Podcast: Spending Independently As a Couple
Share on facebook Share on twitter
Share on linkedin
[Host] Hey everybody! Welcome to Money Talk, the podcast series that helps you manage your money—and improve your financial well-being! This week we spoke with Len Penzo, blogger at LenPenzo.com, where he writes about everything from improving your credit score to why Miracle Whip has no business on a tuna sandwich. As a married man for 17 years and counting, Len shares his advice on how to determine if you and your significant other are financially compatible—and if not, how to manage your money independently as a couple.
Here’s our conversation with Len. Enjoy!
So Len, when it comes to finances, how early in the relationship should you broach the subject?
[Len Penzo] You know, I’m not saying the first date, but you really should be looking at something like that by the third or fourth date. You should kind of start, well, for lack of a better term, feeling out the other person for where they stand financially.
[Host] Sure. So if you’re talking about finances that early on, what kinds of conversations could you kick off with?
[Penzo] Probably the first thing is their financial past, right? Have they had any bankruptcies? Have they ever been into trouble or been in too much debt? And you know, you don’t just hit them over the head with a question like that, but you kind of ease into it. You try to ferret out exactly what kind of trouble they’ve been in, in the past because that’s very important.
[Host] How about when the relationship starts getting serious? Are there bigger questions you should start asking each other?
[Penzo] You can get into things like prenup, financial goals. Are you interested in early retirement? Do you want to rent or own your own home? And maybe the very most important financial question you probably want to talk to the person you’re dating about is kids. Because kids, I mean let’s face it, that is the biggest expense probably—next to maybe the house depending on where you live—that you’re going to have as a married couple.
[Host] It sounds like what you’re really trying to figure out in these conversations is whether or not you’re financially compatible. Can you give me an example of a couple whose financial styles might not work so well together?
[Penzo] Well the obvious example and it’s the biggest example, and it’s probably the most apropos example, obviously, is if one person’s a big spender and one person’s the saver. And I think that’s where you’ve got to keep things separate, because if not, you’re going to run into some really big problems.
[Host] For couples who do decide to keep their finances separate, how do you handle joint expenses like bills or the mortgage, that kind of thing?
[Penzo] You know something I see a lot, it’s basically where the spouses, you know, you’ll have one spouse responsible for a different set of costs. You know, for example, you might have one spouse pays the groceries and the other spouse pays the mortgage. So you can break things up that way. Maybe car payments. You know, you have his and her cars. You have one spouse paying for their car and you have the other spouse paying for their car. So that’s how you would divide that up.
[Host] Sure. And if you divide up responsibilities like that, is it just a 50/50 split, or should income play a roll in how much each person takes on?
[Penzo] That’s really up to the couple, right? So, it’s really complicated. There’s no set answer for that. You know, you can decide to go 50/50. You can decide to split it up in proportion to each other’s income. There’s lots of ways to go about doing that. But it’s really a personal preference.
[Host] Are there any pitfalls to watch out for if you decide to keep separate accounts?
[Penzo] I’ve been married 17 years and during that time, all of the new cars we got, they went to my wife. And there was a reason for that. But still, you know, you have to fight that urge within you to say, you know, “Gee honey, you’ve gotten all the new stuff and now it’s my turn.” You know, I’m owed something. When you start trying to keep things even then you might start getting into a race where you start spending uncontrollably. You’re a marriage, you’re a team, and you can’t look at things as hers or mine.
[Host] Definitely. So if a couple decides to keep their finances separate, do you have any advice for what they can do to keep each other in the loop about what they’re spending and saving?
[Penzo] You’ve got to consider things like meeting monthly to discuss and update each other on the finances and what you’ve covered—are you falling behind on the bills?—stuff like that. But then once a year you want to meet—and me and my wife do this and everybody should do this—on more of a strategic level. So the monthly meetings are at a tactical level, but the long term is for strategic. So what you’re doing basically is you’re discussing more of the long-term issues. So me and my wife will meet say, once a year and go, okay, let’s look at the big picture here. What are our vacation plans? Do we have any home renovations that we want to do? Is it time for braces yet for the kids? How much are all those big-ticket items going to cost and how are we going to save for that?
[Host] I like the idea of making those touch-base meetings part of the routine. Are there any other strategies that work well?
[Penzo] I’ll just give you the recipe that me and the wife have used and it’s been very successful and is something I preach a lot and that’s running your household like a business. And how you do that is we break up the tasks into two tasks: So I’m the household CEO and the wife is the household CFO. And remember when I was talking back about the strategic and the tactical planning—the long-term and the shorter-term planning—basically as the household CFO, my wife is responsible for paying the bills and she does the short-term planning and she lets me know when we’re having issues financial. Where we might say uh-oh, you know, this is a bill that’s popped up and we have to pull money from savings. So she does the short-term stuff and then I’m the household CEO, so I do the long-term planning, the strategic planning. And that seems to have worked out really well over the years and I strongly, strongly recommend people do something like that. I think it really helps you manage your finances over the long term and I think gives you a great recipe for success.
