Coming Together On Family Finances

If you’ve found that talking about family finances with your spouse is difficult or completely uncomfortable, we have some suggestions that can help.  

Before doing anything, think about whether or not you and your spouse are on the same page in regards to how to budget money. Each of you is an individual, especially when it comes to your beliefs surrounding your finances. Are you a saver or a spender? What about your spouse? How were each of you raised to handle or talk about money? Addressing these issues is an important first step.    

The second step includes figuring out where you are going. How can money help you get there? Do you look at money as a tool to bring freedom and security? What type of lifestyle would each of you like to have? What is realistic, given your current income and goals?

How Much Comes In and How Much Goes Out?

To see where your money is actually going, we recommend that both of you get together and write down your monthly and weekly expenses on paper. List all details about what you buy and how much you spend on it.  

Then, see where you can shave costs. This is a budgeting basic that can give you some extra cash to put towards saving for a rainy day, college savings, your 401(k) or just good old fashioned family fun.

A good way to do this is to use a personal or home budgeting software program like Intuit Quicken or, if you operate a small business out of your house or apartment, Intuit QuickBooks.

“It is the responsibility of each person to watch their spending and talk about it,” says a Livermore, Calif. working mom of two – let’s call her Iris.

Iris’ husband – let’s call him Tom — a sales executive for a technology company, says budgeting is very difficult for him since their income varies. They don’t have a strict monthly budget, although they keep track of everything by using Quicken. He says he takes care of the recurring monthly bills and Iris is charged with purchasing what they need to run the household.

And Baby Makes Three

Becoming a parent is a huge life change. Initially, it will be about sleep deprivation. Then trips to Walgreens or Target suddenly trump a night out on the town. And finally, you’ll notice the cash coming out of your budget to fund kid oriented expenses like music lessons; gymnastics; day care, if both you and your spouse work; and perhaps even private school.

Becoming a savvy household budget planner is truly an important requirement that gets kicked into high gear when you make that transition to parenthood.  

Working as a Team

The best way to assure harmony in dealing with financial matters is to make sure you and your spouse are one when it comes to saving and spending.

Who likes to handle the finances? Oftentimes, it’s one or the other partner who would prefer to be in charge of this task. Do you trust your spouse to make good financial decisions, or do you feel the need to stay in control? Keep in mind that sometimes where you came from can greatly affect your outlook when it comes to this.

A Los Angeles Calif.-based stay-at-home mom — let’s call her Fran — remembers a time, during her childhood, when her parents were going through a financial hardship. This, she says, shaped her awareness of saving and spending. As an adult, it made her want to always “maintain control” of the family finances. Fran is responsible for managing the family finances. And she prefers it that way.

Fran’s husband would rather not deal with the finances. So he is happy to have her do it. Fran says they each have their own individual checking account and credit cards. They do have a joint savings account. However, each of them pays certain bills out of their own account. Accessing each others’ accounts can be a challenge, says Fran. But now that she has taken time-off from her career in telecommunications to stay at home with their two kids, she feels even more compelled to be in-charge of the family finances.

Mutual Respect Is the Name of the Game

In the best of all worlds, and with a little budgeting help from your partner, you’ll be able to create a plan of action that allows both of you to get what you want. That being said, if you still find yourself feuding with your spouse over the family budget, there are various techniques that you can use to help work things out.

According to an article by Denver, Colo.-based clinical psychologist, Susan Heitler, PhD, Conflict Resolution: Essential Skills for Couples and Their Counselors, “spouses who do not know the basic guidelines for sustaining healthy dialogue are likely to crash and injure each other like car drivers who do not know the basic rules of the road such as driving on the right and stopping at red lights.” Here are some techniques that she recommends couples consider implementing for basic conflict resolution:  

• Express initial positions
• Explore underlying concerns
• Create a solution set responsive to all the concerns of both participants 

Communication and cooperation are obviously vital to the success of this process. But most of all, it is important to approach the process with respect for your differing points of view. It’s no easy task. Budgeting is an ongoing process with many bumps along the way. The key lies in being flexible to make adjustments and navigate the curves that might lie ahead.

Building Your Emergency Fund

An emergency can happen at any time. A special fund that you create for an unforeseen circumstance like an unexpected job loss or illness will see your family through it – all the while preventing unnecessary debt and the associated finance charges that could be very easy to accumulate.

How Much Is Enough?

