personal Finance Story

My fiancé and I have lived together for a little more than a year now. We are both engineers and are well paid for our work. I end up bringing home slightly more than she does. It is never an issue for us because we have a system that we follow that makes sure all of the bills are paid and our money is combined constructively without actually combining everything.

We both have our own checking accounts where we deposit our paychecks. We have our own separate credit cards for spending and ING Direct accounts for saving. We have one joint checking account at ING. This account is where all of our bills are paid.

We conservatively estimated all of our bills and joint expenses. These include rent, utilities, cell phone etcetera. Instead of dividing these expenses equally between us we split them according to the ratio of our salaries. I make more than she does and thus, I contribute more money out of my paycheck towards the joint expenses. It is in our view, a more fair way of dividing expenses since we each contribute the same percentage of our salaries instead of the same dollar amount.

For example:

Assume a couple has joint expense of $1,000 (make for easy math). Let’s say one partner makes $50K and the other makes $100K. The higher earner would contribute 2/3 of the joint expenses because he/she earns 2/3 of their combined income. The lower earner would contribute the other 1/3.

The added benefit, for both my fiancé and myself is what happens to the excess each month. When we estimated our expenses, we were careful to add an additional 15% just in case. That money goes into our joint checking each month and stays there. If we happen to not spend as much money on groceries, we don’t take money back. Any and all surplus is earmarked for vacations and apartment purchases.

I normally don’t see all the fuss in buying things like salad spinners or photo frames. If not for my fiancé, I probably wouldn’t buy them at all. That’s at least once instance where I cross the line between frugal living and just plain cheap.

In my monthly budget I have a line item for joint expenses. It is very simply labeled Orange Checking Account Deposit. As far as I am concerned that money is gone each month and I mean that in a good way. It is allocated for joint and apartment spending which I acknowledge is a very necessary budget item.

So when my most beautiful and smart fiancé goes out and buys that lovely OXO salad spinner or a new set of kitchen towels I never knew we needed, I don’t feel the pain because the money doesn’t come out of my own account. My fiancé has the freedom to make necessary purchases without having to convince me every time.

I trust my future wife and she trusts me to make good financial decisions. Together we have made this system work. We actually made a first attempt at combining our finances in a more traditional way but ended up arguing and debating long into the night. We decided to keep things the way they are and revisit the issue after we get ourselves past the wedding.

For the time being, it isn’t broke, so we have no intention of fixing it.

What would you do if your financial life suddenly and violently went to hell? Do you have a plan? Would your emergency fund be able to absorb the blow?

Bad things can happen to good people. No one is completely immune from the bad luck life can throw at us.

• You or your loved one fall critically ill, requiring constant medical care.
• You lose your job and with it your health insurance.

I’ve been thinking about these and other unlikely events for a while now. I am in the best financial position of my entire family. Luckily, my fiancé’s family is in better shape. Not free and clear but not as bad as my own.

If anything were to happen to my fiancé or myself, I am afraid that we would not be able to lean on our families to help us through. We would need to rely on ourselves. On the other side of the coin, if anything were to happen to either of our families, we would be the ones who would need to be there to make things right.

In the event of complete financial calamity here is the plan. Desperate times would call for desperate measures.

• Cancel the cable and internet, save $80 per month.
• Sell one of our cars (if not needed for a job), save $350 per month. Pocket extra profits from sale.
• Cut all discretionary spending (entertainment, eating out, etc.), save $580 per month
• Cut back on groceries (beans and rice diet), save $100 per month
• Pause contributions to house down payment fund, save $1,500 per month

I sincerely hope that I never have to go to such drastic measures, but in the event that they are necessary, we will be prepared. Together we could conservatively save a combined $2,610 each and every month through drastic cutback in our expenses and spending. We need approximately $2,000 each month to take care of the bare essentials (shelter, food).

Drastic spending cuts combined with our current savings would be able to float us through a minor event. I think we need a more substantial emergency fund to be able to weather a bigger storm but that will come in time.

The moral of the story is to have a plan. Run the numbers.  Don’t avoid it.

Calculate How Much You Would Need to Survive

This would not include any spending beyond the basics of food and shelter.  If you find yourself in a situation where you are financially against the wall then survival is the name of the game.  Don’t mess around.  What do you need to survive and nothing else?

An important note is to include for health insurance, which you may not have from your job depending on the nature of your emergency.  Private insurance can cost well north of $10,000 per year.  I don’t think it is possible to over stress how critical health insurance is.  If you base your emergency fund on replacing your monthly income, you may miss this.  Health insurance after losing your job will allow you to absorb a health emergency if you find yourself so unlucky.  Without it, a minor emergency could lead to bancruptcy very quickly.

Now get out there and make that number, times three to six months and sock it away where you won’t touch it.  My fiancé and I are avid users of INGDirect.  It is a great way to save for a goal.  Haveing a meaningful emergency fund is something that everyone should have. 