[Host] That’s our talk with Len Pezo—thanks for tuning in! Check out more Money Talk podcasts to get personal financial advice you can use to get organized, make a plan and stay on track to a bright financial future.
Here’s the podcast. Enjoy!
[brief music transition]
[Host] Okay, Cat: I don’t know much about babies, but I do know they’re expensive. When did you decide to start saving for your twins?
[Cat Alford] I am a huge planner so I actually started saving for them before I was even pregnant. As soon as we started trying to have a baby, I had a baby fund going.
[Host] That’s smart. So did you just start funneling more money into your regular savings account, or did you separate that out somehow?
[Alford] Actually I started a separate, high-yield savings account that allowed me to put the title of ‘Baby’ on it, so I definitely knew what the savings was going towards the whole time.”
[Host] Did you find that helped keep you motivated, seeing the name of your goal on the account and watching your balance grow?
[Alford] Oh absolutely. I learned a long time ago that I have to have labels on my savings accounts. And it really helps you to not spend it. If you need to go get money out of your savings, you’re more likely to pull it out of a fund that says “general savings” or “emergency,” but when it says “baby” on it, you’re way less likely to take it out, so that was a huge motivator.
[Host] Yeah, that makes a lot of sense. So where did you look for advice on how much you would need to save?
[Alford] You know, I asked just about everyone I could think of how much money I had to have for a baby. I asked my parents and my mom said, “You’ll never have enough,” and I asked my blog friends and they said, “Babies don’t need that much. It doesn’t really cost a lot to have kids,” so I found all of these varying responses, but no one could give me a cold, hard number so I just thought of a few different things—health insurance, nursery costs and things like that—and came up with the $10,000 number sort of arbitrarily.
[Host] So did you calculate what you thought you’d need for one baby and then when you found out you were expecting twins, just double it?
[Alford] Well at the time when I decided on $10,000 I didn't realize I was having twins, so I’m glad I picked a high number. I was just thinking my out of pocket max for health insurance was $2,000 and I just figured it would be a couple hundred dollars for startup costs and diapers and cribs and things like that and I just wanted to have a lot of extra padding and I figured if anything was left over, I could start a college fund with it.
[Host] And once you decided on that $10,000 goal, did you change anything about your lifestyle or approach to savings to make sure you could hit that target?
[Alford] Well I think one of the best things about my situation at the time was that I was working full-time, but I was also building my online business, which I had been working on for two years and it was at that sort of critical point where my online business was just starting to make more money than my 9-to-5 job. So for about six to seven months I had double the income and every extra check, every extra PayPal invoice I kept putting in the baby fund.
[Host] Did you make any lifestyle changes on top of that?
[Alford] We made more meals at home and I even scaled back my student loan payments. I was paying about $1,000 a month toward my student loans and I dropped it down to the minimum payment of $200 just in case, to have a lot of extra padding.
[Host] How about over the long-term? Will your savings strategy change after the babies are born?
[Alford] Right, well I think they’ll just get their own category in the budget. Right now they have a $200 category, so I’ll just kind of see how much they cost! I mean, I really don’t know; we’re first-time parents.
[Host] What about tips for cutting back on expenses during your pregnancy? Are there any strategies you’re using to cut back on what you need?
[Alford] I was so surprised at how expensive maternity clothes are. I really had no idea. I just sort of naively thought I’d just wear my clothes for a while and then maybe get a few things but it’s sort of like when you get married, everything that says “wedding” on it is so much more expensive and I found that to be true with maternity clothes. I got a lot of my maternity clothes secondhand from friends.
[Host] Having a baby—especially if it’s your first—is really exciting and it can be tempting to spend a lot of money on getting all the best gear. Any tips for keeping your spending in check?
[Alford] Sure, yeah, and that’s so true. I think I definitely just wanted to get my kids the best of everything. I wear so much used stuff myself, but for some reason when it came to them I was really tempted to get them everything new, but I just realized that babies don’t need fancy things.
I would just say pick your category. If you really want the nice crib, go for the nice crib. If you really want the nice monitor, go for that. I would just pick one thing to splurge on and everything else—they really don’t need that fancy of things.
[Host] Is there anything you know now that you wish you’d known when you first started saving to have kids?
[Alford] When you want to have kids, you sort of have to prepare for the unexpected. You never know if you’ll have health problems, if you’ll need extra care, if your children will need extra care when they come, so it’s always good to have an emergency fund going concurrently with your baby fund. And hopefully everything works out fine—most of the time it does—but on the off-chance you’re someone like me and get a little extra baby surprise or something like that, it’s good to prepare for those moments just in case.
