Month: September 2023

by Michael Reynolds, CFP®, CSRIC®, AIF®, CFT-I™

Whether you’re a new couple just beginning to merge your lives or a couple that has been together for a decade or two, money management can be a tough topic to handle. For the context of our purposes, a “committed couple” is a married or committed couple that is in a long-term, lifetime relationship.

Money arguments are the 3rd most common disagreements that can lead to couples splitting, but when couples make intentional decisions about their money management, those arguments can be mostly avoided.

Elevation Financial is a judgment free zone. While there are many “experts” out there that will tell you their opinion about how to manage money as a couple, there’s really no right or wrong to it. Your job, as a couple, is to figure out the best way of doing things for your relationship. What’s right is what’s right for you in your particular relationship. In your partnership, your marriage, your relationship, that’s what’s right for you. What makes sense for both of you, what you’ve agreed on, what you’ve intentionally decided to do, if it’s healthy and if it’s working.

There are three main methods we will discuss.

• 100% separation

• 100% combined

• And a hybrid model also called the “yours, mine, and ours” method

In every scenario, you’ll need to be financially naked with your partner. Every method has its pros and cons, but each will only work if you are 100% transparent. You’ll need to be honest about your current debt, future goals, and what your relationship with money is.

Every person comes with their own money story. It’s important to mention that you can’t project your own money story onto your partner. Your relationship with money is your own but it’s important to also make space for your partner’s money story as well.

Method 1: 100% Separation

This method may be a good choice for you if:

• Both partners are very committed to their careers.

• You may have had a previous relationship that has led to more caution.

• You prefer being 100% financially independent.

• You may have grown children from a previous relationship and want to protect your legacy for your children.

• Your spending and money management habits are very different from your partner’s.

• One partner has a complex financial situation or outstanding debts.

In this situation, all of your liquid and investment accounts are completely separate and couples share expenses similar to being roommates but the split may not be 50/50. As a couple you need to decide what expenses will be shared and how those expenses will be divided. It could be 50/50, or you could decide that it’s more equitable to split expenses based on a percentage of your incomes.

Other factors that could help determine the split include what percentage of income each partner brings to the household, if a partner has children living in the home from a previous relationship, and who in the partnership does more unpaid labor for the household.

Upsides for this type of method include complete autonomy over finances as individuals. Maintaining your autonomy could reduce friction between you and your partner about money. You won’t have to worry about explaining why you love to spend your money on expensive meals out, while your partner may prefer saving money and cooking at home.

This method doesn’t come without complications though. It may be challenging to determine how to equitably divide expenses. You’ll also need to play out possible scenarios, like how to handle one partner financially assisting the other if a situation arises that one partner can’t handle on their own. Will it be a loan? Will there be interest involved? Or will the assistance simply be a gift? These scenarios may become even more important to plan for as you get older and into retirement.

Open communication is paramount to making this situation work. You don’t want to ambush your partner by being in default on debts. Hiding your financial situation can lead to resentment and distrust. You’ll also need to clearly communicate what your financial goals are and how you’ll reach them together. If you are saving for a down payment on a house, how will you stay on track as a couple?

Method 2: 100% Combined

In this situation, all of your income, assets, and expenses are combined. Once money flows in, it’s considered “household” money.

This method may be a good choice if you:

• Need flexibility for one partner to go back to school, start a business, or take a career risk.

• If partners plan to take parental leave in the future.

• You have similar spending habits and attitudes around money or can easily compromise on money habits and behaviors.

• You and your partner feel “in sync” about life and money to the extent that there is a high level of trust.

This option can often feel simpler than keeping things separate. There’s no discussion about how expenses are divided when you go out to dinner or take a family vacation.

This option can also lead to a more unified “team” approach for the future goals. There’s also research to back that couples who combine their assets are more satisfied with their relationship.

This team approach often leads to faster progress towards financial goals such as saving for a down payment or retirement savings.

Combining finances 100% can lead to money arguments if partners are not on the same page about planning. For example, what if one partner wants to pay down a mortgage faster while the other wants to put the extra money into savings or investments? It can also lead to resentments if partners handle money differently and aren’t able to compromise. Partners can also sometimes feel a bit of resentment with the lack of financial independence.

Some helpful practices to make combining resources successful you’ll need to budget, budget, budget. There are many budgeting tools that can help, but even a simple spreadsheet can work. You’ll need to openly communicate about money and to set aside the “what I want” mentality and think in terms of “what is best for our household”.

Both partners will also need equal access to the accounts and budgeting tools. Don’t fall into the trap of one partner handling the finances while the other isn’t aware of what is going on. It may also be helpful for there to be a threshold of spending that a partner can make unilaterally and purchases above that threshold need to be discussed and agreed upon by both parties.

With open communication and practice, this method can work really well for both parties.

Method 3: Hybrid or “Yours, Mine, and Ours”

In this scenario, each partner has individual accounts and there is at least one joint account for household and joint expenses.

This system can work well for couples that:

• Want to share expenses but maintain some autonomy.

• See the value in working towards common goals as a team.

