Money Under 30 » Budgeting

How to Talk Money With Your Partner

David Weliver — Thu, 29 Oct 2009 16:07:00 +0000

Do you talk to your partner about finances? If not, have “the talk”. It may very well save you frustration, save you money, and save your relationship.

I recently read an article on The New York Times, four money talks to have before marriage, and a response at Get Rich Slowly. I agree that this is critical, but not just for couples considering marriage. A lot of us youngins shack up long before we marry, if we marry at all. So I think these articles need to be re-framed as money talks to have before living together.

What Should You Talk About?

The Times article illustrates four topics couples need to cover, and I can’t think of much to add. They are:

Ancestry. What did your parents teach you about money? What are your financial predispositions?
Credit. How do your credit scores compare? What does this say about how you have managed money in the past? How will this impact your ability to reach future financial goals?
Control. Who handles what bills, how much can each partner spend independently?
Affluence. What are your financial goals?

Why Have the Talk?

For married couples, the reasons to talk about money are more or less obvious: Your finances are now legally combined and financial problems are the leading cause of divorce.

But if you’re not married, why bother talking about money?

At the very least, if you’re living with somebody, you’re sharing a big chunk of your monthly expenses (housing payments, utilities, groceries, etc.) Do you know what you would do if one of you lost his or her job? Could you still pay the rent?

And although you may be less likely to merge finances than married couples, how you each handle money independently will still impact your common financial goals.

For example: Do you hope to take a vacation this year? Are you both saving for a trip, or will one of you go into credit card debt to make it happen? Do you hope to upgrade your apartment or buy a home? What will it take to move up?

How to Have the Talk

As much as Jay Monee is trying to change public perception to the contrary, I think most would still agree that personal finance is decidedly not sexy. (A million in hundred dollar bills showered on a hotel room bed? Sexy. Comparing credit scores? Definitely not.)

To ease the discomfort of talking about finances:

Plan a time to talk about money. Carve out an hour or two and sit down over coffee or wine. Whatever you do, don’t spring the subject of your partner’s spending habits at the end of an otherwise romantic dinner.
Prepare for the talk. With your discussion scheduled, you should each pull your credit scores, write out your latest monthly budget, estimate your net worth (assets and debts), and jot down your financial goals.
Be understanding and open. As you start to talk about money, listen to your partner’s side. For this to work, there are going to be compromises. Shopaholics can usually learn to tame some spending, but spendthrifts can learn to live a little, too.
Write it down. Finally, take notes. Write down any financial changes you want to make along with your joint financial goals.
Keep it going. Talking about money should be an ongoing dialogue, not just a one-time down-and-dirty negotiation. The more you talk about money, the more comfortable it will become, and the easier you and your loved one can find common ground and begin achieving financial goals together.

What about you? What are the most important financial topics you discuss with your partner? Has it been difficult to have these talks? How have you made it easier?

What Percentage of Income Can You Afford for Mortgage Payments?

David Weliver — Tue, 15 Sep 2009 11:30:55 +0000

This question often comes up among first-time home buyers: What percentage of my monthly income can I afford to spend on my mortgage payment? Does that percentage include property taxes? Private mortgage insurance (PMI) or homeowners insurance?

Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property-taxes and all housing-related insurance (including PMI). As for just how big a percentage of your income that housing budget should be? It all depends on whom you ask.

In an article on new rules for first-time home buyers , the New York Times reported:

If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.

Let’s remember, that even in today’s post-mortgage crisis world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I wouldn’t call 35 percent of your pretax income on mortgage, property tax, and home insurance payments “conservative”. I’d call it average.

On the flip side, debt-hating Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25 percent of your take-home income.

Your mortgage payment should not be more than 25% of your take-home pay and you should get a 15-year or less fixed-rate mortgage…Now, you can probably qualify for a much larger loan than what 25% of your take-home pay would give you. But it’s really not wise to spend more on a house because then you will be what I call “house poor.” Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldn’t be saving and paying cash for furniture, cars and education.

