How do I prioritize between emergency savings, retirement, and student loan payments in a new marriage?
November 7, 2012 7:01 PM   Subscribe

Newly married, and trying to figure out emergency savings vs. retirement vs. paying off debt vs. saving for a family. Please help me prioritize.

Hello! I'm early 30s, female, and married. My savings account dwindled down to zero after we paid for our wedding and I unexpectedly lost my job in the same year. Now I'm gainfully employed again and trying to figure out how to rebuild from zero.

My husband and I split expenses down the middle (he brings in about $1000 more than me monthly, but that's just how we do it), and after rent, utilities, groceries, modest entertainment expenses, car-related things, and student loan payments are made, I have about $500 left over each month. My husband definitely has more left over monthly because he makes more and because he has no student debt.

I have no savings right now and no retirement account. My husband, also early 30s, also has no retirement account, but I know he has a decent nest egg saved up for emergencies. I have talked him into starting a Roth for himself and he is going to soon.

What I'm trying to figure out is what to do with this extra $500 a month. My instinct is to just stash it in a savings account until I have at least $5K or so saved up, just to have a cushion. However, I also really want to start a retirement account for myself, given my age. Currently, I pay $600 monthly towards my $40K in student loans on the standard plan - I know I could lower this by using income-based repayment or by consolidating, but the idea of paying more in interest makes me mad. I also hate having $40K in debt hanging over my head - though it used to be a lot more, I feel like it's never going to go away.

We also are probably going to try to have kids in a few years, so we want to be adequately financially prepared for that. For the record, I have no credit card debt - I hate being in debt more than I need to be. When I try to think about the prospect of buying a house someday, it just makes me want to cry - we live in a very high COL area and a starter home costs around $500-600K. If we ever moved, it would be to an equally high COL area due to our fields of work.

So my two main questions are this - what should I be doing with that $500 a month? And is it weird that a) my husband and I split all expenses 50/50 even though he makes a bit more and b) that I don't know how much he has in savings? We were together for a long time before marrying and have always kept our finances relatively separate (though we do have a joint account for the things we share.) We definitely aren't a "my money is your money" type of couple. I almost feel like if I asked I'd be being nosy, though I'm sure he would tell me.

Thanks in advance for any advice!
posted by anonymous to Work & Money (22 answers total) 19 users marked this as a favorite
I don't have great advice, but to answer a) yes, I think it is weird that you guys split 50/50 instead of based on what you make. This is the way Suze Orman suggests it to be done, and I think it's just fair that way. More information here, as well as some other really useful tidbits. She would also say yes to question b. You should be completely aware of each others finances. His assets are partially yours now (that is, unless you signed a pre-nup that states otherwise and then you get divorced). My husband and I follow Ormand's advice to a T, and we're pretty pleased with the set up. Marital harmony, etc.

Best of luck!
posted by two lights above the sea at 7:17 PM on November 7, 2012 [4 favorites]

My husband and I also have a shared Google spreadsheet for our budget that we throw everything on. Transparency on joint expenses is key. And we both have our own cash that we can do whatever we want with.
posted by two lights above the sea at 7:19 PM on November 7, 2012 [2 favorites]

1. Putting the $500 a month in savings until you have a cushion, then redirecting it into a Roth IRA sounds like a very smart plan. Go forth and save!

2. No it's not weird that you split everything 50/50, nor is it weird you don't know how much he has in savings, so long as you're both comfortable with it (my mother, married at that point for over 30 years, was quite pleasantly surprised by the balance in some of my father's accounts when she saw them for the first time in years to help me fill out my financial aid applications for college). And even if it is weird, if it works for you why does that matter?

But please don't feel that as the lesser-earning partner, you can't open a conversation about money and whether a 50/50 split is still in line with the values you hold as a couple. Discomfort with that would be a sign, not so much of weirdness, as a place where you need to work a bit on your trust and communication. You're a team now, and it's about finding the best way to work toward a shared goal.