• Reach financial goals without your partner’s influence.

As a couple you’ll want to decide what expenses are shared that need to be covered. Mortgage/rent, utilities, groceries, insurance, home improvements, and joint kids stuff among other things can make up this list. Will lunch or saving for a new car be included?

You’ll also want to decide how money flows in and out of the household account. Will all income go to the joining account and then be distributed out to individual accounts or will your income go to individual accounts and then flow into the joint account in agreed-upon amounts? What is the method of funding? Will it be a 50/50 split or a percentage of income?

You’ll also want to address how an emergency fund or short-term savings fit into your system. Will savings be joint or live with each individual? Or maybe you’ll have a combination of both. Again, there’s no right answer where. It’s what works best for your relationship and your household.

A hybrid system can provide each partner with a level of financial independence. If independence is valued by you, this is a great option. You can purchase gifts for your partner without them seeing exactly where you shopped and what you spent. If you have drastically different financial habits this system can also reduce arguments over money.

Just like the 100% separate system, handling your finances this way can also be more complicated, like deciding what percentage each partner contributes to the joint account. It’s easy for money to be an emotional topic and you don’t want to diminish the value of a partner by tying it to their salary. You’ll want to openly discuss your individual spending habits and agree on what’s acceptable in your relationship. You also have to discuss how financial assistance will work between individuals. You’ll want to discuss what would happen in the event one party loses their job.

Just like the other systems you’ll need to talk openly about money to avoid financial pitfalls and budget your joint account even if you don’t want to have a strict budget in your individual account.

It’s a Spectrum

You can have small individual accounts for “fun money”. Or you can do the exact opposite and have a small joint account for just a few household expenses. You get to decide what works best for you and your relationship.

These methods are examples of how to handle your “right now” financial situation.

While it’s important to handle the present, it’s also a great segue to also think through “future finances”.

How will you handle keeping your finances separate and one partner has saved adequately for retirement but the other hasn’t. Will that person be on their own? Does their partner help them? Will finances be managed differently in retirement? Will the partner that was able to save feel resentment over helping the other party?

Your system can also change over time as your financial situation changes or your goals change through the different seasons of your life. You may start with completely separate finances until one partner cleans up their messy financial situation. You can later decide on a combined or hybrid method because you want to purchase a home.

Making Sure the Method is Healthy

Money conversations can be hard. It’s important that both partners feel heard during your conversations. Does each person feel like the decisions were fair? Do they match your values as a family? Does each person understand where the money comes from, where it is, and what you’ve decided its purpose is going to be?

Side note: while financially “healthy” may not look the same for every couple, it’s important to be mindful of understanding and avoiding financial abuse. When one partner starts controlling the other’s “ability to acquire, use and maintain money” that is financial abuse.

Signs of financial abuse by a partner include:

• Inappropriate control over money or creating a budget without your input.

• Making you account for every penny you spend.

• Limiting your access to financial resources.

• Feeling entitled to your money or savings.

• Spending your money or savings without your permission.

• Threatening to cut you off financially if you disagree with them.

• Maxing out credit cards or creating debt in your name.

To find out more information or if you believe you are in a financially abusive relationship, call the National Domestic Violence Hotline at 1-800-799-7233.

Communication is Key

Talking about finances can be emotional. It’s important to create a space that is judgment-free so you can discuss your situation without shame or fear. Transparent communication also strengthens your relationship and can avoid financial infidelity by one partner.

Create money rules for your relationship. This will help you get on the same page about your current situation, future goals, and how you’ll deal with the “what-ifs” that may happen. This is also a great way to define what is frivolous and what is considered a necessity as well as lay out what tools you will use together.

The conversation isn’t “one and done”. You won’t be able to create a financial plan for your life together in one session. You’ll need to continue the conversation and have regular check-ins with each other so you can both remain on the same page. It may be helpful to set designated times for money conversations at regular intervals. This gives each of you adequate time to be mentally prepared.

Communication will also give you the opportunity to evaluate and do better as time goes on. With healthy communication, you’ll be able to come up with a system that works for your relationship.

Working with a financial planner can help you wade through the questions that need to be answered to come up with the method that will work best for you. If you feel like you need a little extra help, don’t be afraid to seek out professional assistance.

Having a plan and a foundation of strong communication about money is one of the best ways to help nurture a happy and fulfilling relationship.

by Veronica Matthews, Nicole Dow

Back-to-school season comes around every year, but like the holidays, it has a tendency to sneak up on parents — and their bank accounts. With inflation and up-and-down gas prices, back-to-school is shaping up to be an even bigger budget challenge this year.

The National Retail Federation estimated last year that parents would spend a record average of $864 for back-to-school shopping for children in elementary, middle or high school and about $1,199 shopping for college-aged kids. That’s a lot of money for pencils and glue (and MacBooks).

If you don’t want to get caught off guard with hundreds of dollars in expenses, you’ll need to plan ahead and be a smart shopper. Here are nine strategies for reining in your back-to-school budget.

