I feel like my financial literacy education was woefully lacking during my entire K-12 educational experience (actually, make that K-college). I didn't formally learn anything about using credit cards responsibly, understanding credit scores, or saving money.
Instead, I learned everything I know from my mom and my frugal grandparents. They taught me to save and then spend (meaning I try to pay my credit card bill off in full each month). They taught me that long-term gratification is usually more important than short-term (although I do splurge once in a while). They taught me to start saving for retirement--EARLY.
However, I never really learned that there is a long-line of very important things that I should be saving for in advance. For example, when I was in my 20s, I did not even think about saving for a downpayment on a house. I saved for a car so I could buy it outright. I added a lot to my retirement fund. I invested in high quality items like a $400 bike and a good tent from REI.
And then I suddenly realized that I would want a house someday and that it would take a lot to amass a 20% downpayment. And after that shocking realization, I learned that closing costs are thousands more dollars.
That's partly why Matt and I decided to have a $2,000 wedding. We wanted to funnel all our savings into a house instead.
We scraped by just barely and were able to close on a house two days after our wedding. And then Hurricane Ike happened and we had to spend some of our savings on home repairs. And then interest rates continued to drop and we felt like it would be prudent to refinance (hello closing costs all over again!). And then we had to invest more money in renovating our home. And then our cars were stolen and we had to use some of our savings to supplement the insurance money and get a new car. And then Matt's stolen car was returned but it started getting really old and we had to use our savings to get him a new car. And then we really wanted chickens but we live in an urban area so we felt obligated to buy a super-expensive (yet super-easy coop). Plus, we love to travel, so we keep adding more and more money to our vacation fund.
And so it's gone, for the past two years. We're not really saving as much as we would like to.
And now we're talking about expanding our family and trying to save money for that. Whoa!
And then there's the emergency fund that we never seem to build...
It's a lot, this living like a grown-up thing. It's easy to get overwhelmed.
I just wish I had learned to look ahead a little bit more and save more money for future endeavors.
So I shall start now. I will start looking farther ahead to ensure that our savings and spending patterns reflect our long-term goals.
- We need to really amp up our baby fund. Like now.
- We will need to start a college fund as soon as the baby is born.
- We need to continue saving for a lifetime of travel.
- We need to save in order to build an intentional neighborhood.
- We need to continue saving for retirement.
- We could start saving for the next cars we will need in 10 years.
- We need to continue building a reservoir of funds for home maintenance, as well as "nesting" type stuff.
- We should set aside money for medical expenses as we age.
Am I missing something? Please tell me now, so I'll be better prepared! I'm going to make sure we have separate accounts set up for each of these things and then set up an automatic transfer each month. That way, we will build these accounts little by little each month.
What's the state of your financial health? What are you proud of? What are the areas you want to work on?
19 comments:
So the thing I think everybody should save for is lawyers. You never know when you will need one - truthfully, anything can happen. You may need to sue somebody, you may get sued. You may just want to write a will or consult an attorney about something happening in your neighborhood or with your family. Regardless, the number-one thing I hear from people is "I can't afford a lawyer" when what they really mean is "I don't want to pay for a lawyer because I never thought I would need one."
I was taken care of my my parents, and still supported a little bit. Plus I don't earn much, so my financial health is pretty poor right now. I'm starting to save, but it's still really tiny.
this is a GREAT post. i'm a week away from getting married, a week away from graduating med school (with close to 300k debt...holy shit right?) and two weeks away from moving across the country to start my 35k residency program. add to those crazy expenses, i got in a car accident that same week my fiance's car broke down - we needed two freaking cars...pronto. the state of financial health is freaking ass scary and stressful and makes me want to hide under a table.
(oh...and our wedding...though very frugal in many ways, was still a couple grand over what we wanted to spend...and as we paid for it ourselves, it seems like it is costing a bazillion dollars.
i just would really appreciate some winning lotto numbers. i'm totally spent.
Life insurance...if you don't already have it, do it pronto, before you get older. And if you have some through work, consider that a bonus. You need to get it set up on your own.
Sara, thanks for posting about financing. This is such an important topic for anyone -- but mostly especially as we are about to join our wealth (and debt) with someone else's. You have a great list of savings priorities. Rather than list out and feel overwhelmed by life's larges expenses that come our way (of course retirement and baby college fund should obviously be separate) -- I try to funnel a large chunk of money into savings every month -- this is my emergency fund, my future car fund, my 'if my furnace breaks' fund, 'if I get laid off' fund, etc.