Bad things happen to good people. It happens with money all of the time.

I know plenty of people who have or are experiencing some form of financial hardship. And I’m not talking about anything related to the current economic downturn. I’m simply talking about life throwing a curve ball. Several of them happen to be in my own family.

• A co-worker is on a one way trip to bankruptcy. I hear the creditors calling him from over the cubical wall.
• Both my brothers are struggling with credit card debt that they cannot afford.
• My sister lives paycheck to paycheck and has to beg from family and friends to get by.
• My parents hope of a comfortable retirement is dwindling with each year that passes.

So far in my life I have been very blessed. My parents made sure that my siblings and I had the opportunity to pursue higher education. It is at least one of the reasons they are so far behind. They worked three to four jobs between themselves in order to give us all that great gift. I don’t think I will ever be able to repay them for their sacrifice, although I try.

I ended up getting a good job after college and am engaged to a gorgeous woman who shares my financial goals. With those advantages, I’ve been able to help one brother, my sister, and even my parents over the last few years. It makes me very happy, at least at first, to be able to come to their aid. I just wish that I had the magic words that would help them all out of their respective financial troubles for good.

In the world of money and finances I am doing pretty well. Thus far I’ve managed to avoid being in a financial accident myself, but I am often caught up in the eventual financial traffic jam caused by those around me.

I have in the past reached out to those I love and help them. I can see myself in that situation again in the future. I am fearful of not being able to come to their aid. My most sincere desire in this world is to see my friends and family happy, healthy and without financial burdens.

The start of any fateful journey begins with a first step. The road to financial independence, and my ultimate goal of giving my future wife, my family, and my friends everything they deserve, is no different. That journey favors the prepared. No matter what your own personal goals are, the path always starts the same way. You have already heard this advice before, but it bears repeating.

• Have an adequate emergency fund
• Invest for the long term in tax advantaged accounts

It’s all common sense for personal finance blog readers but not so to most of those I love. It hurts to realize that there may still be more than a few traffic jams ahead of me.

To the tune of around $350.00. More on that later. But first, I love my fiancé. We are proof that financial opposites not only attract but can be mutually beneficial.

NOT Two of a Kind

My fiancé and I view money differently. With each and every paycheck I get, I quickly get that money out of my checking account and into my ING Direct account. It’s a form of arbitrage. I use that money to pay the bills at the end of the month, but in the meantime, I collect the interest. The quicker I move money the longer it gets to build interest.

Is it a terrible lot of money? No. I’m not going to be taking a fancy vacation off of it anytime soon. For me, it is the best and most efficient way of handling my money. It kills me when I know my money is in any form of “down time”.

On the other side of the coin, my soon to be better half likes to see her money in a big pile. The bigger the better, regardless of the fact that it could be earning her more in her ING account.

There is nothing wrong with either method.  We are just different and thats ok.  We have learned to tolerate each others peculiarities.

Fiancé To The Rescue!

Fast forward to today. In my effort to maximize my ING returns I made a mistake. It seems in retrospect that I had two outgoing transactions for a very similar $350 and change. I mistook one for the other and ended up withdrawing more than I should of to my savings.

So there I was looking over my bank account and the foreboding negative value. What am I going to do?

I check my accounts regularly, so I caught the mistake while the offending transaction was in Pending Status. So no over draft fee, yet. Time to panic and profess my undying love to my fiancé who I know keeps ample cash reserves in her checking account. In case you did not know, all deposits made at Bank of America ATMs by 8PM post the same day.

So after a quick after work trip to the ATM, my fears of over draft hell are assuaged.

A Moral To The Story?

Not likely. I’m not about to stop my practices. It is nice to know that I have a safety net though. And although I can’t quite put my finger on it, I am sure that in the near future I will have a chance to return the favor.

Great relationships can thrive on differences. That’s true with people and money.

I saw an advertisement the other day and got inspired. You know the one. So what exactly is in my wallet and more importantly, why?

The first thing a casual observer would notice is that my wallet is, to put it mildly, well worn. The corners are almost gone. The pockets where my cards fit shows in outline on the exterior. The edges are folded so tightly that the once supple leather is cracked and firmly creased. My fiancé has told me on more than one occasion that my wallet is a borderline embarrassment. It should be replaced at once.

Well, maybe. At the end of this month, IF I am sufficiently under my spending projection, then I’ll go ahead and buy a new one. Maybe.

So back to the task at hand, what’s in my wallet?

Chase Freedom Credit Card

This is bar none, the best rewards credit card currently available. I receive 5% rewards on gas, groceries, and fast food purchases. Everything else nets 1%. The deal gets sweeter than that though. If I hold out for $200 of rewards, then Chase will cut me a check for $250 for being such a good customer.