3. You didn't ask, but one thing to consider is whether the tax benefits of an IRA or Roth IRA would make a slower repayment schedule on your student loans worthwhile. The answer, from a strict numbers perspective, is probably yes. But if the debt really bothers you, you're still doing well for yourself overall in paying it off while continuing to save, and you shouldn't stress too much.
posted by psycheslamp at 7:27 PM on November 7, 2012 [1 favorite]

And is it weird that a) my husband and I split all expenses 50/50 even though he makes a bit more and b) that I don't know how much he has in savings?

Yeah a bit. This is problematic for a few reasons.

Lets say you make 2K a month and your spouse makes 3K. My instinct would be to live on 4K a month or less and bank the extra 1 - 1.5 K in a joint savings / retirement plan, with some kind of allowance for monthly independent savings or spending.

It is essential that this be joint because you say you're looking to start a family. You are going to need to take time off work, and that could be anything from four weeks to six years. Additionally, having kids is going to impact your career advancement more than his. Therefore, it is essential that the costs and income losses of child-rearing be spread evenly between the two of you, including in terms of future earnings and retirement funds. Those funds need to be joint.

Marriage is a good time to look at big picture financial assets and plans. I'd make an appointment with an independent financial planner and get everyone's financial cards on the table. I'd also make an appointment with a lawyer for estate planning. (Where I live, without advance legal planning, if my spouse dies I can access none of the accounts in his name until after probate.) Additionally, depending on where you live, 50% of his savings may now be yours. If you don't want that to be the case, you need a post-nup (but again: kids and lost income and earnings potential. I wouldn't sign that post-nup in 30 million years.)

Finally, you say nothing about insurance. You need some. Your spouse provides at least 50% of your household income; it sounds like if you died, he'd be okay but if he died, you wouldn't. You should be looking to protect yourself, and he should be looking to protect you, too.
posted by DarlingBri at 7:28 PM on November 7, 2012 [23 favorites]

I personally think it would be fairer to split your expenses based on a percentage of income, but your arrangement is not "weird." Everybody does things a little bit differently, and if your general situation is working for you both and not causing resentments or fighting, stick with it. Money is a huge issue in some of my friends' marriages and it so doesn't have to be. I would just make sure you do have access to each other's accounts and you know his passwords and vice versa, just in case something were to happen.

I'm conservative financially and always see the best option as paying down debt as quickly as possible, but I think your idea of saving up a cushion before you start in on the debt is a good idea.
posted by something something at 7:29 PM on November 7, 2012

Dave Ramsay suggests having an emergency fund of $1000, then paying off debt, then saving a cushion of three months' living expenses. THEN save for retirement .

It does seem a bit unusual to keep married finances separate, but different strokes for different folks. I would hope at some point you would mingle at least some of your savings, but that's your business. But my unsolicited advice is that you at the very least find out exactly what his finances are BEFORE kids come into the mix.
posted by St. Alia of the Bunnies at 7:33 PM on November 7, 2012 [5 favorites]

You guys need to learn how to share if you're going to have kids. When you're staying home for two months after giving birth, is he going to be asking you for your share of expenses? Maybe he can take his "extra" $1,000 that he makes every month and go on vacation while you recover, huh?

It doesn't really matter what you do with your $500/month as lo as you don't spend it frivolously. Cash is fungible. You can move it from a savings account to a retirement account or towards debt repayment at will. What you need to figure out is your long term plan for how you run a family where everyone constantly feels like everyone else owes them something.
posted by tylerkaraszewski at 7:34 PM on November 7, 2012 [4 favorites]

1) Build up emergency fund to at LEAST 3 months expenses
2) If your student loans are higher than 4% interest pay them off next
3) Start putting the rest in Roth or IRA

It is not weird that you are doing it the way you are doing it together, but it does not mean it is not up for talking about and negotiation. It is not so much a matter of what is the right way, as what is the way that works for you both. Communicating about money is a huge plus. For instance, if you file taxes jointly you might well save money. How would that savings be allocated? So many things to talk about.
posted by jcworth at 7:37 PM on November 7, 2012 [1 favorite]

