before the marriage and how shared assets will be distributed makes things clearer.

All couples need a “prenup.” It doesn’t necessarily have to be a formal legal document that distributes wealth. For young couples who have no assets, it can simply be a verbal agreement about how you plan to manage your finances.

A prenup allows you to lay it all out there before you’re married, take stock of your individual and shared assets and debts, and have some very important discussions about money that many financially independent adults are uncomfortable having with their partners. Through these money discussions, you’ll discover common ground from which you can build your financial goals and philosophies.

Tony and I agree that money will be an open topic in our family, not just with each other but also with our children. There will be no secrecy about our budget or how we manage our money. I want them to understand that money management takes hard work, and even a grown-up salary isn’t a limitless fortune.

We also share a mutual desire for security above possessions. We don’t want to spend our income, no matter how much we have, on a lot of “stuff.” Our frugality began out of necessity, but we plan to continue living frugally even as our income increases. We will always drive inexpensive cars, cut corners where we can, and live below our means. As our income increases, the only difference in our lifestyle will be that we’ll have more money to distribute in our savings accounts for emergencies, retirement, and education for our children.

We agreed that I’ll continue to work full-time until he finishes graduate school, and then he’ll take over the responsibility of earning our income so I can stay home with our children for a few years.

Finally, we agreed that once we got married, our assets and debts became shared. This may not work for everyone; for instance, your prenup may dictate that you’re not responsible for your fiance’s credit card debt. Tony and I decided it would be easier for us to blend everything and work as a team to pay down debt and continue saving together. The important thing to is figure out what you’re comfortable with before you tie the knot.

We moved in together shortly after we got engaged, and we opened a joint bank account. The lines between his and hers were immediately blurred. Communication eased the transition tremendously, and we’ve had no problems with this system.

Drawing up a verbal “prenup” made it much easier for us to budget, manage our money, and plan our future. We frequently remind each other of our goals during moments of financial weakness (i.e. the clearance cookware that nearly blew our budget last month). These shared goals have strengthened our bond.

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My thoughts on automatic bill pay

I’m a firm believer in online bill pay. Who isn’t? Just a few clicks and the bills are paid. No stamps, no checks. It’s simple and fast. Like most technological innovations, I don’t know how people lived without it.

I don’t feel that way about automatic bill pay, though. While automatic debit makes things even simpler (you don’t even have to think about it!), I’ve always been incredibly uncomfortable with the idea.

I really like sitting down once a month and mindfully paying my bills. I like the peace of mind that comes with clicking and checking those bills off my list.

I don’t like the idea of money being withdrawn from my account without doing it myself. We build a cushion into our checking account, so there’s no danger of an automatic payment overdrawing our account. But I like that there are never any surprises when I check my balance. I always have a pretty good idea of what my balance is because I know what’s coming and going from my account. I don’t want to be reminded that a bill was due when I log in and notice that the amount has been deducted.

I like having control over when I pay my bills, too. I like to sit down close to the first of the month and get everything out of the way. When I was in college, I used to wait until the last minute to pay bills. I would check my balance and mentally subtract the bills that were due in order to figure out my “real” balance. I never paid them until just before the due date. This got me into trouble more than once. Why I didn’t just pay my bills and be done with them is beyond me. I most likely procrastinated because I was always strapped for cash, and I didn’t like seeing my balance go down.

Now that we don’t live paycheck-to-paycheck, getting those bills out of the way is liberating. I don’t dread it because I know the money is there, so I like to check it off my list.

Paying my bills myself every month allows me to monitor charges and possibly fix errors before they’re posted to my account. I don’t trust myself to take the extra time to look at my statements if I’m not sitting down to pay the bills.

Does this make me a control freak? Probably. But I think if there’s one thing that we should be control freaks about, it’s money. For me, automatic bill pay is a dangerously hands-off approach. I understand that it may be a real time saver for most people, but even in this automated world, I still like to have some degree of physical control over my money. It’s not going anywhere until I say.

Taking 20 minutes out of my day once a month to look over my statements and send my payments gives me the time to give myself a financial checkup. It allows me to double-check my budget to make sure I’m on the right track, and reconfigure things if necessary.

When it’s over I feel a wonderful, peaceful feeling of, “Well, that’s done.” I don’t want to worry about whether a computer glitch might botch my payment or not send it at all. I just want to know that it’s done.

I also love that when I look at my balance a few days later after all the payments have been posted, I know exactly how much money we have. I don’t want to look through my transactions to see if a payment has gone through to figure out my “real” balance.

What about you? Does automatic bill pay save you time or cause you stress?

