Save or Spend? Who Decides?

Well you’ve done it! You’re now at a place where your debt is under control. Yes, you are still paying off your mortgage but your revolving debt – credit cards and car loans – has been payed off.

Financially stress free marriage, right? Well, maybe not. Many couples have been blessed with enough income so that they have little to no debt. And the debt they do have is easily handled with current income. But unfortunately, many of these couples still fight about money. How can that be? What’s to fight about? They don’t have problems paying their bills and there are no bill collectors hounding them to make payments on past due obligations. So what is there to fight about?

I have found that the couples who have little or no debt worries, still can have enormous tension over how to spend what they do have. Who determines what amount is spent on what? Who decides when and if and how much to save? Do we spend part of our income on a special vacation? Do we remodel the kitchen? Do we build a new deck and get a hot tub? What about that new entertainment system with the 60 inch TV and surround sound? And of course, the new car. He has always wanted a new Mercedes and after all, it is a very reliable car. And the family has grown, so they need a new SUV to handle the back and forth to school, trips to the coast, and camping each summer.

And we really should get that new ….

You get the point… The wish list is endless. And again, experience informs me that usually one spouse is leaning on saving while the other feels that saving and never spending leaves Jack (or Jill) very sad. One spouse is saying WHOA WHOA WHOA! and the other is saying GO GO GO! Life is frustrating if we can’t spend some money on what we need and want. Certainly we can spend some of the surplus? We don’t need to live as if we have nothing extra each month because everything has to go into savings. How do we decide? Who gets to decide?

Spend some time in the next few weeks thinking and talking about how spending decisions get made in your family. What roles do each of you play in these decisions? Are there particular purchases you have fought about in the last few years? Do either of you ever have negative feelings when a purchase is made by your spouse? Talk honestly and with a willingness to work on making your relationship better.

Next time we’ll look at several tactics to help with planning when you have enough and you are challenged as a couple on how to spend or save.

Get Out of Debt

What’s the best method for paying down your debt? My leaning is to pay off the highest interest rate debt first.

You will need your list of all outstanding debt, monthly payments, and interest rates. Rank this list by interest rate with the highest rate loan first, then in descending order. You will probably find that you have several credit cards with interest rates of 18% to 21% or more. To me it makes the most sense to pay off the debt with the highest interest rate first because it is costing you the most every month.

For example – You may have cards with 18% monthly interest and a car loan that you negotiated a low rate of 4% or even 0% interest. One credit card with a balance of $5000 and 18% interest will cost you about $900 the next year in interest alone. By paying off the car loan, you save nothing in interest expense next year. But by paying down the credit card, you will save 18% on the extra amount used to pay down that debt.

So, step number one, is to rank your debt. Then find money in your budget by earning more or decreasing expenses such as dining out or lattes or whatever you are willing to forego. Use these funds to pay down the highest interest rate debt first. Continue to pay on all your other debts as usual.

Let’s say that you have come up with $200 per month that you can use to pay down your debt. The first loan that you will  pay down is a credit card with a $1400 balance. If you have been paying $35 per month towards this bill, add $200 per month (total of $235) and you will have the bill paid in full in about 6 months!

After the first card is paid off, add $235 to the payment for the card with the next highest interest rate. If you were paying $75 per month to this next debt, add $235 to $75 and begin making payments of $310.

Continue this process. Over time you will increase the amount used to pay off debt by adding the amount from each paid off loan to come up with a new amount to be used to pay off the next.

But remember: NO NEW DEBT! The objective is to PAY OFF all debt. Yes, you CAN keep up this process until you  pay off even your home mortgage, if you have one.

Objective: Get out of DEBT! Why? Out of control debt can strain your relationship by adding unnecessary stress to your marriage. You won’t be fighting over the bills because you don’t have any bills for debt.

No debt. Try it. You’ll like it. And so will your spouse!

Living Within Your Means, Part 4

Last time we looked at cutting back expenses, staying away from new debt, limiting FUN money to a set amount each month, and beginning the process of paying down debt.

So how do you go about paying down your debt? What debt should be the first to go?

Begin with a list. Yes, here we go again with another list. That’s right. You need to have a complete list of all of your debt. Do it this way.

Your list should have the following across the top:

    – Name of the lender or loan
– Interest rate
– Minimum monthly payment
– Current balance due from your last statement

If you don’t get a regular statement because you pay online, get the balance due and interest rate from the current account information in your online account page.