A few things:
1) Does your job have a 401(k) match? If so, consider taking advantage of it.
2) You might enjoy this series on about how couples manage their money.
3) I'm assuming your student loan debt is U.S. government loans since you mentioned income-based repayment. If you switched to income-based repayment, this wouldn't prevent you from paying larger amounts or lump sums as you go along. You might consider this if you want to build up your cash reserves now, and think you may be in a position in the relatively near future (say, next 5 years) to dump a big lump sum into your loan payment and accelerate the payment schedule. Just to make sure, you can call up and tell them to apply all extra amounts to principal instead of interest, but I think they do this by default.
posted by chickenmagazine at 7:45 PM on November 7, 2012 [1 favorite]

It's not weird that your finances are separate, a lot of people live that way. But if you want to make your money work for you, you have to combine your finances. Separately you end up working twice as hard for less of a return. Setting a budget you both agree on including your own discretionary spending fund is smart. Have a diverse way of saving including your retirement fund and making the most of it, especially if you are getting matching funds from your employer. Contributing significantly will help lower your income tax bracket and allow you to save more for your future. I'd save the $500 each month I hit a goal amount that provides a safety net of at least 6 months of combined expenses, then you can think about investing in property, stocks or even a small business. Even if you don't have a family think about life insurance, perhaps his or your employer provides it for a small fee. My point is just that as long as you can trust eachother not to go on a spending spree, it is just smarter to put your money together to make it work for you. It doesn't matter who makes more or less, it is all going into the same pool.
posted by i_wear_boots at 7:50 PM on November 7, 2012

At the risk of sounding like a fuddy-duddy, I think you're underestimating the (potentially) destructive power of the no-strings-attached 50/50 split you're operating under. Right now, my wife (who has tremendous earning potential) is working full-time as a stay-at-home Mother to our 3 daughters. If we were splitting 50/50, she'd be destitute, I'd be living high-on-the-hog, and our kids would be confused. // What does your family budget look like if only one of you has an income?
I am admittedly old-fashioned, but your separation of finances that feels convenient right now could lead to a serious roadblock in your future when/if your financial priorities don't align and there are kids, unemployment, family, or illnesses in the picture. I.e., this is great when all is going as you expect…, but do you want him spending his spare income (above his 50% of the expenses) on baseball cards when you're unemployed again? Or, does he understand your priorities if he experiences unemployment? It seems like you both may be setting up a system that works beautifully in the best-case-scenario, but not when things get hard. Joining your finances means giving up some control--which can be scary--but it also means gaining a common understanding for your future goals.
My family has been through the hard stuff, and has had to deal with the financial consequences. We have followed Dave Ramsey's advice (debt sucks, have reserves, always work together) and we won't turn back.
posted by rubberfish at 7:54 PM on November 7, 2012 [12 favorites]

My savings account dwindled down to zero after we paid for our wedding and I unexpectedly lost my job in the same year.

Just to clarify the line above, after you were married was your husband saving over $2,000 a month in his own account while you were using your savings to pay your half of expenses?

You seem to be very hesitant to have a conversation about money. I would book an appointment with a financial planner to talk to both of you about how to achieve (plural) your goals together by sharing the financial burden equitably (which is not the same as equally).
posted by saucysault at 8:10 PM on November 7, 2012 [7 favorites]

Seconding the recommendation of an appointment with a fee-only financial planner. My husband and I used to do separate finances, and that worked well for us at the time; when my chronic illness had finally depleted my (non-retirement) savings, we moved to pooled finances, and that works for us now. If I ever get back to work in any significant way, who knows? But getting advice from a professional third party helped.
posted by Sidhedevil at 8:33 PM on November 7, 2012

Do what works for you, not what everyone else says you should/need/have to do.

I personally have found the cultural institution of marriage in a societal sense rather overbearing...

Many people make *RATHER LARGE* assumptions about you, your spouse, your life, and many other things simply because of the word 'married'.