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Working an unexpected raise into the budget

Last week we found out that Tony is getting a raise for his monthly teaching assistantship stipend, which works out to about a $160 increase in our monthly income after taxes. Woo hoo!

This is particularly exciting because we weren’t expecting it at all. We thought it was a mistake when the deposit was higher than normal last week. But he called and they confirmed that yep, it’s a raise, and we can expect that amount every month from now on.

Today when we sat down to rework the budget for September, we were amazing at how much money $160 is when it’s put to work in a budget. In the past we probably would have blown that extra money and still felt strapped for cash at the end of the month. Now that we’re budgeting, this extra money will make it a lot easier for us to reach our goals.

We decided to divvy up the extra money between savings and debt. We’re putting an even $300 toward savings, which is about a $75 increase. We also upped our debt payment by $75, bringing it up to $325. We still won’t make our final credit card payment until November, but our final payment will be small.

We haven’t decided what to do with the extra $10 floating around in our budget. We might tack it on to our entertainment budget just to give us a little extra mad money every month. Snowflakes and other miscellaneous income will continue to go into our savings account to save for Tony’s tuition, our future expenses, and emergencies.

Yay for raises! We weren’t expecting to see an increase in our income so soon, but I’ll take it!

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August budget round up

After budgeting for just one month, I am amazed at how empowering it is! I suddenly feel this huge weight lifted off my shoulders. Now that I’m monitoring where each dollar goes, I feel like we have so much more money than we did before.

At the beginning of the month, we looked over our past spending habits (we’d been tracking our spending with Mint.com for almost a year). Based on that data, we budgeted for all of our fixed expenses and set limits for ourselves for discretionary spending like groceries, pet expenses, cleaning supplies and toiletries, etc.

We came in $200 under budget for the month! That’s mostly due to the fact that we paid Tony’s health insurance for August when we signed him up back in July. But, hey, we didn’t go over our budget, so I’ll take it. :)

In all seriousness, we didn’t go over budget in ANY of our categories. It is so encouraging to look at our budget graph and see all of that green! In the past, it’s been a big mess of bright red alerts. We came in $46 under budget in groceries, $13 under budget in our miscellaneous “shopping” category, and $31 under budget in the pet expenses category.

I could probably lower the pet budget from $50 to $25 a month since we began putting money aside for Howie’s vet expenses, but I think I’m going to leave it at $50 for now since he has some vaccinations and a yearly physical coming up. We’ve only been putting vet money aside for a month, so we might need that extra money in the months ahead. In a few months, I’ll average out our monthly pet expenses and use that number for future budgets.

We were able to painlessly send $325 toward our last little bit of credit card debt and throw a total of $300 into our savings accounts.

I’ve only been doing this for a month, but I already can’t imagine life without a budget. Even when we were making twice as much money as we are now, I felt so helpless when I thought about our finances. I felt like we had no control over our spending, no matter how hard we tried to “cut back.” Sticking to a budget was surprisingly easy once we spelled it all out for ourselves.

I’m also looking forward to making changes to our budget coming up. For instance, winters are mild in North Carolina, so we’re expecting our energy costs to cut in half this fall and winter. (Keeping the apartment cool in the high summer temperatures is way more expensive than staying warm in the winter.) We’ll probably pay $40-$70 a month for electricity November through April, compared to $100-$140 during the summer months.

I have no clue what we did with that extra $60-$100 a month last winter. For the first time ever, I feel like we’ll be able to put that extra money to work and make some headway on our debt and savings instead of spending it mindlessly.

Our goal for next month is to lower our grocery budget. This month I set it at a super high $400. Yikes. Now that we’re spending between $50 and $60 a week, I want to lower it to $350. Yes, I realize that’s still super high, but I’m shooting for baby steps here. If we can hit $350 or lower next month, then it won’t be so hard to hit $300 in October. The plan is to keep lowering that until we hit our threshold for savings.

Woo hoo! Budgeting is fun! :)

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Just say no to the birthday lunch

It’s lunch time, and I’m sitting at my desk eating last night’s leftovers alone. Don’t feel sorry for me, though. The hardest part is over.

You see, I’m a faithful brown bagger. The majority of my colleagues go out to lunch every day, but there’s usually one of two fellow brown baggers who stay behind. It’s someone different every day, but I usually have someone to eat with me. But today is someone’s birthday, so I’m eating alone.

Saying no to the birthday lunch is no easy feat. In addition to the email reminders I’ve received for the past few days, about 10 people stopped by my desk this morning to remind me. “It’s Susan’s birthday today! I know you normally bring a lunch, but you’re coming today, right?” I politely declined. “You’re not coming? Oh, come on, you can eat leftovers any day! It’s Susan’s birthday!” Through all the pressure, I stood my ground. Not easy considering the fact that birthday lunch pressure is even greater than the everyday pressure to go out to eat.

