You might have noticed that I did not post anything yet this September. Well, it is because I was busy getting married! 🙂 We had a wonderful celebration in a nice golf club near our house and I don’t regret a single second of it! Marriage and finances often come together (and not always in a good way) but we try to manage our money wisely.
Want it or not, marriage has a lot to do with personal finances and financial independence. Marriage itself might not change much but dedicate yourself to live your life with your significant other will change your finances. In any relationship, finances can be a huge source of stress and might even be the number one cause for divorce. Spending mismatches or different saving habits might cause friction in a couple but there are ways to avoid this.
I am grateful that my wife is with me on the early retirement bandwagon but you can see how different goals could cause friction. I am a high saver trying to save 50% of my income but that’s just my own goal. Mrs. Xyz is more about spending first, savings whatever is left while I am more about automating my finances and spending what is left. We both have our ways but we do share a common end goal.
I think that the main thing is communication, if you talk together about your common goals and strategies to reach those goals, then you should be fine. At the point in our relationship when we knew we would be living a wonderful life together, we sat together and drew down our goals, dreams, and wishes.
How do we manage debts in our marriage
Both of us never were inclined to carry much consumer debt. Before even meeting each other, we both had a great credit score and never carried credit card debt. I used margin to invest in the past and always had a line of credit for day to day unexpected expenses but I keep both of those at a zero balance now.
For rewards and practicality reasons, we try to use credit cards for all our purchases. It makes it much easier to track and it gives back! I like having a slim, cashless, wallet but the rewards actually put more dollars in my pocket. We use different cards to optimize rewards and all our main purchases go on rewards cards. By the end of the year, it really adds up!
The main thing you need to remember when using credit cards is to always pay your balance in full each month and read the fine print properly. For other debts, we both have low-interest lines of credit that are currently at a zero balance but we keep them open in case of emergency.
Other than that we only have a mortgage, no other consumer debt. We don’t have car loans, furniture payments, or any other payment plans and don’t plan to get into any of these. We try to avoid any recurring, monthly, payment and focus on building recurring earnings instead. 🙂 Our mortgage has a low 5-years fix rate and we purchased a house well below our means to keep our recurring expenses to the minimum.
Marriage and finances
I do not think there is any right or wrong way to do this but we decided to not combine our finances entirely. We have separate checking accounts for all our day-to-day and have goal-allocated savings accounts.
We share a home together and both share those expenses with automatic transfers. The mortgage and the bills are all automatically shared and paid from both our checking accounts each month. For all the other non-recurring things, we try to share week by week. I pay the groceries, this time, you pay the next kinda thing. It’s not a perfect split to the dollar but we don’t need it to be.
How do we manage our savings?
We share the common passion of traveling multiple times a year and unfortunately, that can be a pretty expensive passion to pursue. Most of those trips with credit card rewards points and for all the rest, we save for our common goal in a high yield savings account to earn a bit of interest along the way until departure. We both have multiple credit cards and those points alone ends up paying for two or three trips a year, then we use our savings for the other expenses.
Being both on the path to financial freedom, we wanted a good foundation to ensure financial security and to reduce our stress to a minimum so we also keep a well-funded emergency fund readily available even if we have lines of credit. For our emergency fund savings, we have separate savings accounts earning us interest along with the peace of mind that it will always be there whether or not the market tanks. Investing is a great way to beat inflation and grow your money over the long run but it is important to have something readily available that offers a guaranteed return.
Having dedicated accounts for separate goals makes it easier for us to track our savings and harder to spend them. For example, our common goal account is currently to pay for our honeymoon, I would not want to dip into our emergency fund for that and separate accounts definitively helps determine what goes where. You can make as many accounts as you need if you wish to separate different goals since it is free and easier to track.
How do we invest?
I discovered and planned out my path to financial freedom about a year after I met my wife but she did not get on board before a whole year later. Fortunately, she was a natural saver and even before we’ve met, had a bit saved up and did not have any debts. Once I introduced my wife to MMM, it clicked. She was now convinced it was possible.
Being an engineer, she opened up excel and started counting. To my surprise, she actually went to greater lengths than me in her financial independence plan. 😛 With a few assumptions and backtesting using cFIREsim, she projected our path to freedom. This included our year-by-year spending budget, our savings rate, our projected returns on investments, and the date of our final day at the office. We then played around with a few scenarios such as working part-time, living off only one salary if we have kids, increase expenses if we have kids and many other little variables. It was a fun exercise and I suggest you try it out for yourself by heading to cFIREsim and plugging in a few numbers.
Once we were both dreaming of early retirement and had a clear plan to achieve it, our investment style slightly changed. I stopped investing on margin and stopped chasing the next big stock as I describe in my first post. I was investing solely in individual stocks and I changed to a longer-term index investing strategy. We now have automated our investing and invest the majority of our portfolio in index funds with Vanguard.
Our investments are not joint simply for tax purposes. Registered accounts are associated with only one name and we can greatly decrease our taxes keeping it that way. Since I stopped trading in my non-registered accounts such as my margin account, we haven’t got the opportunity to have a joint investment platform but the need might arise once we reach the contribution limits. I think the most important component of our current setup is not the names that show up on the paperwork but rather, the mutual goal we now share. Having an open, transparent, communication with one and each other is what makes us stronger. You can see the details of our investment allocation in our Open Book series.
When you share your life with someone, a joint bank account or joint investments will not change anything. Communication and a common vision will. We are set on retiring early and living a fulfilling, plentiful life along the way. If you are also married or with a significant other, what is your common path?