Make your marriage *your* marriage and not the institution that many people want to force upon you. Seek common stories and advice, run like hell from people who sound authoritative..

Marriage is something between you and your spouse, nothing more.

/end rant

My wife and I operate on a modified version of the "Suze Orman" link posted above however I have never watched Oprah.

We came up with a formula that we both thought was fair, and we both had input on...

We added our incomes together, found our relative percentages, and then added a 'weight' to hers to even the odds a bit. i.e. I pay 60% + 10% Weight for 70% Total, this gives a bit of a balance and smooths out 'income disparity'...

Also have to say that I agree with the two personal and a joint account... but you should also have multiple joint savings account as well, for saving towards goals as well as common emergency/nest egg.

Both my wife and I recently broke a leg, I am a computer programmer, she works on her feet... needless to say for the past three months I have been paying 100%.... that is the whole 'for better or worse' part.... when she is ok and able, she can pay her share.... and I know that she would take care of me if needed as well.
posted by anthroprose at 8:54 PM on November 7, 2012

A little red flag went up when you said that you depleted your savings to pay for the wedding while he has a nice little nest egg set aside. It seems like you individually may be living above your means if you only have $500 left over to save at the end of the month.

You don't mention how much you make per month in total so it's hard to know what's reasonable to expect to have left over. It sounds like you're not spending on frivolous things, and you mention that the COL in your area is high, plus you have student loans. But, for example, are you maybe living in a nicer place than you can afford because it isn't a problem for your husband to make the rent since he has more discretionary income than you do? You can be spending money on things you need and still be living above your means.

I don't think it's weird per se that you're splitting things evenly down the middle as a currently childless couple, but it sounds like your current arrangement isn't the best thing for you as an individual or for you as a couple in the long-term.

Something I think you should consider, and I don't want to be cynical but I think it's important for every woman to do: make sure that you can take care of yourself if your marriage ends. There's nothing wrong with each of you having your own personal savings accounts separate from joint funds. But I worry that he's getting the opportunity to grow his while it sounds like you're just keeping your head above water trying to save for retirement and joint expenses like kids and a house.

If it makes you too uncomfortable to think about having a backup plan in case your marriage ends, consider that it doesn't even have to be about divorce. If you're not a "my money is your money" couple then it's still important for you to have your own savings. What if one of your parents gets sick or there's a friend with an emergency that you want to help? Having some financial resources of your own will give you freedom and I think it's important that you find an arrangement with your husband that lets you achieve that.
posted by Colonel_Chappy at 9:23 PM on November 7, 2012 [2 favorites]

Do you have a high enough limit on your credit cards to act as an emergency fund? If so, use the $500/mo to pay down the debt. As long as that debt is out, you're losing money to interest. In addition, savings account interest rates are so low that money in a savings account actually loses money relative to inflation. This all compounds over time. Paying this off is a guaranteed "return" on your investment.

Make sure your emergency fund credit cards are used only in legitimate emergencies. Take them out of your wallet and put them in a safe deposit box down at the bank if you have to.

After your debts are paid up, then build up a reasonable cash emergency fund.

After you have built up a cash emergency fund, start putting money into index funds for retirement.
posted by the jam at 9:50 PM on November 7, 2012

I'd say the all of the above are valid answers to the question "what to do with the $500". However, the OP will need a way to track everything. This is really critical to achieve your goals such as building a pot with x months of expenses,

I really absolutely totally recommend YNAB. Totally changed the way I did my budgeting, and allowed me to track and allocate money into various pots of capital in a pretty addictive manner.

This is not spam.
posted by aherdofturtles at 10:41 PM on November 7, 2012

I don't think it's weird that a childless couple who both work have separate finances. I do think it's weird you got all the way to we're married! without talking about it. It may be that you or her were raised in a family that didn't talk about money but, trust me, you NEED to talk about money to your husband.

Marriage is something between you and your spouse, nothing more.