Next, list all of your debt going down the page. Start with your mortgage if you have a home loan. Next add a second mortgage if you have one, home improvement loans, all lines of credit, all car loans with each car listed separately, boat loans, and RV loans. Then add department store cards, VISA, Master Cards, American Express, and Discover outstanding balances. Finally, add other loans such as student loans, medical debt, family loans, and any other loans.

If you do this list on a spreadsheet in your computer, it will automatically add the monthly payment column and the total balance due column.

Now you have a complete list of what you owe monthly and the total balance due. For some of you, this will be the first time that you actually see all of your outstanding debt on one list. That may be frightening. But look at it!! You actually owe that much. And it will get worse if you don’t take steps to get out of debt.

Here are two simple reasons why you want to get out of debt:

First, it’s expensive. Let’s say you’re out looking at a new Curved 65” HD TVs. And you work a really good deal and “get them down to $2000” and after all, what’s the big deal, on your credit card it will only be about $51 per month.

What’s the big deal? That new TV will cost you over $1000 in interest. It will really cost over $3000. So is it still a “really good deal”? Paying for something over time with interest can be very costly. That TV will cost you 50% more because you used their money instead of saving and using your money.

Secondly, you need to get out of debt because, no matter how you cut it, it causes stress in your relationship. When all you think about or fight about is money, it hurts your relationship.

More next time on the best way to get the debt paid off….

Live Within Your Means, Part 3

How do you resolve financial problems and fighting when you don’t have enough money to pay all of your expenses every month?

First and foremost, you need to resolve as a couple to live within your means. It is purely a matter of your will and discipline. In some ways it is similar to being overweight. How do you get healthy and get your weight under control? Most people who are overweight readily admit they know they eat too much of the wrong foods. They know the answer is really quite simple: eat healthy and move.

And so it is with overspending. You need to get control over your income and what you spend.

On the income side, if you have the ability to work some overtime hours or get a part-time job until your debt if paid down, then do it.

On the spending side, you will need to cut any unnecessary expenses. And DO NOT add any new debt. No new car loans, no new vacation expenses, no new buying time-shares (even it if is a good deal), and no frivolous expenses of any kind. It is time to get your finances under control.

Simple Common Sense Marriage principle: You can’t get yourselves out of debt and live within your means by continuing to spend money the way you have been. Or put another way, you can’t lose weight and still have your cake and ice cream while you sit on the couch. Face it! You are going to have to make tough choices. Evaluate together all those categories of spending and eliminate what is unnecessary or figure out a way to accomplish the same objective with less or no money spent.

Make as much money as reasonably possible and cut all expenses except those that are absolutely necessary.

For example, a large frothy double shot extra cream caramel machiato in the morning and an extra-large very berry whipped cream smoothie on the way home from work are really NOT necessary. You WILL survive without them. And if my math is right, at about $4.00 per visit, that will save you about $40 per week, or $2080 per year.

And that’s just cutting ONE “I can’t live without it” expense!

Now you need to get to work. Only spend money on what is absolutely necessary. When you disagree on what is necessary, discuss this openly and work towards a reasonable compromise. Remember: You need to work at this together.

Caveat: Have “some” funds built in to your budget  for FUN money. Even those on a strict diet can have a small piece of pie or a brownie now and then. But set a limit to the fun money each week or month, whatever you work out, and stay within that limit.

The next Common Sense Principle is to take your savings from cutting back on expenses and begin to pay down debt. That’s right… Get out of debt. The sooner the better. More on this next time….

Living Within Your Means, Part 2

Last time we looked at practical things you can do to check if you are spending more than you are earning. If you are, then you’re going into debt. Your credit card balances are probably going up and you’re not making any progress in paying down debt. Your checking account balance simply goes up and down as you deposit your pay checks and pay your bills; but nothing additional goes into reducing your debt or building savings.

Why does this happen? I feel that the constant drumbeat of easy money makes it convenient for us to get into debt. We don’t have to “buy” the new car; we just get a loan. After all, they make it so easy. The monthly payment will be low enough to fit into what we spend each month. We don’t need to “buy” the new computer; we can just add it to our Best Buy account. How easy is that? We don’t have to save for vacation with family this summer; we can just charge it. It will only make the monthly payment go up by a few dollars. What’s the big deal?