The answer depends on your individual situation and how much you spend. In Smart Women Finish Rich, David Bach recommends that his clients save three to 24 months of living expenses. He explains that the “right amount” is different for every individual and depends upon one’s own comfort level. Other experts like Suze Orman recommend at least eight months of your salary to pay for the mortgage, if you own a home, in addition to basic living expenses. Most experts agree that the size of your emergency fund also depends upon how easily it would be to replace your current income if you were to lose your job, considering your current salary and position. Finally, one thing to remember is that once you’ve accomplished your goal of creating this fund, no matter how much you have saved, you’ll have less stress and the peace-of-mind to focus on other priorities like saving for retirement or your child’s college education.

What if I Have Credit Card Debt?

Whittling down unsecured debt should always be your first priority when it comes to your finances. So, if you have credit card debt, you should try to pay that off first. At the same time, however, it is important to try and save at least a little each month. One strategy to consider is to save the first $1000 towards your emergency fund. Then, pay down your debt until you are free and clear of it. Go back to saving for a rainy day after you’ve accomplished this goal.

Where Do I Start?

You can begin saving towards an emergency fund with as little as $5, $10 or $25. Before you figure out how much you can save, calculate your basic living expenses and make sure you have enough to meet them. A high interest yielding money market account is a good place to begin depositing your money. With a three-month bonus rate of 2.25 percent and an Annual Percentage Yield (APY) of 1.51 percent, EverBank’s Yield Pledge Money Market offers a high yield, FDIC insured account. Another good option is ING Direct’s Orange Savings account with an APY of 1.30 percent and no under the limit fees.

Out of Sight, Out of Mind

If you are tempted to spend your savings, put it in an account that is hard to get to. My friend from Los Angeles (let’s call her Fran) has kept a bank account that she opened when she was single, even though it was acquired by another institution in Arizona and moved there after its purchase. Now that Fran is married and has two kids, she uses this account to save her emergency dollars.  “It helps that I can’t get to it easily — I generally can only make deposits or withdrawals from it by mail.”

Cut Your Budget to Save More

To ensure that you are saving the optimum amount towards your emergency fund, see where you can cut your expenses. Here are a few Ideas recommended by some parents we talked to.

Opt for a Pay-as-You-Go Cell Phone Plan: Do you really need all those rollover minutes? Page Plus Cellular offers a pre-paid cell phone plan. At $29.99 a month, Talk n Text 1200 with 1200 minutes, 1200 text/MMS messages and 50 MB of data offers a cost-effective plan that serves most people’s needs. Unless you make a lot of international calls or go over your allotted voice usage, this plan can help put more cash in your savings account.

Stash Away Cash: After you pay all your expenses and deposited whatever you’ve decided to put away monthly, take the remaining cash out of your checking account and sock it away in your drawer. Use this cash to pay for groceries and anything else you need for your household.

Comparison Shop: To get the best deal, seek out at least three bids for items like auto and home insurance. You might be able to save hundreds of dollars by choosing the least expensive plan.

Forgo the Daily Latte: When you do the math, you’ll be amazed to realize that the $3.50 or more a day that you save by skipping the trip to Starbucks can add up to over $1200 per year. Why not save it for a rainy day? If you must, you can still treat yourself. You’ll still do okay by limiting yourself to one Latte per month.

Refinance Your House: If you are a home owner that bought before the market’s peak, there might be enough value left in your home to refinance into a lower monthly housing payment. Interest rates are still low. As long as you qualify with an acceptable credit score and DTI ratio, this option could help you save significantly on your monthly mortgage payment.

Sell Your Car: If you have an extra car that you own outright, why not unload the one with the car payment? Most large metropolitan areas are easily accessible by public transportation.  And there is always the option of carpooling. Alternatively, if you have a new car, you can downgrade for a cheaper, used model.

Curl Up to a DVD and Meal at Home: Stay-in instead of dining out. It’s more economical and generally healthier – allowing you to better control the quality of food you eat. And if you have an account with a company like Netflix, it’s  affordable and convenient to keep up with the latest blockbusters.

Remember, a penny saved is a penny earned. And in this economy, being prepared is a very good thing.

Instead, we should save by making it a fixed monthly expense, just like your rent.  Here are some easy to follow steps on how to do it.

1. Open a High-Yield Savings Account

If you don’t already have a savings account that pays at least 1.5% you should consider opening an account at one of the following FDIC-insured banks.

• SmartyPig: 2.01%.  No fees and no minimum.  They have a goal-saver tool that automates your savings for you.
• Dollar Savings Direct:  1.60%.  No fees and a $1,000 minimum.  Online branch of a NY-based bank called Emigrant Savings Bank.
• Ally Savings: 1.50%.  No fees and no minimum.  This is the re-branded GMAC bank.