[Host] That’s our conversation with Cat Alford! Check out more Money Talk podcasts for financial tips you can use to get organized, make a plan and stay on track to a bright financial future.
[host] Never has the concept of the American family been as wide-ranging as it is now, and one significant cultural shift taking place is the trend toward dual-income families.
The number of dual-income households increased 31 percent between 1996 and 2006. Now, 59 percent of married couples with children are in homes where both parents work. Yet, the urge to raise and spend more time with kids is still a draw for many. The number of stay-at-home moms increased from 23 percent in 1999 to 29 percent in 2012. Part of that change is due to a tough economy and a shift in demographics.
Peter Bowman, a litigation attorney for Pavano & van der Werff in Windsor, Conn., says he and his family are working to become a single-income household. They’re doing so gradually. For more than two years, Bowman’s wife has transitioned from being a full-time nurse to working 25 hours a week. She now works around 12 hours a week—and some weeks, not at all.
[Peter Bowman] My wife’s ability to fully transition out of full-time work was beneficial to us, because we were able to do this over a period of time as opposed to one fell swoop.
[host] This period served a dual purpose: It allowed his family to slowly adjust to a lower income, and it gave Bowman time to advance his career—and grow his personal income. According to Bowman, this approach made the process more manageable.
Likewise, Rob Baugher's family went about the transition slowly. They tested the waters by setting aside his wife's entire income for six months. They committed to not spending her salary at all during that time.
[Rob Baugher] We really wanted to experiment to see if we could do that.
[host] For the six-month test period, Baugher and his wife calculated the net loss of shifting to one income. That meant subtracting the lost income, but also subtracting the work-related expenses they’d no longer have to pay, such as travel expenses, buying business attire, getting coffee and spending money on work parties. During this trial period, Baugher’s family had an epiphany:
[Rob Baugher] It didn’t affect our overall lifestyle at all, which was really nice. It was very surprising.
[host] According to Bowman, you need to start with a budget. Then, ask yourselves: Are we realistically able to do this?
[Peter Bowman] They have some good online tools to set a budget. But I think it’s also about sitting down and communicating spouse to spouse about what financial expenditures you’re going to have in the future, what are we going to have on a regular basis, are there any ways to reduce those expenses. When you sit down and do that, this might be the perfect time to do it, or you may say, “I won’t be able to do it until one year or two years from now.”
[host] By cutting back on what Bowman calls the classic expenses—bringing his own lunch instead of going out to eat, more date nights at home than going out, not taking extravagant vacations—the single income became not just doable, but completely manageable.
Another focal point for both families was keeping debt down. There were times where Baugher thought about, say, purchasing a new tool for his remodeling business, but realized that would put undue strain on his family’s finances. Here, Baugher discusses his approach when unforeseen events did cause the family to take on debt.
[Rob Baugher] “We basically decided together that one of the best things we could do is to get the debt under control and eliminate it.”
[host] If they got a larger lump sum of money than his regular income, that went toward the debt and they also began making double the minimum payments. Those concentrated efforts ended up eliminating their debt several years ahead of schedule.
Ultimately, both families learned that there isn’t a magic formula for becoming a single-income household. Instead, it required a mix of good communication, smart budgeting and a common-sense plan to make it happen. Here’s Bowman:
[Peter Bowman] I think people often forget about this sound financial advice that some great people have been giving us for a long time, and they look for that quick fix. Ultimately, I think it’s hard work, setting a plan, sticking to it, and just being aware of your expenses enables you to pull something like this off.
[host] After three days of admiring Barcelona’s architecture, you’re headed to the beaches along Italy’s Eastern coast—all part of a three-week European tour. You’re 47 years old, but this is no vacation—it’s retirement.
This may sound like a dream. But if you’re willing to do what it takes, it may be possible to retire earlier than your peers.
The first step is to begin investing as early as possible to realize the maximum benefit of compound interest. For example, if you start investing $5,000 a year at age 22, you’ll end up with more than double the amount of money compared to someone who starts investing at age 32. In other words, the earlier you start, the more money you’ll earn over time. But if your goal is to retire young, you’ll need to sock away more than $5,000 every year.
According to Simon Moore, Chief Investment Officer at FutureAdvisor, an investment advisory firm based in San Francisco, you should funnel up to one-third of your income into a brokerage or tax-advantaged account such as a 401(k). Setting up an automatic transfer for 33 percent of your salary into your brokerage account and other savings vehicles can help you avoid the temptation to spend those funds elsewhere.
Moore has three tips for constructing a portfolio that could put you on a path to early retirement.
First, find investments with low fees.
