Posts Tagged ‘finance’

Making a married budget

Last week, we sat down and hammered it out: our married budget. The decision was made, it just made the most sense all around to fully combine our finances. Josh’s job will be coming to a close at the end of the year, and it makes more sense to combine now so it won’t feel so much like a loss of a job as much as a reduction in salary, when the time comes (in terms of the budget, at least). It also means that changes in W4 withholdings and health insurance won’t have to be resolved “fairly” through each separate paycheck. Just combine it all before everything changes and get used to the way it turns out as a whole instead.

The major hurdle in combining our money and making our monthly budget was different pay dates. As I mentioned in a previous post, I get paid twice a month on consistent dates, and Josh gets paid twice a month on totally unknown dates anywhere from a week to 13 days after me. This makes allocating the checks problematic, and the obvious solution was to simply allocate each check individually, right?

Wrong. Then we wouldn’t have a married budget – we would have 2 separate budgets that both people happen to look at. We had to plan it as though each of our checks came at the same time, and simply kept on the way we each had previously, allocating each twice-monthly check to the budgeted items.

Well, the first thing I thought was “wow – we’re rich!”. But that pretty much happens anytime you suddenly tack on an entire other salary. Really we just took a look at each of our previous budgets, adjusted for bills that we hadn’t been budgeting evenly (nice…), and tried to make our savings goals match as closely to our previous separate budgets combined (though we both come out with less money each check now that we’re married and get to pay the marriage penalty – a post for another time).

One thing this meant was adding a debt payment back into my (now “our”) budget :( We both ended college with a hefty amount of student loans. We had both decided that our debts would be our individual responsibilities, back in the day. I paid off my student loans last year, 2 years after starting repayment. Josh paid his down by half, but understandably could not pay them off entirely (I make the higher salary in our household). Combining all of our finances meant that I would assume responsibility for his debt (yes, I know that legally I assumed that responsibility when we said I Do since California is a common law state, but that really only comes into play if it goes into collections and/or we were to separate).

And then my first thought? Let’s get this thing off of the budget again!!! So really, I was happy to be able to contribute some of my salary to his debt. I mean, I could have always done that anyway…but probably would not have unless he asked for help. I was not willing to put our savings goals on hold in order to really pay it off ASAP, but I’m hoping it will be paid off in less time than it would have been without combined finances.

Today was our first combined budget paycheck (mine)! Things didn’t go exactly as planned…even though I had sent my updated W4 in on the 2nd of the month, it was not processed in time for this paycheck, which meant I still had single withholdings which are all kinds of wrong now (and by “now”, I mean for all of 2010, since the filing status affects the entire year and not just the portion of the year you are married – annoying for some [me], beneficial to others [supposedly this is true]). Sooo this meant it was bigger than we expected, which is nice…but it means we probably won’t have enough withheld, and we also have to wait another month to get a good grasp of what our married salaries will look like net.

I also encountered the “how do I allocate the full budget when I only have 1 check so far” problem. My solution was to simply allocate the entire budget, and put in a negative line item in my super-massive-black-hole-bank-breakdown spreadsheet to hold the amounts we were waiting on from Josh’s first check of the month (which won’t come until Monday – and I don’t mean the Monday in 3 days!!!). I’m not sure how much I liked this solution. I mean… it kind of worked…but it’s totally inaccurate with regard to what we have available, which is bothersome. But there doesn’t seem to really be a better way. I’ll see if I come up with anything better as we continue.

Money and Marriage

Often, when you get married, your finances change. Whether it’s just learning to share bills with someone else or combining at least some portion of your funds, you’re bound to have some kind of change.

There are basically 2 main choices of what to do next with your finances after you get married:

  1. Keep all accounts separate and split costs in a ratio of your choosing
  2. Combine all accounts into a communal pot

There is also a slight variation on #1, which is to maintain separate accounts but to have 1 joint account, which you both pay into to pay bills.

It’s difficult to make a choice on how you want to handle your married finances. If you have already been doing things a certain way for some time, it can be hard to change to doing them a new way. If 1 of you doesn’t work, by choice or otherwise, you pretty much have to combine money – or else decide that the unemployed person has to borrow what they need for their share of bills, and will later repay the other, but honestly I don’t understand doing something like that in a marriage. This is your life partner, not your flaky roommate. You took them for better or worse, and I would think “for worse” means covering the bills when 1 of you can’t contribute.