Notice that Ramsey says 25 percent of your take-home income while lenders are saying 35 percent of your pretax income. That’s a huge difference! Ramsey also recommends 15-year mortgages in a world most buyers take 30-year mortgages.

Not everybody is as debt-adverse as Ramsey, but I think you have to acknowledge he has a point: The more you spend on your home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35 percent of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

When you obtain mortgage pre-approval, lenders will likely approve you for a loan that would require housing payments closer to 30 or 35 percent of your pretax income. Don’t just assume “if the bank approved it; I can afford it”. That’s rarely the case.

Intuit, Maker of Quicken, to Buy Mint.com for $170 Million

David Weliver — Tue, 15 Sep 2009 06:00:10 +0000

Holy cow! Personal finance software giant Intuit (makers of Quicken, Quickbooks, and TurboTax) is set to buy online budgeting site Mint.com for $170 million, reports Silicon Alley Insider and TechCrunch.

Launched in September 2007, Mint.com is the nation’s leading free online personal finance service and now serves over 1.5 million users.

According to an e-mail sent yesterday by Mint.com Founder and CEO Aaron Patzer:

Mint.com will stay the way you like it: free, easy-to-use and constantly improving…after the acquisition closes, the Mint.com team will contribute to improving the financial lives of tens of millions of consumers and small businesses…Joining Intuit enables us to bring our vision of helping consumers understand and do more with their money to millions of Intuit customers. This is a compelling combination of our innovative product, technology, and industry leading user interface design with one of the most trusted brands in software.
I look forward to executing on that vision — for you.

What About Quicken Online?

It’s always seemed to me that Mint.com has been competing with Intuit’s free online budgeting tool Quicken Online, which I’ve praised for its relative ease-of-use compared to the trickier-to-learn, albeit more robust, Mint.com. According to Mint.com’s press release:

Intuit intends to keep both the Mint.com and Quicken Online offerings, with each serving separate and equally important purposes. Mint.com will become the primary online personal finance management service that is offered directly to consumers by Intuit. Quicken Online will connect Quicken customers across desktop, online and mobile to deliver easy, anytime-anywhere access. This will help accelerate Intuit’s ability to create products and services that make managing money easier for all Intuit customers.

Congrats Mint.com! When I first started blogging in 2006, most people I talked to couldn’t even imagine using an online tool to manage their personal finances. We’ve come a long way, Baby!

A Really Simple Budget Worksheet

David Weliver — Fri, 11 Sep 2009 11:00:48 +0000

Budgeting is a lot like exercising. Some people love to do it; the rest of us know we need to do it but we really hate it! To help, I give you Money Under 30’s Really Simple Budget Worksheet.

Some exercise is better than none. And creating a really simple budget is definitely better than not budgeting at all. Whether you are just learning to budget or you don’t need or want all the bells and whistles of fancy software or online budgeting tools, I give you my Really Simple Budget Worksheet.

What is the Really Simple Budget Worksheet?

The Really Simple Budget Worksheet is a one page form that asks for your monthly income and monthly expenses grouped into just a handful of categories. Unlike some budget tools, this worksheet doesn’t need to know how much you spend on coffee in the morning, beers at the bar, fast food lunches and fine dining. It groups them as dining, travel and entertainment.

Although there is some value in seeing how much your coffee or lunch habits add up to every month, it takes a lot of time to track—time most of us would rather spend in other ways. The Really Simple Budget Worksheet lets you figure out a budget in a few minutes and get on with life.

The worksheet is available as a PDF (for printing) and Microsoft Excel:

More Budgeting Options

This simple budget might be the perfect introduction to budgeting for some, but might not be enough for everybody. Check out my original free budget spreadsheet, my list of free and premium online budgeting tools, or J. Money’s roundup of the best free budget templates from around the Web.