[Simon Moore] There have been countless academic studies on this topic, and universally, they point to the fact that the more you pay in fees, you do not necessarily get better performance for that money.
[host] According to Moore, investments with low fees perform better because more money will be compounded—creating greater returns over time.
Second, have a high weight toward equities in your portfolio.
[Simon Moore] Going back over a century, it’s returned an average of about 6 percent per year. It’s what we call equities, or stocks or shares. That investment—the S&P 500, the Dow Jones—those investments in companies over the long run, even though you can see some very bad years, over the long run, and with retirement investing you have a long-term time horizon, that’s the asset class that really tends to give you the best return.
[host] And finally: diversify, diversify, diversify.
[Simon Moore] There’s always investments going up, investments going down. So if you can have a broad and diversified exposure with your investments, then the chances of any one thing going wrong is not going to blow up your portfolio.
[host] Moore recommends diversifying at the country level and according to asset class, which means going beyond just stocks to include investments like bonds and real estate. The more diverse the mix, the better.
At 27, Austin Netzley retired from his job as an engineer in the oil industry. He says creating passive forms of income put him on that path to early retirement. Yet, his vision of retirement still involves working—now it’s just on his terms. Netzley earns money from an automated stock-trading company he started in addition to YoPro Wealth, a podcast where he interviews successful business figures about the keys to financial wealth building.
Here’s his three-step approach for creating passive income. First, identify someone whose success you admire; someone who lives the life you want. Second, decide what kind of lifestyle you want—maybe it’s the same, maybe it’s a little different than this person. Third, seek out jobs for which you can apply your passions that do not require you to trade time for money. Find ways to do work once and get paid for that over and over again.
[Austin Netzley] Passive income is basically income that you get while you’re not necessarily there. You can either put your money to work for you with some type of investment or you can do a lot of work upfront and stop doing work and continue to get paid for that over time, like with a song or with a book or an online course of some sort.
[host] When people would ask, what job do you have? Netzley’s dream answer was “financial planner who had his own business”; this is whom he envied. Identifying that person was the first step. The second was figuring out that he wanted to have the freedom to work from anywhere, and travel the world. With those two steps down, he knew that if he created an online financial planning business where he could do work from basically anywhere, it would give him the freedom to travel. It would also allow him to work for himself. So he did just that while he was still working in the oil industry. Thanks to setting up passive income according to his lifestyle, Netzley is now amidst an on-and-off again seven-month worldwide excursion.
One final consideration: Moore and Netzley both recommend not approaching retirement as a matter of never working again. If the only goal is to get out of a job as quickly as possible, then that’s indicative of a problem. Instead, find work that gives you satisfaction and meaning. That means thinking about retirement as a form of financial independence or security and not as a matter of not working.
What this all boils down to is that an early retirement starts with early planning. So if you're willing to make some sacrifices in the short term, engage in aggressive investing and establish passive forms of income, you could put that early retirement—filled with doing the things you love—within reach.
Money put toward a college degree has about a 15% annualized return on investment over a graduate’s career—much higher than the typical return for stocks or bonds.
But a college degree may come with a hefty price tag.
Student loans are the second largest form of consumer debt, behind only mortgages.
To minimize your debt, do your homework. You might find other types of financial aid to bankroll your studies. For every 10 of your classmates, 7 receive some form of financial aid, including student loans, grants and work-study.
10,000 dollars could go a long way toward paying for your college education. And the sources of aid are endless.
Grants are free money, so you don’t need to pay them back. They are usually awarded based on financial need.
Scholarships are also free money, usually awarded based on academic merit. The number of freshmen getting merit aid depends on the institution and yearly tuition and fees can vary widely.
What matters most, is how much you’ll still need to cover after your scholarship money is applied.
With work-study, you’ll take on a part-time job, and your earnings will go toward your college tuition.
Even if you receive financial aid, smart budgeting during your college years can help you graduate one step ahead.
SunTrust has tools and services to help clients get organized, make a plan, and stay on track, so they can stay in control of their finances.
This page (and the links to SunTrust.com) is supported by SunTrust. Google is owned and operated by a third party, which is not affiliated with SunTrust.
SunTrust provides deposit, credit, trust and investment services to a broad range of retail, business and institutional clients. Our affiliates provide mortgage banking, asset management, securities brokerage, insurance, and capital market services. SunTrust enjoys leading positions in some of the most attractive markets in the United States and also serves clients in selected markets nationally. In addition, SunTrust provides clients with a full selection of technology-based banking channels including online and mobile banking.
Visit us online: www.suntrust.com.
© 2014 SunTrust Banks, Inc. SunTrust is a federally registered service mark of SunTrust Banks, Inc. How can we help you shine? is a service mark of SunTrust Banks, Inc. SunTrust Bank Equal Housing Lender - Member FDIC