The big deal is we never get to a place where we focus on paying off all of the debt. We simply live with the ever growing balance due until it hits a breaking point. The big deal is increasing debt and increasing payments add enormous stress to our marriage.

– Does all of the stress of money cause fights and arguments?
– Do you fight about adding another bill?
– Do you fight about whether or not to buy something?
– Do you decide to not spend for the kids because you don’t have enough money?
– How often do you fight about money issues in your home?

Or have you reached a point where you just stop fighting because you have given up. It’s hopeless now. You are getting further into debt and no matter what you say, it isn’t going to stop.

It’s interesting to note here that fighting over money is a problem for those who don’t have enough income to support their expenses and for those who have enough for all their expenses but fight over how to spend their excess income. Fighting and arguing over money can happen on both sides of the balance sheet. It is a problem that can exist for those who have little and those who have much.

In either case, honest and open communication about needs and expectations is necessary. We must discuss finances and what we need to do to solve our impasse.

More next time on how to resolve problems when we don’t have enough and how to handle problems when we have enough but we fight anyway…

Live Within Your Means, Part 1

In my next several blogs I will cover topics related to money and marriage. These will be common sense principles related to how we handle our money within our marriage. So let’s get started.

First and foremost is a very simple concept. We should not spend more than we earn. Or live within your means. No matter who you are, you have a finite amount of income. If you spend more than you earn, you go into debt using other people’s money to finance your overspending. That will cost you even more in interest, fees, and late charges.

So are you are living within your means? First, add up your’s and your spouse’s net income after taxes for each month. If you have payroll deductions for a variety of items, add those deductions back in to your net pay to come up with a TRUE net pay for each pay period. Compute your yearly net pay then divide by 12 for your monthly amount. Add any other income you get from part time jobs, child care income, rents, royalties, dividends, interest, or any other income. Add all of these together and come up with a monthly net income for your household.

Next, together, list all recurring monthly expenses for your household. Go to your cash receipts, checkbook statement, credit and debit card bills, automatic pay bills, and payroll deductions for the last 4-6 months. Add everything. Mortgage, utilities, gas, food, clothing, household, all insurance, car payments and maintenance, cable, phones, loan payments, child care, donations, vacations, property taxes, dining out, daily coffee, gifts, pets, entertainment, school expenses, personal care, hobbies, dues for clubs and magazines, and any other expenses. Also track what you put into savings. Put all of these items into a simple spreadsheet with the like expenses listed in separate columns. For example, keep all types of insurance together. Be as specific as possible with each expense. Next, add the columns up and add all the columns together to get a grand total. Get an average for expense categories that vary month to month. For example, food expense will vary, but a four month average will probably give a good idea of what you spend.

That’s part one of looking at your expenses. Part two is a project. Each of you should track EVERYthing you spend for the next three months. Use the same spreadsheet, each DAY writing down what you spent in each category. Keep a spreadsheet each month, totaling them at month’s end. Now you have a clear picture of what you spend each month and you can come up with an accurate monthly average for each category.

Compare your average monthly income to your average monthly expenses. Is it positive income or negative? If it is a negative amount, you are spending more than you earn and will no doubt be going into debt. More on living within your means next time…..

The Rest of Our Story

This last week as we visited our daughter and her family, I watched my husband playing ball with the grandkids. A simple game, him throwing the ball out in the yard and they’d retrieve it and throw it back. There were wild screeches of delight every time the ball landed in the kiddie pool as the kids announced another “wet ball.” Such a simple game, yet such fun was had.

It reminded me of times Alan would play with our own children. He has a way of making anything fun. I am really thankful for this quality in him and it made me so happy to see it again impacting another generation.

There have been other instances too when I think about how glad I am that we stayed committed in our marriage and worked out the problems so that we could still be together to enjoy moments like that ball game. We had some really hard things to work through, and it took years. There were many times that I thought maybe it would just be easier to split up. I wondered if it would ever get better. I know Alan had those thoughts too. But we got through it with the grace of God.

And now we are living “the rest of our story” together. Moments like the ball game become poignant because they could have been lost to us. If we’d split up I wouldn’t have witnessed that scene. So the hard times we went through seem so worth it to have the rich relationship we have now.

Of course, life isn’t perfect. There are stresses. But this is the part of our story when we experience calm in the storm together. We feel the support of the other even during a disagreement. And we come to understanding more easily.

My hope for you is that you too will persist in love and forgiveness so that you can joyfully live the rest of your story together.