Get $20 Off Select Quicken Products

David Weliver — Fri, 04 Sep 2009 12:00:47 +0000

Ready to take your personal finances to the next level? Quicken is offering up to $20 off on and free shipping on many of its bestselling software products through September 13th, 2009.

This Quicken discount is good on:

Personal personal financial software packages Quicken Deluxe (reg. $59.99, now $39.99) and Quicken Premier (reg. $89.99, now $69.99).

Personal and business financial software packages Quicken Home & Business (reg. $99.99, now $79.99), and Quicken Rental Property Manager (reg. $149.99, now $129.99).

Interested? Take advantage of this $20 off and free shipping offer now. Prefer a simple, free, online way to manage your money? Try Quicken Online.

We All Have Spending Weaknesses

David Weliver — Tue, 23 Jun 2009 11:30:59 +0000

The guy with the $50,000 luxury car. The couple with the $3,000 a month loft apartment. The girl who spends $200 a week on locally-grown food. The guy who spends $200 a month on gym memberships and fitness classes. The guy with four motorcycles. Do you know them? These are extreme examples, but most of us have one or two spending weaknesses. Even if we’re otherwise smart with our money—even if we know better—we splurge in a few areas. As long as you limit your splurges and as long as you are sure of the value of those splurges to you personally, your spending weakness is probably a good thing.

Some people can live life in a state of permanent self-denial in pursuit of their long-term goals, be it an early retirement or simply a huge bank account. Others would ask: What’s the point if we can’t enjoy ourselves today? Although we all should learn and practice restraint and frugality so we can live within our means, we do need to enjoy ourselves today. Of course I’m not saying go into debt and buy whatever you crave. There’s a line between the spending patterns that keep you forever ensnared in debt and those that allow you to reward yourself periodically while continuing to build long-term financial stability.

And I know: I used to be in the “it’s just money, live now!” camp. I ate out whenever I pleased. I bought whatever I wanted. I even pursued my private pilot’s license simply for the fun of it…before I even had a full-time job. Talk about an irresponsible indulgence. Obviously, those decisions caught up with me, and about five years ago led to my financial enlightenment. I tightened the belt and started learning (and writing) about making smarter money decisions. Although I consistently live within my means today, I have my spending weaknesses. The two that come to mind are: the occasional dinner out and a BlackBerry that, although I use it for work, I admit is primarily for my own entertainment.

My fiancee’s include fitness classes and organic foods. Although I would say she spends too much in those areas, she’s living below her mans and she’s quite frugal in every other area. (She does not, for example, share my interest in the latest and greatest cell phones. She recently purchased a new phone only after her old one cracked and wouldn’t hold a charge for more than a few hours).

I’m acutely aware that all of the budget bulldogs out there would find faults with both of our budgets. Stop paying that ridiculous cell phone bill! Cancel your gym memberships! Stop shopping at Whole Foods and cut your grocery bill in half! It’s true, those things together could save us about $200 a month. But those are our spending weaknesses. Our indulgences. They’re what make working and saving and scrimping on other things worthwhile. Could we do without them? Sure. Would we get rid of them if times got really tight? Of course. But for now, we pay for them—fully acknowledging that they are luxuries—as we continue to work hard to build our future.

Do you have spending weaknesses? What are your indulgences—your splurges? Are they in check, or out of control? Do you justify them, or feel guilty about them? Please share in a comment!

Quicken Online's Best Feature: Trends

David Weliver — Mon, 22 Jun 2009 14:58:12 +0000

I logged into my free Quicken Online account yesterday for the first time in a while. Now that Quicken has about 90 days of data from all of my financial accounts, I started to play around with the trends feature. And I loved it. The “trends” tab on Quicken Online is arguably the free budgeting tool’s best feature, and provides a way to look at your spending that would be incredibly difficult–if not impossible–to create on your own.

The trends feature aggregates all of your income and spending from your linked accounts (checking, savings, credit cards, etc.). Quicken Online trends looks at all of your spending and income over a period of time. Tthe default is three months, although you can select year-to-date, this month, etc. You’ll see, at a glance, how much you have spent and how much you have earned and Quicken shows you how much either above or below your means you are living. It also breaks your spending down by category.