I am a saver. And my fiancee has not been a saver up until this point in his life. But he wants to be. (I helped him open his first savings account). Because we have approached money differently in the past, I have found it important to have ongoing conversations about spending, savings, and future financial goals. And, bless his heart, while it is not the most fun to talk about, he has approached it just as eagerly as I do. I'm hopefully that this will spare (or reduce) us from the dreaded financial fights that come with marriage.
I have a very hard time saving money, as does my soon-to-be husband, and it's been a struggle for us setting up monthly budgets -any quarrels we've had, have been over the budget and it's usually me getting frustrated with him not following it. We finally have enough for the minimum downpayment on a home, but our emergency fund is miniscule, and we have a lot of debt we're trying to pay off. We are not nearly as financially healthy as I'd like us to be, so I think it's very important that we talk about it often and make spreadsheets tracking our spending, and I think it's time we set up a savings account - right now it's all in our checking account, and I know that he sees all of that money and then his mind thinks - hey, we've got plenty to go splurge and eat out again. It's definitely a work in progress. :p
You sound like you're doing pretty well to me! It's hard to save when you're both in debt (me from graduate school loans, him with a house, business and son) and living paycheck to paycheck. I don't even have a job yet as I just graduated and will be waiting for a visa to join my husband in the UK after we get married this weekend. We have huge financial concerns but don't feel there are too many options. The British economy sucks, and living expenses in London are astronomical. Fingers crossed I'll get a good job soon after moving so we can start working our way out of debt and eventually start saving (for more babies and a bigger house). We just have to try our best, talk about it without getting too upset and hope everything works out okay. And for the record, we're having a very budget wedding and my parents are paying for most of it. I agree it makes sense to use that money for something more practical.
Love this post--so much so that I'm going to link to it in my blog so future married couples will be inspired to save.
Looking at finances from a spot in the road that's probably 15-20 years ahead of where you are, I highly applaud your efforts. Those unforeseen expenses, like stolen cars and hurricanes, don't ever go away (at least they haven't in my lifetime) so you are smart to anticipate and roll with them. (And by the way, they increase dramatically when the children start school.)
And I've always found that separate saving accounts for each item greatly entice one to save. There's something about naming your account the"travel" account, for example, and knowing that's the only purpose for those funds which is very rewarding.
I think your list is comprehensive. The only thing I'd add is to think about the ways you might want to "save" for these things. For example, maybe you want to turn a hobby into a part-time business and use those funds solely for retirement. Or perhaps you want to look at creative ways to support your wanderlust without using as much cash. A wonderful resource for exploring alternate means if income along with inexpensive ways to travel is Barbara Winter's Joyfully Jobless blog http://www.joyfullyjobless.com/.
After I left school, I was in a really tight financial place. I've really had to learn how prioritize. I haven't had cable in 6 years (and haven't missed it a bit). I bank with a tiny community bank that doesn't have ATMs, lived strictly on cash for about 4 years and just last year finally got a debit card.I got my emergency credit card (after years of not having one)in September. I have 2 cats and 2 dogs, and they have their very own care credit card that pays for their vet expenses (with no interest for the first three months!).
Overall, my debt is small. Once our house payments go down (just got the taxes reassessed) we'll have more to put towards our savings and our life!
It's hard, but once you make the change life is so much better and easier!
I love this post! I don't think a lot of people think about this sort of stuff when they're discussing marriage but they should [my boyfriend and I have constant conversations about what are future salaries go to, even what type of loan we're going to get for our house ten years down the road!].
I think one of the greatest classes I've had at college was a personal finance class, which was required. I learned so much about things I have never heard of, which makes me feel more prepared for when I graduate college and enter the "real world."
This final part is WAY opinion but I feel like so many of my peers and even people older than me are so unprepared for the real world because their parents pay for EVERYTHING. I understand wanting to help your children by paying for tuition and such but I think some people take it too far. I think children should be taught about finances while under their parents' roof and in a hands-on approach. I know so many college students contribute their parents and they do nothing to contribute to their own living expenses. I feel like people would be more prepared if their parents would just teach them in a "real life" sort of way. Give your children responsibility to their own lives and education. Pay for their tuition if you want but have them take on the responsibility of paying for their housing, food, extra-curricular, etc. If not, they're going to have almost no idea on how to do things when they're finally out from under your wing.