Legally, not true. The OP is assuming her spouse is saving a lot of money and sitting on a nice nest egg but she doesn't know that. He could have debts she isn't aware of or be spending all his money on elaborate lunches. Similarly he may not have realized that her bout with unemployment left her penniless. Because they're not communicating about it. When you are married you MUST communicate about money and be honest about it because legally you are now tied financially to each other and also you have joint goals that require money to achieve. And I hate to mention divorce but this is how women get utterly screwed in a divorce- by not being on top of the finances.

At the very least I'd approach your husband and say "OK, we have a bunch of goals and we need to decide financially how we will approach them. And we need to protect each other financially in case one of us gets hit by a bus tomorrow or in 10 years when we have three kids and a mortgage". This means sitting down with all your bank statements and maybe a financial adviser, and setting joint goals and deciding on a plan to meet them. How will you save for a down payment on a house? How will you deal with a potential loss of one income when you have children? Also it means things like wills and life insurance and disability insurance and how to insure property that you brought to the marriage (many people, rightfully don't want to pay maintenance, upkeep or insurance on property they don't jointly own). Ideally you'd have done this prior to marriage but hey, you've got the rest of your lives to work it out.
posted by fshgrl at 11:51 PM on November 7, 2012 [5 favorites]

Lots of things couples do or don't do are weird. It's all about what works and makes both people comfortable, happy and healthy.

If you are all those things that's great.

Thought experiment:

I know he has a decent nest egg saved up for emergencies

What is decent? $20,000? $40,000??

I don't know how much he has in savings

What if his definition of "decent" is profoundly different than yours. You don't seem to talk about money much, so it strikes me as possible. What if that account has say $1,800 in it? What about $3,200?

Would you be happy? Would you feel comfortable?

I would find not being aware of finances I was legally entitled to (unless there is a pre-nup) very nerve wracking.

It would cause me anxiety. Because I may need to count on a number that I am only guessing at when it will be absolutely too late for me to be finding out if I guessed right or wrong.

ON the plus side this is like a 10 second conversation to have. "hey hun, how much have you saved?" ... "hmm about 41 grand" "Sexy, what's for dinner?"
posted by French Fry at 5:37 AM on November 8, 2012

First of all there are income restrictions for a Roth IRA. Are you going to file taxes Married and Filing Separately or will you be filing as a Married couple? This will affect what you can contribute or even IF you can contribute.

Secondly, you are now being taxed at your husband's income tax bracket (or higher) because of your combined income. 50/50 isn't fair, since you're paying more of your total income to taxes.

As a married couple the law recognizes you as a single entity for taxation, defered comp/retirement contributions, etc.

You should know EVERYTHING about each other's finances. Savings, debts, encumberences, etc. Heaven forbid one of you dies or becomes incapacitated, the survior will need to deal with the finances.

Marriage, beyond the emotional bond, is a legal and financial merger. For your own good, you need to know what your entire situation is, not just your portion of it.

If your husband isn't forthcoming, I would find that troubling.
posted by Ruthless Bunny at 6:02 AM on November 8, 2012 [4 favorites]

1) Does your job have a 401(k) match? If so, consider taking you MUST take advantage of it.

I needed to fix that.

You really need to be contributing at least enough to max out the company match. That INSTANTLY doubles your money and has the highest risk/return ratio of any investment.

If you have access to credit cards or other revolving lines of debt, you're probably okay putting your extra money towards debt without having cash available.

It sounds like the student loans are the only debt you have. One thing you need to consider is the interest rate you're paying. Mrs. VTX graduated at just the right time, consolidated her student loans and is paying 2.25% interest. Since this is lower than the historical rate of inflation, we don't ever make extra payments to that account. This is a tough thing for people to wrap their heads around but with a rate that low, we're actually better off spending the extra money now (provided it's on durable goods) than we are paying off the debt. As it stands, most of our extra money gets invested (where we get returns that are, over the long term, much greater than 2.25%).