Personally, I’ve always known how much I’ve spent on my car between the payment (financed it before I knew any better, but it’s almost paid off), insurance, tolls, parking, gas, and maintenance. But Quicken Online showed me that over time, that damned car is my biggest expense. Yup, transportation costs me more than my housing expenses (although those are very low).

I considered these transportation expenses a fact of life when I had a long commute and used my car to visit my fiancee a hundred miles away every week. But now we live together and I can walk to work. So that expense needs to go! Once I pay it off later this year I’ll consider selling it or working to dramatically reducing how much those damned wheels cost each month.

Quicken Trends also pointed out months in which I was really good at stashing away money and months in which I spent more than I should have. (A trip to Puerto Rico for a friends’ wedding and some expenses towards my own wedding this August contributed). Unlike a budgeting tool that only looks at a month at a time, however, Quicken trends lets me look at a greater time period, so if you spend more than you should one month, you can make sure other months’ spending is balancing that out.

That’s important, because although we look at our budgets one month at a time, it’s not really realistic. Big expenses pop up that can really throw a wrench in your monthly spending plan.

About Quicken Online

Quicken Online is a free, online, “lite” version of the popular Quicken personal finance software. You can set Quicken Online up in a just a few minutes and link all of your financial institutions. Quicken then grabs your transactions and organizes them. In addition to the trends tool, Quicken Online lets you set monthly spending goals and lets you see upcoming bills to give you a better idea of how much money you actually have in your accounts before your next paycheck. You can access the program 24/7 online or via their iPhone app.

Learn more about Quicken Online or set up a free Quicken online account now.

How Much Money Is In Your Checking Account?

David Weliver — Fri, 05 Jun 2009 14:33:39 +0000

Sometimes I’m fascinated by the simplest personal finance concepts—like the difference between keeping money in your checking account versus a savings account. The way I see it, there are a few different models to divide up your cash between checking and savings. You could keep most of your liquid cash in a checking account to always have access to it, you could keep the money you’ll spend for a month in a checking account plus a cushion of several hundred dollars or so, or you could keep as little money as possible in checking and put the rest into the savings to earn some kind of return on your dough—even though it’s not much these days. Which model do you use?

I fall into the middle category. I try to keep an amount equal to my monthly expenses—plus about a $500 cushion—in checking and put the rest into savings. That way, I don’t have to be worried about overdrawing my checking account, but I’m also not stressed that I have too much money in checking that could be earning interest. I think, however, there are some other benefits to this strategy, too:

For one, transferring extra money into savings as quickly as possible can make you forget you have it. That way, when you evaluate whether or not to buy something, you may only look at your checking account balance and not consider what’s in your savings (the way it should be). Chances are, the less money you have available in checking, the less likely you will be to spend it.

The Danger of Debit Cards

Finally, it’s important to remember that the now ubiquitous debit card puts your checking account at risk. In the event your debit card is stolen and somebody makes fraudulent purchases with your card, those transactions can drain your checking account. Although most debit card fraud victims get their money back when the fraud is reported on time, it can take days, even weeks for the funds to be returned to your checking. So ask yourself: Could you stomach loosing all the money in your checking account for a week? Two weeks?

Transfer funds to a savings account, however, and they will be safe from debit card fraud, with one exception. Some banks let you set up an overdraft feature that will tap your savings account in the event you overdraw your checking account. In that case, they charge you a small fee (maybe $5) rather than the $30 most banks charge for a regular overdraft. Most banks, however, put a cap on the amount they’ll transfer from savings to cover these overdrafts. Mine’s set at $500. If there’s no limit, a debit card thief could really clean you out. It’s another reason to consider keeping savings at a higher-rate and separate online savings account.

How much do you keep in your checking account? Share your strategy. I’d especially be interested to hear if anybody has a reason for keeping a large checking account balance.