Okay, off the soapbox. :0]
I love this post. And don't experts always say that money is one of the big things that breaks up marriages??
We have a somewhat different situation, although we are committed to having a low cost, meaningful wedding. We are 48 (him) and 49 (me). We do talk about money. A lot. We aren't saving for babies. He has legal insurance so that should help when we need a lawyer (first step, prenup). We have both had unfortunate reversals that have left us without retirement funds. I am trying to find a better job since I'm not full time and don't have any insurance. This economy makes it challenging.
I currently make 35% of our total income. He is frugal but generous. I recently had a heart scare - lots of tests and some huge bills that may be forgiven by hospital. I'm working with consumer credit counseling to pay outstanding debts, student and otherwise.
We are both fairly resigned to never be able to retire. We are doing great in couple counseling and I've lost 13 pounds and a pants size since heart scare, cuz cardiologist recommended it.
I'm a big believer in Suze Orman and, if your list is in order of importance, she would recommend to flip it so #10 is #1.
In reading the comments above, it reminded me of the financial lessons I taught my daughters when they were growing up. They each received their age in dollars for their weekly allowance and they had to budget their money into various categories. The categories we had were: 1. charity (usually 50 cents to put in the church collection basket, 2. spending money (their discretion--no questions asked) 3. short-term savings (mostly used for birthday and holiday gifts for others) and 4. college.
Generally, it was only a pittance that went into each category, but they learned to budget and save. When they got older and held part-time jobs, they used the same formula to allocate their money.
I read Ellie's comment.... and really, she's so on. It's things like a lawyer that you never see coming that just stop you in your tracks. It's never fun, but sometimes it is necessary!
Add me to the list of those who love this post. I got my "frugal" nature from my mom and her side of the family, and like CCL my fiance hadn't really been until he met me. But he's willing, and I think it's all going to work out.
Your list is fairly comprehensive. I would also just have a general emergency fund. But overall, great ideas!
My fiance just got life insurance and I learned it's better to get it the younger you are. The prices you have to pay just get higher the older you are. I mean it stands to reason but it was not something I even thought about before. I'd rather pay less now for the next 20 years and have it all be done while I'm still kicking. Plus, you can eventually borrow against it if you need to.
Seriously lady - emergency fund FIRST. After living expenses, get that under control before you touch anything else on the list. Make sure you can live for 6 months to a year (in this economy probably a year) if something bad happens. It's amazing the peace of mind you get when that part is taken care of.
Other than that, I'd suggest just saving. If I had this many buckets of stuff I was saving for, I'd feel like I was going to lose it. Instead, I just have two buckets - savings and retirement. Savings will have a down payment pulled out of it one day, for example, along with other things as needed. (Though, I really have three if I'm being totally honest, because I did save for a vacation this summer).
Anyway, we have not been saving this year on a regular basis. Things have been super tight with just one income, which means I spent my day-to-day income and put away money in chunks as I get chunks. It's very strange for me to adjust to this new reality, and to remind myself I *am* still saving, it's just not an every paycheck rhythm right now. But, rhythms for these things change over time.
The best thing we ever did was set up an automatic transfer from our paychecks into our savings account. It's money we never see, but know it's accumulating (and accruing tiny bits of interest). Within that savings account we have three separate chunks of money: retirement, emergency money, baby money.
Still, it doesn't seem aggressive enough. I wish that the topic of finances was something a little more 'out there'. I feel like people are spending ungodly amounts of money and I want to know, "what's really going on?" Are you up to your eyeballs in debt? How can you afford 2 nice cars, a really nice condo, new clothes, vacations, etc. Are we doing something wrong? Or are they digging themselves into serious secretive debt?
This was an idea I heard from a mentor recently, which I am really starting to appreciate. She and her husband set up their finances when they were first married so that her income (as an RN) would go entirely towards savings, primarily a down payment. His job as a police officer supported both of them entirely. I like this idea for 2 main reasons: in case one of us is laid off, we would already be used to living on 1 income, and also because when we have children in a couple of years, I can take an extended maternity leave or be part-time with less stress about finances. My husband and I have luckily only been increasing our annual income and are used to living in income levels close to poverty, but now that our education years are finally behind us and my husband has a job, we will be able to continue our lifestyle ( with a few upgrades:) ) and save significantly more. Bonus is when I get a job; because of our previous lifestyle, I don't have the same urgency and stress and instead I can be picky about jobs and take time to explore my hobbies which is never easy when in school.
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