4 Tips to Combining Your Finances Without a Fight

Nick and I gave a lot of thought to how we would combine our finances after marriage.  For a long time we thought we were going to combine them a certain way.  But, when it came time to do it, that way seemed very complicated so we decided to go a different direction.  At the end of the day, we are both happy with what we chose and we managed to get through it without a big fight!

Be open about your finances from the beginning

Being open about your finances can really help avoid a lot of fights.  If you each know what financial situation the other is in, you can create a plan for financial success together.  This definitely beats the alternative of waiting until the last minute to talk about finance and having that ‘what did I get myself into?’ moment.

accept that things may not always be equal

One person may have a higher salary than the other.  Or one person may like to spend their money more than the other.  There are so many variables and it is important to accept that things will not always turn out to be 50/50.  Be grateful for what you have and work together to be as successful as possible as one financial unit.  Know that the tables may turn too.  Just because the situation is one way now doesn’t mean it will always be like that.

have a clear financial strategy/plan

Be sure to talk about who will manage the finances and what that means for you.  Does that mean one person reconciles the accounts, or makes sure the bills are paid, or both?  How do you want to go about saving?  You could save money up front, or roll anything extra at the end of the month into savings.

talk about spending

It’s bound to happen.  One person will spend too much one month and get the other angry.  Try to talk about spending and spending habits up front and often to try to minimize the changes of an argument.  Is there a certain point when you want to talk about purchases before making the purchases?   Or is it just everything goes?  Whatever will keep both people the happiest is the way to go!

Our first steps of combining our finances has gone really smoothly.  Here’s to hoping that the road doesn’t get too bumpy!

 

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Say Goodbye to Living Paycheck to Paycheck: Dealing with Debt

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This post is part of a series.  To start the series from the beginning, click here.  To browse through the series, click here.

Debt is one of the main reasons so many people live paycheck to paycheck.  Unfortunately, there is no quick solution to debt.  You can however be smart about your debt.

Some things to consider when evaluating your debt include the amount of debt, interest rate, and debt sources.

Create a list of your debt:

Example:

Debt Source Interest Rate Total Debt
Student Loan 3.5% $20,000
Credit Card 1 20% $7,000
Credit Card 2 13% $3,000
Car Loan 8% $5,000

Looking at the combined debt of $35,000 here can be very overwhelming.  Before attempting to tackle your debt, you need to create a plan.

Let’s sort the debt based on interest rate.

Debt Source Interest Rate Total Debt
Credit Card 1 20% $7,000
Credit Card 2 13% $3,000
Car Loan 8% $5,000
Student Loan 3.5% $20,000

The larger the interest rate, the more money you are paying to keep that account open.   Notice that the student loan has a significantly lower interest rate than the credit cards.  This means that this debt does not cost as much to keep per dollar as the other debt.  Additionally, student loans and home loans are considered Good Debt where car loans and credit cards are considered Bad Debt.

Good debt is an investment or something that will grow over time.  An education will cause your knowledge and income to grow and a house will appreciate over time.

Bad debt is a debt that cannot be recovered.  Over time, cars lose value.  Similarly, items purchased on a credit card lose value over time.

There are two main ways to tackle debt.  One way is to pay off the one that has the highest interest rate first.  This way, you minimize the fees you are required to pay.  The second way is to pay off the debt with the lowest amount first.  Neither way is better than the other, it is all up to preference.

Once you decide which way you are going to pay off your debts, focus only on the debt you chose to pay off first.  Of course, still make your regular payments on all of your debts.  But, think in baby steps.  The goal is to pay off one debt.

Make sure to keep enough money in an emergency fund while paying off debts to ensure that you don’t incur more debt.

 

Each month, use your new budgeting system and instead of having a category called ‘savings’, call that category ‘debt’.  The money that is allocated for savings will go towards paying off the debt.  The first debt is the hardest to pay off because it seems to go the slowest.  Don’t give up.

Once your first debt is paid off, give yourself a pat on the back.  Great job!  Now, pick the next debt to tackle.  This debt will seem to go faster because you can not only apply the minimum payment that you’ve been making to the account, but you can also apply the money that you had been putting towards the first debt.

Once you have your bad debt paid off, you can pay off your good debt monthly or apply some extra funds to your payment each month.  Good debt is nothing to stress about and is normal.  At this point, it is more important to have a substantial savings account than to have zero debt.

Begin adding some money back towards savings every month.  If your savings seems to be growing very quickly and you want to drop a large amount onto the loan, feel free!  This is great news!  You are living well within your means!

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Reconciling your Savings

reconciling-your-savings
Last week, we discussed how to reconcile your checking account based on your projections.  This week, we will begin reconciling the savings account as well.

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In our projections example, the first month we transfer to the savings account is April.  To reconcile this transaction, begin by reconciling the checking account the same as previous months.

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When you get to the ‘Transfer’ line, C37 in our example, we will use an equation to get the total amount to transfer.  You could also grab the transfer amount from the Projections page but I prefer to use the equation because it acts as an extra check point.

Because we want to keep $1500 in the checking account at all times, we want to transfer everything over $1500 to the checking account.

To do this, subtract $1500 from the running total.  This is the amount that you want to transfer.  Make sure to put this amount in as a negative amount since we will be taking it out of the account.

Here’s the equation:

  • =-(D36-1500)

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Add a tab titled ‘Savings’ and create the same header as we did for the checking account.  Add the Transfer as the first transaction.  Continue adding on for following months.

 

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