Many people just cannot fathom why I wouldn’t want to join them. They think that if they ask me several times with varying degrees of insistence, I might change my mind. Some people get downright pushy. While I appreciate the invitations, enough is enough.

Now before you label me an evil antisocial birthday hater, hear me out. I love birthdays. I’m usually the first in line to offer well wishes and sign cards. I even used to make an exception to my brown bagging rule and join my co-workers on birthdays.

Then I started noticing how much those little exceptions were costing me. It’s not just birthday lunches. It’s all the little things that aren’t a part of the budget, but you tell yourself, “Oh, just this once can’t hurt.” Then it’s the end of the month, and you’ve blown a hundred dollars on “just this once” exceptions.

Birthday lunches used to be one of those little exceptions for me. The last office birthday was two weeks ago. There is another birthday today, and another in three weeks. I know, it sounds like I’m overreacting. Surely with all the penny pinching we do, I can afford to go out to lunch to celebrate a colleague’s birthday once a month. After all, don’t I believe in making extra room in the budget for the little luxuries? But I just can’t justify spending $10 on a lunch out when I have leftovers from last night that will be wasted if I don’t eat them today. To me, that’s not a luxury; it’s just wasteful.

Going out to lunch isn’t just a waste of the $10 I would spend at the restaurant. It’s also a waste of the delicious chicken Alfredo that my husband made last night … enough to feed a family of four, and just the two of us to eat it.

It’s hard to say no, especially when people act dumbstruck. They have a point. Who doesn’t enjoy getting out of the office to enjoy a nice lunch? I know I do. But I’ve made a commitment to save money, and unnecessary restaurant meals were the first thing to go. We have plenty to eat at home, and it costs a fraction of what I would pay at a restaurant. If I don’t draw the line at this birthday, then when will I? If we don’t set limits and stick to them, then what’s the point of setting limits?

I do believe that it’s important to make room in your budget for extra luxuries that are really important to you, but lunches out just aren’t a priority for me. I’d rather use my entertainment budget to enjoy a meal out with my husband once a month or a Sunday matinee. It may sound selfish, but if you don’t make those choices and stand by them, then you’re no longer making “little exceptions”; you’re just overspending.

I don’t want to blow my budget with a hundred little exceptions this month. So I’m just saying no.

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Savings vs. debt: What’s your priority?

Most personal finance gurus agree on a wide range of money topics, but there’s one that causes continual controversy: When creating a budget, should debt or savings take precedence?

When we set our first zero-based budget using mint personal finance software,  we struggled with this one. Right now we’re focusing on paying down credit card debt. As of November we’ll be completely credit card debt free, and that money will then go toward a sizable chunk of student loan debt.

I’ve read “The Total Money Makeover” by Dave Ramsey, and I think his plan makes sense for people who are settled into a home where they plan to stay long-term. Unfortunately, that’s not the case for my husband and me.

We decided that focusing on debt isn’t the best option for us. Instead, we figured out how much money we have left over at the end of the month once all of our bills and living expenses are paid. It’s about $500. So we’re devoting $250 to our savings and $250 to student loan debt.

I know, this might not make sense to some of you. However, all but 1/3 of our student loan debt is low-interest federal loans. The interest rate for those is 4%, which isn’t much higher than the 3% interest rate on our ING savings account.

I briefly considered putting the high-interest private student loan debt before savings. If we devoted all $500 of our extra money at the end of the month to those loans, we could pay them off in 3 years. After that, if we continued to devote $500 a month to paying off the federal loans, it would take another 8 years to pay those off. Of course, I’m hoping that as our income increases, we’ll have more money to put toward debt so we’ll be able to pay them off faster.

The problem is, we need to save to pay my husband’s tuition for the next two years so we can avoid even more student loan debt. With so much to save, we really can’t afford to leave our savings alone while we get out of debt.

So for now we’re splitting the difference. Aside from the minimum payment for the federal loans, all $250 of our debt money is going toward the private student loans until they’re paid off. When those are paid off, we’ll start paying off the federal loans.

It’s not completely equal, though. At the end of the month, unexpected income or surplus money that we didn’t spend goes toward credit card debt for now. Once we’re out of credit card debt, our savings accounts will take precedence and extra income will go there.

The $250 budgeted toward student loan debt is fixed until further notice. If our income permanently increases through a raise or other source, we’ll reconfigure this plan. Once my husband is finished with school, bringing in a full salary, and we’re settled in a city where we plan to stay long-term, we’ll rent a cheap apartment and start attacking our debt. We don’t plan to start saving a down payment for a house until those student loans are out of our lives.