9 Tips to Keep Your Back-to-School Budget on Track

• Assess what is needed

• Establish a spending limit

• Pad back-to-school shopping budget

• Create a sinking fund for school supplies

• Implement challenges to save money

• Be a smart shopper

• Figure out which expenses you can delay

• Plan ahead for next year

• Check for free or reduced-price back-to-school supplies

1. Assess What Is Needed

Start with the list of requested school supplies provided by your child’s teacher(s) or school district. Take inventory of what supplies you already have at home. Go through your kid’s dressers and closets to see what clothes and shoes still fit before going out to buy a new wardrobe.

When creating your list, don’t forget the costs that aren’t obvious. For example, will you need to buy uniforms or equipment for sports or other after-school activities? Will your child need a physical before heading back to school?

2. Establish a Spending Limit

It’s important to create a spending limit you’re comfortable with and that covers the basics. Shopping for school supplies without a budget will only set you up for overspending.

Once you have your shopping list together, you can start pricing items, even if you don’t plan on actually buying anything until closer to the start of the school year. Create your budget based on regular retail prices rather than current sales. Overestimating your expenses will give you a little wiggle room when it’s actually time to shop.

After you’ve totaled up how much you expect to spend, do you have enough money? If not, you’ll have to adjust.

3. Pad Your Back-to-School Shopping Budget

Earning extra money always provides a little financial stress relief. That holds true for back-to-school season.

Ask your employer about picking up extra shifts or working overtime. Find a temporary side gig, like dog walking, delivering groceries or doing odd jobs.

If you have older children, you could have them chip in on a portion of their school expenses — especially if they’re asking for pricey, name-brand clothing and school supplies.

Talk to your teens about school shopping expectations. Have them share some of the cost of items that don’t fall within your budget.

4. Create a Sinking Fund for School Supplies

A sinking fund is a pool of money that you add to over time to break a large expense into more affordable chunks.

Let’s say you’ve estimated you’ll spend $800 for the back-to-school season, and you get paid four times before school starts. Each payday, you should set aside $200 in your sinking fund to cover the upcoming expenses.

If you take money from your existing savings to start the sinking fund now, you can take out less each paycheck.

Setting up a direct deposit or automatic transfer will help you save money in your sinking fund without even thinking about it.

5. Implement Challenges to Save Money

Saving money can be difficult, especially when you don’t have much time. Saving challenges can help you put aside more money than you’d think.

If you shop using cash, challenge yourself to save a certain denomination whenever it hits your wallet. Perhaps you save all the $5 bills you get as change.

If you typically pay for things with a debit card, your money-saving challenge could involve rounding up each purchase to the nearest $5 increment and putting that difference toward your school expense savings.

Or try a no-spend challenge. Implement a 30-day freeze on discretionary spending so you have more money to pay for school supplies and related gear.

6. Be a Smart Shopper

Between now and the start of school, you’ll encounter enough sales promotions that it would be foolish to pay full retail price for anything.

In addition to taking advantage of great deals, here are some other smart back-to-school shopping strategies to keep in mind:

• Buy generic

• Compare prices online

• Don’t snub discount shopping at thrift stores or the dollar store

• Get items in bulk at warehouse stores, especially if you are buying for more than one child

• Take advantage of coupons, rebate sites or cash-back apps

• Shop during your state’s sales tax holiday

• Sign up for emails to save a percentage at retail stores

The older your children get, the more opinionated they’ll probably be about what they want for the new school year. Talk to your kids about the cost of their school supplies and ask what is most important to them.

After identifying a couple select splurge items, find ways to get everything else for less. It’s a great way to teach your kids about how to budget.

7. Figure Out Which Expenses You Can Delay

You don’t always have to buy everything in time for the first day.

Your kids may not need new clothes right away, especially if the weather is still warm and they don’t have to wear fall clothes yet.

If you can, hold off a few weeks or more on buying the “fun” supplies, like new backpacks and lunchboxes. Retailers often will have great discounts after the back-to-school rush has died down and they are trying to get rid of that merchandise.

8. Plan Ahead for Next Year

Some schools don’t release supply lists until it’s too late to spend much time shopping around. Think ahead to what your student is likely to need next year, especially higher-priced items. For example, shop Fourth of July sales for clothes or for other items you know they’ll need in the future.

Use price trackers like CamelCamelCamel for Amazon or the Walmart price tracker app to watch for the lowest prices. Snatch them up throughout the year instead of waiting until the last minute.

9. Check for Free or Reduced-Price Back-to-School Supplies

Some national retail stores like Verizon and JCPenney offer free back-to-school giveaways. Verizon provides a free backpack filled with school supplies, one per child, while supplies last.

Various nonprofit organizations operating at the local level like The Salvation Army provide back-to-school assistance programs. Check locally for programs through your public library, police department or city recreation center.

Another option is to ask other parents in your social circle if they have hand-me-downs or unused supplies your kid could use. Also, Buy Nothing groups can be a great resource for procuring the bulk of the school supply list without spending a penny.

https://www.thepennyhoarder.com/budgeting/back-to-school-budgeting/