Josh and I have been operating with separate accounts since we moved in together 3 years ago. I added him to 2 of my credit cards as an authorized user (not a co-applicant) before we were married, so that we could more easily combine our spending on shared items or food spending. At the end of the month, I take the credit card statement and classify each purchase properly, and Josh paid me for his share of the charges. This system, while lengthy, worked well for us, with the added benefit of always knowing exactly how much that I, he, or we spent in every single category, which made it easy to see how on-budget we were.

After you get married, you start wondering, how long will we send 2 checks to pay the rent? How long will we split the utility bills down the middle? What if 1 of us is saving more for vacation than the other – must we vacation by ourselves or feel burdened with “having to pay” for the other to be able to come along? These things don’t sound much like the way a married couple would operate, at least not to me. It’s great to be independent and both earn your own money and feel some ownership of it, but I can see it becoming an issue later on when situations like I mentioned crop up, and especially as salaries change it can become competitive instead of collaborative. You shouldn’t feel the need to compete with your spouse over salary – you are likely sharing everything anyway such as your home, vehicle, etc.

I’m sounding pretty favorable towards combining money, and that’s because I am. I don’t want to always be paying things as though I’m paying with my roommate. I don’t want to save up for “my” house, I want to save for our house. That being said, it’s not without some difficulty to actually make this change.

The first hurdle I’m finding is having not only different paycheck schedules, but varying amounts in the paychecks (and not due to overtime or anything like that). I get paid bi-monthly, and it’s extremely consistent: the same amount of money in each check, twice a month, paid on the 15th and the last day of the month, or the previous business day if that day happens to fall on a weekend or holiday. Simple, right? And it’s in the account on that day. Josh’s paychecks meanwhile are also bi-monthly, but they are hourly rather than salaried, which means even if just works normal 8 hour days, it all depends how many business days were in that pay period to find out how much that check will be. And while it’s “paid” on days similar to how mine is, it doesn’t actually land in his account until an indeterminate number of days later. Honestly, I’m not sure how he’s been able to deal with this at all! Every single check is a different amount, and comes on a random day. How do you budget for something like that?

My plan is to budget based on the lowest possible number of business days in a pay period, which Josh determined is the 2nd half of February with 9 days. This all sounds great except…I live by Budget Zero. This means I budget every last cent of my paycheck, including savings. For me, savings aren’t based on “whatever is left at the end of the month”, it’s a specific, pre-determined number, and I spend my “fun money” around the savings, not the other way around (the fun money amount is also a pre-set budgeted amount). It has worked very well for me for the past 3 years – checks come in, and I simply allocate them in a spreadsheet I keep to all of the various categories as determined by my budget. Done! But how do you do this when the pay varies every single time?

Even with budgeting for the smallest paycheck that will be seen, this means that every other paycheck will essentially leave money on the table – money in the account that we haven’t already decided it’s ultimate goal. I’m thinking we will just use that “extra” money for our primary savings goal and that way it won’t matter (since right now we’re still miles away from reaching the goal and don’t need to hit a certain # every month). But then the issue of not knowing what date it will arrive. Luckily, either of us is able to pay the entirety of our bills on their own, so we should have enough to pay everything at any given time, but how do you make the allocations?

As I mentioned, right now when my check comes in, I simply allocate it until all of it is sitting in various categories. If we have 2 checks to fill out a single budget and those checks both came on the same day, we could still do that. But with them coming on different days…you can’t really even allocate the first one until both make it in. I guess we could just do that, but that means waiting longer before moving money to savings, which means losing interest. That plus I feel like my accounts are in a state of disarray when I haven’t allocated all of the debits and credits in it.

For now we decided to take the first step of opening the joint account. Well, we didn’t get very far – we decided to open a joint checking with Ally, where Josh already has a personal checking and several savings. Our application “was not allowed to continue”, and when I called about it, was informed that “an account representative will have to review your application”. So…who knows what went wrong there. Josh thinks perhaps it’s an issue with verifying my new name. And here I thought it would be easier to open a new account with the new name rather than updating it on a pre-existing account.

We also weren’t able to open a joint savings account. I have my savings in Sallie Mae right now because their rate is 1.4%, which isn’t amazing, but for an account where I don’t have to meet any requirements to get the rate (like high yield checking accounts), it’s pretty good. But they haven’t updated my name yet even though I sent them the paperwork last week, and I don’t want to worry about the name change on another  account.

So in limbo we stand. We could work on the budget while we wait on the accounts…but Josh’s interest wanes. I wanted to work on it tonight but it did not happen. Hopefully it happens soon, as the additional health insurance and soon the W4 changes will start affecting both of our paychecks, and I think it would be easier if we combined in time for those changes, so they don’t feel as strong as they would be on our individual accounts.