Rule Your Wallet Blog

Marriage and money can be a tricky subject. I am going to cover three aspects that may make it easier on anyone who is having disagreements with their partner. Those aspects are as follows:

• Financial Goals
• Checking Accounts
• Communication

These are not the only three aspects, but they are a good starting point.

Financial Goals

I am believer that a couple sharing their financial goals can help more than anything. The sooner you do this the better, as it is the foundation. Knowing your significant others financial goals give both of you a starting point from which to work.

My wife for example likes to travel. Therefore, I know that one or two times a year we will be planning a vacation. This causes me to adjust my yearly budget (yes I am one of those crazy people who allocates their money for a whole year) On the other hand, my wife knows I like to save money so, she knows when I say “that is a lot of money” it is just me doing my thing. I’m not saying I don’t want to go on the vacation or that it cost too much, but she knows it is something I am going to say.

Knowing where the other person is coming from ahead of time will help both of you. This will make communication easier.

Communication

You and your partner should talk about money. I do not mean you need to have a family meeting or anything that drastic. My wife and I bring up money when needed and our conversations generally last under five minutes and are painless. They are painless because talking about it is part of our normal routine.

Marriage and money should be treated like everything else in marriage. When my wife and I talk about money, it sometimes sounds like we are trying to decide where to go out to dinner. You know the type of conversation I am talking about, one of those marriage conversations that you just do automatically.

Checking Accounts

So, how else do we avoid disputes about money? The easiest way that my wife and I have found is to have three checking accounts: A joint checking account for all household expenses and two personal checking accounts.

This quickly eliminates one major money argument which is “you spent too much money on x and we can’t pay the power bill this month.” All household expenses are immediately covered by the joint checking account which should be funded on the first of the month.

If you were to look at our budget, you would see that our car payments come out of our personal accounts. If we ever buy a “family” vehicle, we would pay for that out of the joint account. You can pay automobile payments out of whichever account the two of you decide, but separating the cars gives a bit of freedom when buying cars.

Are there any rules attached to the personal checking accounts? The two of you need to sit down and have a quick discussion about these rules. To help you out, my wife and I decided that we could spend our extra money however we wanted as long as the purchase was less than $500. If it is over $500, we simply tell the other “Hey, I am planning on buying this” and at that point the other person has an opportunity to object. To this day we have never vetoed any of the other person’s purchases. As I said before, it is all about communication.

Finally, what I like best about having three checking accounts is you can genuinely buy each other gifts or take each other out to dinner and pay the bill like you were on a date back before your were married.

You do not have to use the three checking accounts method, maybe one joint account works for you. If it does great, but I would urge you to always talk about money.

I don’t know about you, but I have a problem keeping product manuals. I keep them for a few months and then decide I know everything I need to know about the product. Sometimes I will throw the manual away with the shipping box. I know, it could be a man thing. Here is a link to remember if you cannot find your user manual. Go to SafeManuals.com first to try to find your lost product manual. If they don’t have it, it is time to resort to google searches which can take some time.

I saw this article and just have to link to it. This is the best time to teach someone how to make a budget and save money.

Click the tasty Samoas for the news story.

This post is categorized as small business advice because I am going to show you a common mistake that I see many small businesses make. This concept has some application in your life. If nothing else, it will show you to think decisions through to their natural conclusion.

Here is an example.

Let us say that the company you work for has some simple “task” contracted out to another company. This “task” must be completed every day for 180 days and your company will pay $250 dollars for this service. Finally, your company is fully staffed and everyone has 8 hours of work to do every day (no one is sitting around doing nothing).

Given this situation, this is what I hear from one of the managers of you company all the time: “You know, it only takes that company 2 employees and 2 hours a day to do that “task”. We can buy this piece of equipment for $4500 and do it ourselves and save $250 a day.” This is the point where I stare at the manager and try to think of a polite way to tell them what I am going to tell you.

First off. Where did the manager go wrong? I can see three problems right away. Try thinking about what he forgot.

1. We will do the easy one first. Your company has to spend $4500 for a piece of equipment. $4500 divided by 180 days is $25 a day. Therefore right of the bat you are saving $225 a day not $250.

2. “Do it ourselves.” This means the manager is going to use his employees. I do not know why but employers make the mistake of thinking that their employees work for free, however, they do not. Each employee actually cost the company $30 each per hour. (That is what it cost to pay them plus cover their benefits). Now we subtract $30 x 2 hours x 2 employees ($120 total) from the $225 above and now the company is saving $105 a day.