Rates updated on November 10, 2009.

2. Figure out how much you can save regularly

A decent estimate of how much you can save in the short-term can be calculated with the following formula.

Potential Savings = Income – Fixed Expenses – (80% X Variable Expenses)

To get an estimate of your income and expenses, the following online money management services can aggregate all your transactions across multiple bank accounts and give you a report on how much you spend each month.  It takes about 15-20 minutes.

• QuickenOnline - If you use TurboTax, you’ll find this service familiar.  It’s offered by the same company.
• Buxfer - Concerned about giving someone your banking password.  They have a solution to avoid that.
• Wesabe - They have a Cutback tool that suggests easy ways to cut costs.

It’s important to start saving right away, so go ahead and start with $100 per month while you do the calculations.

3. Set-Up an Automated Transfer

Each of the online banks listed above have the abilty to automatically transfer funds on a scheduled basis (e.g. Dollar Savings).  Your checking account should be able to transfer funds into your online savings account.  You’ll need to take the following steps to get this set-up.

• Link your online savings account to your checking account.  You’ll need some numbers from your checkbook. It typically takes a few minutes.
• Set-up a recurring transfer with a date that is 3-4 days after the date that you normally receive your paycheck.  If you don’t have direct deposit, you may want to give yourself a 4-6 day buffer.
• Watch your savings grow and smile!

1. Know why you are budgeting

“Every time you say yes to one thing, you are saying no to something else.”

In the case of budgeting, you are saying no to spending something now and saying yes to something more fulfilling and rewarding such as an earlier retirement, purchasing a home, etc.  Set your goal and it’ll make it more motivating to budget.  CloudFi’s personalized financial plan can help you see the benefit of saving now.

2. Figure out how much you’re spending

Before you make any decisions about what to cut, let’s get a handle on how much you’re spending and where.  This used to be a painful exercise that required you to save your receipts and log all your spending.

Thankfully a number of  online money management services can automate this task for you.  They all access your online banking information and automatically collect, categorize and report on it.  The set-up takes 15-20 minutes. Then, you’ll be surprise where all the money is going.

• QuickenOnline - If you use TurboTax, you’ll find this service familiar.  It’s offered by the same company.
• Buxfer - Concerned about giving someone your banking password.  They have a solution to avoid that.
• Wesabe - They have a Cutback tool that suggests easy ways to cut costs.

3. Go after the low hanging, big fruit

To get the biggest bang for your effort, start looking at the largest transactions and the categories with the most spending.    Typically, you’ll find expenses for housing, transportation and food.   Look for opportunities to save several hundred dollars per year with one action.  Here are some examples.

• Lower Your Rent or Mortgage Payment:   This one isn’t easy, but it can save you the most annually.  If you rent, negotiate with your landlord.  If you are an owner, check into re-financing options.
• Lower Your Automobile or Homeowners Insurance Premiums:  With some shopping around, you can save substantial money each year.   You can often get discounts for bundling your policies, being a good driver or taking a defensive driving school course.
• Lower Cost Transportation:  If you’re paying more than $500/m in car payments, it’s worth considering a lower cost vehicle.  Are you able to sell the vehicle and get something reliable that is much less expensive?

4. Get some momentum behind you

Some of the decisions you make to cutback can save you money every month after you’ve made the initial decision. This particularly applies for monthly services such as the following:

• Cable:  Check if there is a lower cost plan or even consider using Internet video like Hulu.
• Mobile Phone:  If you’re service contract is up, you can save hundreds or thousands a year.  BillShrink can help you figure out what your options are.
• Bank Fees: Look through your statements carefully and see if your bank is changing you fees each month.  Those can really add up.

5. Pay Yourself First

Many of us save whatever is left over at the end of the month.  Why not make savings a fixed cost like rent or car payments?  See the article on setting up automated transfers to a high-yield savings account.

Doing this will help you control your discretionary spending because it won’t be in your checking account any more.  Just make sure you watch you balances regularly and don’t get hit with an overdraft charge.

6. Live like a millionaire.  Just don’t spend like one

We all like to enjoy life by eating well and playing hard.  There are lots of ways you can enjoy the good life without having to spend like it.  Here are some examples.

• Restaurants:  Many of the best restaurants participate in a restaurant week where you can get a price-fixe menu for much less than their regular prices.
  • New York City
  • Washington DC
  • L.A.
• Vacations: Consider traveling during the off-season or a local vacation that you can drive to.