The point is, no solution is one size fits all. This is what works for us right now, but we’ll adapt our debt to savings ratio as our lives and plans change.

What are your thoughts? Does debt or savings come first in your budget?

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Mid-month progress report & TGIF link round up

Whew! I feel like this week has flown! Since we’re right in the middle of the month, now is a good time to check up and see how I’m doing on my first real budget!

Most of our expenses are fixed bills that we pay at the beginning of the month. Things like the electric bill, gas bill, rent, etc. So I’m tracking our progress based on the categories that we spend throughout the month, including groceries, miscellaneous shopping, and entertainment.

How are we doing? We’re $9 under the halfway point for our grocery budget, $6 over in the shopping category (that’s a catch-all category where I’ve budgeted $50 toward miscellaneous toiletries, cleaning supplies, and other necessary purchases throughout the month). I hope to cut down our spending on this category as I get used to taking advantage of the CVS deals. We’re right on target in our entertainment budget … $25 out of $50 spent. Woo hoo!

I’m feeling really motivated now that I know that we’re still on track! Hopefully we can continue this momentum throughout the month!

Here’s a round up of the posts that inspired me and helped me stay on track this week!

  • She also writes a fabulous series every Friday on frugal date nights. This week she offers some great tips for frugal outdoor dates. I’d love to try some of these ideas if it wasn’t raining this weekend!
  • Tiffanie at We Like Money wrote about salvaging old items instead of throwing them away. It can be so tempting to throw away old items, especially when they’re not that expensive to replace. But those can add up (in your bank account and in landfills) so it’s important to make sure there’s no fixing it before you throw it away. Sometimes a little cleaning up is all it take
  • Finally, this great post at Wise Bread breaks down the actual amount you save if you’re a one vehicle home and explores whether it’s worth it to live outside of the city where housing is cheaper if you’re spending all that money on your commute. Some great facts in here! It doesn’t take rocket science to figure out that two cars cost more than one, but it’s amazing to see all the numbers in black and white. I can’t even imagine how we could afford a second car!

So that’s it for this week. Tomorrow we’re headed to the farmer’s market and our local co-op to compare prices and get some questions answered. Come back for the final verdict on whether we can afford to spring for organic produce! Happy Friday!

Spending money can save you money

When it’s time to tighten your budget, the first rule is “cut all unnecessary spending.” Since we started cutting expenses, there have been many “extras” that we’ve cut out. Restaurants, movies, and shopping trips for unnecessary items, to name a few.

Budgeting has changed the way that I look at my money. I’ve begun to dread extra expenses outside of our normal monthly living costs, because it forces me to renegotiate the budget to avoid overspending.

This can be a good thing. It forces me to really examine unnecessary spending and put it through a basic litmus test: “Do we really need this?”

It can also be dangerous. It makes me hesitate spending money on some things that may not be required, but could ultimately save us hundreds of dollars in the long run.

When considering whether to cut “unnecessary” expenses, it’s important to consider the future, too. Maybe you won’t see a return on your investment immediately, but shelling out the money for certain expenses can end up saving you money later on.

Here’s a list of the “unnecessary expenses” that we’ve added to our budget because of their long-term saving potential:

1. AAA membership

We signed up for AAA right before we drove back to Indiana for our wedding. It’s a long trip, and we didn’t want to get stranded in the middle of nowhere by a flat tire, car problem, or stupid mistake like locking our keys in the car. Membership normally costs $42 per person for a year, but we received a direct mail piece offering membership for a discounted rate of $20 per person for a year.

In my opinion, it’s worth it even at $42 per person. AAA Members receive roadside assistance that includes towing, jumping, fuel delivery, tire changing, and lockout services. If you use just one of those services even once in a year, it pays for itself. We haven’t had to use it yet, but even if we don’t, I think it pays for itself in peace of mind, especially when you’re traveling far from home.

Members also receive a huge array of discounts on car rental, hotels, and other travel and driving related expenses. This perk is secondary to me because all of the discounts are for things that we shouldn’t be spending money on anyway.

Next time we need an oil change, we’ll check the rates at the AAA Auto Care station near us, but we’ll only go there if it really is a deal. And of course, if we do need to get a hotel room or rent a car, we’ll take advantage of our AAA discount.

2. Car maintenance

I’ve recently started putting money into a savings account each month to pay for routine car maintenance like oil changes, but in the past these things have come out of our regular budget. It can cost anywhere from $18-$30 for a basic oil change service, but for some reason I hate having it done.