3. This one is the hardest for people to see. Employees generate revenue for you company. The two employees above cost the company $120 for 2 hours of work as we saw above. Assuming the company is profitable; those two employees must generate more than $120 of revenue over the same period for the company to be profitable. For the sake of argument if the generate double there salary plus benefits we can subtract$120 again. $105 left over from above minus $120 means that it is costing you company at least $15 more per day to do this “task” themselves.

Now, I made you read all of that because it makes an important point. You must do your best to think of everything before you make a financial decision. Just as managers see in the example above: we save $250 a day by doing it ourselves. The manager only sees that do not have to pay someone else $250 a day. They do not see the cost of labor or the lost revenue. The saying “Time is money” always holds true.

One example of how this can be applied to your life is buying a house. You have $900 a month you can spend on a mortgage. You go online, plug $900 in to a mortgage calculator, and find out that you can buy a house for $167,000 at 5%. You go out and buy a house for that amount. Your monthly mortgage payment will be $896.49. Fantastic! What did you forget? That is right property taxes and homeowners insurance. Your monthly payment ends up being $1243.00 and you are spending $343 dollars more than you expected a month.

Think about things from as many directions as possible and you wallet will thank you for it.

Three. Minimum. Preferably all at the same bank.

One for you.

One for your better half.

One joint account.

The joint account is used for household bills, obviously, and whatever else the two of you agree on ahead of time. Generally keep it limited to bills.

The personal accounts are yours to with you like, but you pay YOUR bills out of your personal account. For example we pay our student loans and car loans out of our individual accounts. We also buy gas from our individual accounts because it is going into our cars.

Now for the controversial part: How much does each person put into the sacred shopping spree proof joint account?

That is a discussion you should have with your spouse, but I will tell you how we do it. Let’s say the joint account needs a balance of $2500 at the beginning of the month.

I use the take home pay of each person. For the sake of easy math person A brings home $2000 and B brings home $3000. We use the equation A/(A+B) so $2000/($2000+$3000) leads to $2000/$5000 which is 0.4 or 40%. So person A will put in 40% of the total joint account monthly balance. Repeat for person B, B/(A+B) and you get 60% (Yes, you could just do 1-.4=.6 but I wanted to stay consistent)

Person A: 40% * $2500 = $1000

Person B: 60% * $2500 = $1500

This eliminates the common marital argument over spending money. But there are a few categories that don’t lend themselves to such and easy solution. For instance,  car insurance for two cars is in one bill and one person paying health and dental insurance which is taken out of their check for BOTH people.

Fine. Here is what I do for car insurance. Somewhere on the car insurance bill you can find the insurance cost per car. First subtract the car insurance bill from your joint budget total. Car insurance is $300 per month so the amount needed in your joint account is $2500-$300= $2200. Take person A’s dollar total from the joint budget calculation (40% * $2500) and add their part of the car insurance. Say person A’s car insurance is $75 and B’s is $225. We now have:

Person A: 40% * $2200 + $75  = $955

Person B: 60% * $2200 + $225 = $1545

For health and dental insurance you have two options.

Option 1 (Easy Option)

Which check is the insurance deducted from? We will use person A. Divide total health and dental insurance by 2. Lets say all that insurance cost $400. Our new equation is.

Person A: 40% * $2200 + $75  – 200 = $755

Person B: 60% * $2200 + $225 + 200 = $1745

Person B pays $200 more into the joint account and person A pays $200 less. Or you could have person B write person A a check for $200 dollars every month.

Option 2 (Fair option)

The math is the same as in option 1, but if you are like me and really get into the numbers you will notice insurance does not double if you add your spouse. Instead if you look at that $400 policy during your yearly enrollment you see something like this.

Individual $120 per month

Individual + Spouse $400 per month

So, for person B we use $280 = $400 – $120 instead of the $200 in option one. I mean hey, if person B got their own insurance then person A would be paying $120 a month instead of $400.

For the sake of consistency the outcome would be:

Person A: 40% * $2200 + $75  – 280 = $675

Person B: 60% * $2200 + $225 + 280 = $1825

Bonus Math

Money Left over in Individual Accounts

Person A: $2000 – $675  = $1325

Person B: $3000 – $1825 = $1175 (High car insurance killed them)

If person B’s car insurance was $75 (the same as person A’s)instead of $225, that is a savings of $150 per month. $1175+$150 = $1325 Now both people have the same amount of money left in their personal accounts: $1325 each.