That is what makes sense from purely from a finance perspective. The other thing to consider is your cash flow. Right now you only have an extra $500/month of free cash. If you paid off the student loan, you'd be able to add that payment to the total. Without knowing how much the payment is and without standing in your shoes while I think about it, I can't really say if that extra cash would make a big difference to you if something unexpected came up. If it meant the difference between having to carry a balance on a credit card or not or if only having an extra $500/month makes you nervous, then I'd get it paid off.

I don't think it's weird that you manage your expenses the way you do right now. You're newly married and it will take time to get used to the idea that you are now one financial unit. Mrs. VTX and I did the same thing when we first moved in together. Then we switched to having two personal accounts, one joint account for expenses, and two savings accounts and still split expenses 50/50.

Now, we have two joint accounts. One is "mine" and the other is "hers" just so I can look at the balance in my account and don't have to worry that there are transactions that she did that I don't know about yet. We have one joint savings account (and a joint investment account), and a joint credit card (that we use for every non-bill expenditure and pay-off in full every month both to manage cash-flow and because the bank gives us free money for using it). Expenses don't really get split anymore. Most of the bills come out of my account because I manage them. The mortgage payment comes out of her account because that was the account number we had handy when we setup the automatic payment.

At the end of every month, I pay off the credit card (from either account, it doesn't matter anymore) and transfer in or out of our savings to bring the balance of each account to $1,500 (about 1/2 of 1 month's expenses). We'll probably stick with this until one of us dies.

The point is, revisit how to manage your expenses every few years. You both will probably be much more comfortable with pooling your funds farther down the road.

That said, you should, at least, be open with each other about what your savings, debt, investment, retirement accounts look like. As other's have said, you're not roommates.
posted by VTX at 7:36 AM on November 8, 2012 [1 favorite]

Chiming in here - you are fine to do whatever financial arrangement works for the two of you, and no arrangement is "weird" if it is what works for your own relationship. HOWEVER. It can't really be said to work for you if you do not ever talk about it!

My husband and I have very disparate incomes. One of us, who I will call Partner Dollars, makes about 77% of the total combined income. We live in the house that Partner Dollars purchased prior to our relationship, and all the utilities were set up in Partner Dollars's name.

We each get our paycheck (we're on the same pay schedule, happily) deposited to our own checking account. Both accounts are joint, so they are accessible in case of emergency, but we each only use our own. We each pay our own personal expenses (our own clothes, gifts for our relatives or personal friends, our own lunches at work, our own car payment and insurance, etc.) In addition, the lower-earning partner (who I will call Partner Cents), pays Partner Dollars a monthly contribution to the joint expenses. The amount of this contribution was jointly determined by the two of us and is roughly equivalent to what Partner Cents spend on rent while living alone. Partner Dollars then pays the house payment and utility bills. Similarly, Partner Dollars buys the majority of the house supplies and food, while Partner Cents buys a proportion of these common items.

Each of us do our own budgeting and money management, with periodic discussions when financial decisions need to be made. If some joint expense comes up - for instance, the hot water heater springs a leak and floods the dining room - we get together and discuss what we can each put toward the expense and figure out an approach.

Partner Dollars carries sufficient life and disability insurance to make sure that, if something were to happen, all major debts could be paid off and Partner Cents would have a chunk of money to live on.

This system has worked well for us so far, because we talk about things and are flexible. While we don't micromanage each other, we are also open about how much we have and such.

And while I'm here, let me second the suggestion of YNAB. It has absolutely changed how I handle my money, much for the better. Since I started using it I have never bounced a check or had to ask someone to hold one until payday, and I have managed to get several longstanding financial goals met. Get the app and use it to track your spending in addition to the desktop software. It is SO worth it.

And ALSO also, if you have company match you MUST at least contribute that much. Both of you should use your retirement accounts if you have them available, because you won't be able to work forever and you will need something to live on when you're old! I know it's hard when you have so little to spare, but it's so important. Maybe the Partner Dollars in your relationship would agree to offsetting your share of expenses to allow you to be able to do this?
posted by oblique red at 3:11 PM on November 8, 2012

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