One of the failings of my first marriage was our approach (or rather lack thereof) to managing money. I admit freely that I did not have a mature understanding of budgeting, and my ex, although he was much older than I, had learned to manage money by using his bank account until the money was gone, and then using the bank's money.
So, when my husband and I joined our two households, we were both very conscious of former relationships that hadn't worked out in part because of financial difficulties. As we were exploring the idea of joining our two households, as a first step, I bought my husband the book "Smart Couples Finish Rich" by David Bach. In the years after leaving my ex, I'd read a number of books about financial mangement including a number of books by David Bach, who has a very common sense approach to managing money. I wanted to start my relationship with my new partner on a very strong foundation, and ensure that we were both working together with a common approach to financial management.
Many marriages fail because of inequities in income, failure to set and strive for common financial goals, lack of awareness of where the money goes, unequal division of financial chores. Both of us had to some extent experienced those issues with former partners - and were determined not to enter our new relationship with the same old baggage. Using some of the ideas David Bach suggests, we determined five simple ways to achieve that goal.
1) Have common financial goals
My husband and I have looked at our lives together and come up with a few goals to get our family where we want to be:
A) Reduce debt - both my husband and I came into the marriage with some financial baggage resulting from our former relationships. We're both determined to get rid of these debts and move on.
B) Reduce expenses - with the arrival of our first child (my third), I'm now on reduced income due to my maternity leave. We've cut out some of the luxuries for the duration of my leave with the intention of hopefully allowing me to stay home a little bit longer. We'll also have to consider how we pay for the increased day care costs when I go back.
C) Investments - my husband and I each have our own retirement accounts and goals that we started before we met. We continue to strive for those goals both individually and together. We each have our own financial advisors - and now that my husband has a family, he's started to think about safeguarding his nest-egg - whereas pre "us", he may have made some more risky moves in the stock market. My investments, although on the smaller side, are in a medium risk portfolio that I keep a close eye on. And we are both in jobs that will assure us a reasonable pension down the road.
We also look at our mortgage as a way of saving for the future. At this point, we're not in the place where we can stash significant amounts, but once our debts have been reduced, we both plan on using our home as an investment.
And with three young children - we have to think about their futures as well - and have started education accounts for each of them. We've been maximizing these savings with matching contributions from the government in a medium risk portfolio while we have the opportunity to. As they get older and closer to school, we'll put them into a lower risk portfolio, to minimize our risks. We've also put the funds into a "family" account - so that if it happens one of them chooses not to go to school, we can use the money for the other two.
2) Create a realistic budget
Our budget is broken down into three basic categories:
A) "Needs" - expenses that we need to spend, including housing, utilities, groceries.
B) "Wants" - the little extra luxeries - things that we don't necessarily need to live, but given we have the money, we spend it because we can. This includes our "Latte Factor" (in Bach's books). By bringing his own coffee to work, my husband is saving a fortune by not going to the local coffee shop.
C) "Savings/Debt Repayment" - these two together were the crux of our financial goals. Repaying the debts we had accumulated prior to our relationship - and saving for the future.
At the end of every month, we categorize our expenses into these three categories. We have individual line items so we can review how much we spend on food, the car, and the house. We compare how much we spent the previous year, the previous month - to see how we can better meet our financial goals.
We do a full budget review every six months or so, to ensure that we're keeping on target.
Beyond the budget, we each have our own money to do with what we choose. We maintain separate accounts, and don't interfere unnecessarily in each other's finances. As long as the bills are paid, and the family goals are being met, there's no need to micromanage each other. This gives us some autonomy while still contributing to the same overall goal.
3) Don't become complacent
Don't be afraid to do your homework and work with your current providers to get the best price. Equally - don't be afraid to walk away when they won't match it.
We got a promotional offer when we got our home - when we signed up for home phone/internet/cable for two years, we got a substantial discount. When our two years was up we actually decided to give up cable and got an HD Antenna. We only get 20 or so channels, but with the amount of content available on the internet, and our determination to reduce the amount of TV we were watching and get more active, we don't really miss it. And our $120 investment means that we've made our money back in three months - and are now watching TV almost for free.
We were going to continue our internet/phone service - but when they hiked our fees, my husband researched, found a better deal, and when the phone company wouldn't match it, we moved elsewhere. Using a VOIP plan now means that our overseas calls aren't costing us anything (my husband's sister lives in Europe).
Same with our home/auto insurance. We'd held onto my husband's policy because he'd been with them for years. But when the bank suggested that we have another look, we took the opportunity. Turns out we've been paying about $1000 a year more than we needed to. We'll review this expense as the insurance is renewed from now on.
4) Learn
Neither my husband or myself would call ourselves "experts' on money management. We're not afraid to reach out and learn more. Take a course on retirement management. Read a book. Open that article or blog on the internet that might give you some new ideas. Talk to the bank. Get a financial manager. My husband and I have done all of these things, both on our own and together. We continue to learn and take steps towards achieving our goals.
5) Use money discussions to teach your children life lessons
My husband and I have determined that part of our financial issues in prior relationships was a lack of communication, possibly, in part, learned from our parents.
So, we discuss money openly in our house. The older children have a basic understanding that we pay for the roof over their heads, the food in their bellies, clothing, toys and other things. We discuss how to budget. We've had discussions about credit cards and how the money doesn't just magically appear in our accounts. We want them to understand and appreciate the link between work and money. For large ticket items, we sometimes even put it in those terms. This item cost $150 - it takes mommy xx hours to make that amount of money. Was it worth that amount of work?
My eight year old son has an allowance now. He gets $6 a week in exchange for walking the dogs, ensuring his pyjamas are off the floor, putting his dishes away after each meal, and doing his homework (including extra studying to combat his learning disabilities). The $6 is split into three piggy banks - one for saving (for university/college), one for charity, and the third one to spend. He's quite excited to have his own money to spend - but we've been teaching him to budget and save for items that he really wants. He's also learning about sales and coupons and taxes. And we try relate the money to the work for him as well. I bought a toy for $6 - it took me 3 weeks to earn that money. What if the toy broke five minutes after we got home. Or we got bored of it a week later. Is it worth it then? Was it an item that we really needed to buy?
We've agreed that the allowance will increase to $9 when he turns 9 (with the same three way split) and will increase incrimentally as he gets older. When he gets to high school, we'll add a fourth bank - taxes. We'll start my daughter with $3 when she turns 6.
By teaching our kids how to use money properly - we're hoping that they will avoid some of the pitfalls that we met in our former relationships, and to counteract some of the financial mistakes their father continues to demonstrate. By talking about it openly, we're hoping that they'll come to the conclusion that it's not something to be scared of or hide from. We want them to learn responsibility - when you bounce a cheque, someone else may suffer. Our main goal is to ensure that our children have healthy relationships - both with money and with the life partners they end up with.
These are just a few of the steps that we've taken to ensure that our relationship is open and healthy, and to ensure that our children develop a similar relationship with money - that hopefully they will share with their future partners. We're hoping that they won't just mirror our marriage - that their own concepts of money will be learned from us, from their environment, from school and even from their father - and that they'll figure out their own way to manage money. I don't want to make decisions for them - I want them to learn the knowledge and skills to allow them to make those decisions on their own. The process never stops!
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