It’s really a no-brainer, though. Cars that are serviced every 3,000 miles last longer. Since we have a new car that was purchased in 2006 (a very generous graduation gift for us from my in-laws), we plan to drive it for at least a decade. That makes regular servicing even more important.

3. Veterinary Services and Medications

When you adopt a pet, it’s important to remember that you’re committing to a lot more financially than just the adoption fees and dog food. Every month our dog, Howie, requires heartworm prevention medicine as well as flea and tick prevention. He also gets a heartworm test, physical exam and several shots every year, including immunizations for rabies, kennel cough, and parvovirus. I think there might be other immunizations included in his yearly boosters, but I’m not sure what they are at the moment.

We get his monthly medication every 6 months through 1-800-PetMeds, which is a lot cheaper than what we’d pay at the vet. It still costs about about $16 a month for the medications alone.

Vaccinations are about $10-$15 each, so they end up costing roughly $40 a year. Our vet offers a 20% immunization discount on Thursdays, so we always schedule his appointments then. Heartworm testing is required to renew his heartworm prevention medicine each year, and that runs about $30.

His yearly preventative exams cost $50. We also spend $18 every three weeks for his dog food. We choose to feed him high quality dog food because it keeps him healthier. (If you’ve ever had to clean up after a dog that eats cheap dog food, you understand.)

As you can see, being a responsible pet owner isn’t cheap. Not including dog food, we spend over $300 a year to keep Howie healthy. But we committed to taking care of him when we adopted him, and in the long-run proper medical care could prevent major illnesses that cost thousands to treat. Putting money aside for these yearly expenses makes it a lot easier when it’s time to order another six-month supply of medicine or take him to the vet for his check-up.

On a personal note, you could argue that the best way to avoid these extra expenses is to not have a pet. That’s true. However, for us, the fulfillment and joy that we get from being pet owners is worth the cost of taking care of him. Studies have shown that owning a pet can increase your overall health and well being, so I would definitely say pet expenses have long-term benefits. Dogs really can be a wonderful addition to your family and well worth the money if you can work them into your schedule and budget.

4. Renters Insurance

We’ll probably be renting for a while, so we invest in a renters insurance policy. It covers our personal belongings in and outside of our apartment for just $18 a month 9 months out of the year. Our policy does cover us for the other 3 months of the year, we just pay the premium over 9 months for some reason. We’re covered up to $20,000, which is probably more than the total value of our stuff because most of what we own we bought second-hand.

I’ve always thought the term renters insurance was inaccurate, because it’s really personal property insurance. The most valuable things we own are our laptops and my engagement ring. Both are covered by our renters insurance, no matter where we are when the damage or theft occurs. For instance, if one of our laptops was stolen from our car while we were traveling, our renters insurance would cover it.

Damage to the property inside our apartment is protected by our renters insurance in the event of a break-in, flood, or other natural disaster (particularly important since we live in hurricane country). Most policies also cover personal injury to protect you from liability in case someone is hurt inside your apartment.

This is another expense that pays for itself in peace of mind. Landlords rarely cover any damage to your personal property, and usually have a provision written into the lease that says they’re not responsible for damage even if it’s their fault. Renters insurance is basically homeowners insurance for renters, so if your pipes burst or a hurricane destroys your apartment complex, you can replace your personal property. I say, better safe than sorry.

What extra expenses do you add to your budget to save money in the long-run?

It IS possible to have the wedding of your dreams on a small budget

My husband and I got engaged last July less than a month before we moved 800 miles away to a new city. Not only did the move cost us a fortune, but our income was cut dramatically. We were also in the process of paying down debt and trying to live on a lot less money, so the last thing I wanted to do was charge anything on a credit card.

With a little planning and a lot of compromising, we managed to plan a beautiful Indiana wedding from 800 miles away on a $5000 budget without increasing our debt or sacrificing what mattered most to us. The money came from our savings as well as some generous contributions from our parents.

The wedding culture can be all or nothing … for a long time I thought you either had to spend tens of thousands of dollars on your wedding or have a backyard barbecue with nothing in between. Last year, Kacie at Sense to Save wrote a series posts about how she saved money on her wedding, and I found it very helpful as I planned.

I did things a lot differently than she did, but it was encouraging to know that it’s possible to have a beautiful, traditional wedding without starting your life together thousands of dollars in debt.

I discovered that there’s an endless list of options between extravagant and super casual. You just have to determine your priorities, decide how much you can spend without putting yourself into debt, and sometimes talk yourself down from wedding mania with some realism.

Every Wednesday, I’ll be writing a post about a different aspect of our wedding and how we saved money and kept it simple. I hope this series can help some wedding planners put it all into perspective.