If I am going to buy these things anyways, I might as well be rewarded for it.

Checking Account Debit Card

The only thing I use this for is to get out cash once a month for laundry money. Otherwise, it stays put for use in the event of an emergency where my credit card is unusable. It’s happened at least once in my life so far, so it’s not impossible. More on that in another post perhaps.

Costco Membership Card

Properly utilized, a wholesale club membership can pay for itself over time. You have to be disciplined though. There are many temptations that make it difficult to stick to your lists.

There are many interesting ways to save at Costco. For instance, I just purchased a gift card for a family member’s birthday. The gift certificate was at a sizable discount through Costco.

A Frequent Customer Card for My Local Car Shop

Sometimes deals are right under your nose. I get routine car maintenance done at an STS Tire Center (it’s much cheaper and faster than the dealership). Ask for one of their oil change cards and use it each time you go. After six oil changes you get one for free. My next oil change happens to be on the house. Good for my budget!

Other Boring Stuff

My drivers license and my health care card are both self explanatory. I also found an old Metro Card as well as a Path Card. Both are forms of public transportation in New York and New Jersey. I’m sure they are both expired by now, so heres to spring cleaning!

What’s Absolutely NOT in My Wallet?

Cash. None at all and I aim to keep it that way.

Cash has a way of disappearing into vending machines, fast food chains, and coffee shops. This is not the case for all people. We are all individuals and have our own psychology when it comes to money. For me, credit cards are a way to avoid spending money on needless and trivial purchases.

There is a pain associated with a credit card purchase because I force myself to face it at the end of each and every month. It’s down right painful to see that statement sometimes. But it is something I do without fail each and every month. It keeps me honest. When I am tempted to make a purchase, I will think ahead to the end of the month. Will that purchase really be worth it?

No two people are alike and I don’t want to pretend that this way of thinking will work for everyone. Everyone needs to find their own method of dealing with money. More often than not, that effort starts right in your own wallet. Take a moment this week and ask yourself the question, what’s in your wallet?

Trent over at The Simple Dollar wrote an interesting article recently that encouraged saving/investing a full 50% of take home pay. As I read this, I felt somehow targeted by the advice. I am young. I am (relatively) new to the workforce.

So I asked myself, could I pull off the 50% solution?

After a recent promotion at work, my total take home pay ends up at $3,544.06. So I’ll need to save or invest $1,772.03 each and every month. I don’t add in the two additional checks I receive each year. Those I’m already used to saving anyways so it only helps me.

Each month my required expenses add up to $1,698.00

• Housing (includes rent, utilities, cable), $900.00
• Car Payment, $253.00
• Car Insurance, $100.00
• Student Loans, $225.00
• Gas, $200.00
• Petty Cash (laundry quarters), $20.00

Wow, now that is close. Far closer than I had originally thought possible. Of course this assumes that I spend absolutely no money on anything else.

• No tolls, and thus no long trips
• No eating out
• No entertainment
• No fitness
• No gifts
• No vacation

Honestly, the most difficult thing on the list to give up would be gifts. In fact, looking at my yearly totals, of all my non-essential spending categories, gift giving is hands down the most expensive.

The best part in all of this is that the goal gets easier if I can eliminate bills. I have under $3,500 left to pay on my car. Within this year, that will be paid off leaving me with an additional $253 each and every month for savings. My student loans are another issue. It’s $225 each month but the balance is staggering. It will take a few years to eliminate it.

Saving and investing 50% of ones salary is a great goal. I’m not there yet but I believe it is possible within a year or so.

I was listening to NPR on the way home from work today. A particular piece caught my attention and got me thinking.

The story revolved around the plight of shrimpers in Louisiana. It seems that importers from China and elsewhere are able to undercut the locals. Not tarrifs, nor safety concerns, nor simple patriotism seems to work to turn things around. Enterprising shrimp boat crews are finding ways to increase profits by cutting out the resellers and distributors by selling direct to consumers via farmers markets and dock to door deliveries.

A reseller will pay $1.75 or so per pound at the dock while to consumer will shell out around $4.00 a pound for the same product at a farmers market.

The part of the report that intrigued me was an ending comment by one of those local shrimpers. I’m paraphrasing here but the gist was this,

We are not trying to reap huge profits here we are just trying to survive.

Isn’t that curious?  I have to believe that they are dooming themselves.  If you have it in your head to just get by and are not going to make the extra effort to succeed then you are fulfilling your own prophecy.

Life is not about survival, you have to want to thrive!  Bottom line you have to earn more to get ahead.

I’ve heard the line, “If you’re not cheating you’re not trying” applied to sports countless times.  I think it’s time to apply a similar motto to personal finance.  You have to want to get ahead.  You have to want money.   Greed is a good thing if you can use it to motivate yourself to do more.

So get motivated, get greedy, make your financial future your own.