Spending You Should Not Cut, Even In a Recession

David Weliver — Mon, 23 Mar 2009 17:23:28 +0000

These days, everybody’s looking to save money. And with good reason—the more you can cut back on monthly expenses, the better prepared you’ll be to weather the recession, including the frightening prospect of losing your income. That said, there are a few things to which you should continue to allocate money as long as you possibly can.

Health Insurance

It’s so critical to have health insurance, even if you’re young and healthy. An accident or sudden illness could put you in tens of thousands of dollars of debt. Worse, you could find yourself unable to get the health care you need to get better. If you’re currently employed and chose not to participate in your employer’s health insurance, reconsider it. If you’re not employed, find a way to buy your own low-cost health insurance plans (you can search hundreds of plans at eHealthInsurance.com). Even a bare-bones plan that will protect you if you face a catastrophic accident or illness is better than nothing at all.

Retirement Savings

When times get tough, a lot of people stop contributing to their 401(k) or IRA plans, especially this year when so many employers have stopped matching 401(k) contributions. Unfortunately, that’s short-sighted. The younger you are, the more valuable your retirement contributions are, because they will earn compounding interest for decades to come. Plus, the stock market is on sale these days—there hasn’t been a better time to buy stocks in a long time. Continue to contribute a minimum of 6% of your salary to your paycheck to your employer’s 401(k) or, even better, open a Roth IRA.

Education and Training

Your education and job skills are you most valuable asset. Unfortunately, I’ve heard stories of students dropping out of college because student loans fell through or they lost the job they needed to pay for school. Obviously, there are times when pursuing your degree simply isn’t affordable. But you shouldn’t let this recession deter you from accomplishing your educational goals. Use every resource available to you to find a way to pay for education and training programs that will increase your lifetime earning potential.

Healthy Food

When money is tight, it’s easy to become preoccupied with keeping a few dollars in your pocket and lose sight of other goals like eating well and staying fit. Although it may seem like a $0.99 hamburger is the cheapest way to get lunch, you’ll pay a dear price for those cheap meals if you make it a habit. Learn to eat healthy on a budget, and find other ways to save before giving up on buying healthier foods.

What About You?

Are there areas in your life that you refuse to cut back on? What are they, and why do you feel they’re important to keep up even in tough times?

Are Joint Credit Card Accounts a Good Idea?

David Weliver — Wed, 18 Mar 2009 12:00:53 +0000

When I asked readers how you split expenses with your partner or spouse, a few responded that they maintained separate checking accounts but shared a joint credit card account for monthly purchases like groceries and utilities.

I recently started doing the same thing with my fiancee. We think, at least for the time being, it’s a good idea. But before you do the same, there are a few things you should consider when you decide to add an additional authorized user to your credit card account or become an additional user on your sweetie’s account.

Joint Credit Card Accounts Don’t Really Exist

As far as I know, you can’t actually open a joint credit card account like you can open a joint checking account. Credit cards accounts—even corporate credit cards—are almost always in one person’s name. However, most credit cards allow you to add authorized users to your account. Additional authorized users:

Can obtain an additional credit card in their name
Can make purchases on the account
If the primary cardholder desires, can access online account information and make payments
Are not linked by credit profile to the account (the card will not affect the secondary card holder’s credit report)
Usually, are not legally responsible for paying charges

Although all of these features makes the credit card feel like a joint account, whether two people or two hundred use it, the primary account holder is ultimately responsible for 100% of the charges on the account. Consequently, only the primary account holder’s credit will be affected by responsible (or irresponsible) use of the card.

That’s important to consider if you are thinking about giving a card to anybody…perhaps especially somebody you’re in love with. If your relationship sours, he or she can rack up a balance on the card and stick you with the bill. Unless you’re married, you will be fully responsible for paying up. If you don’t pay, the creditor will ding your credit score—not the authorized user who made the charges.

Beware Second Card Fees

Many credit cards (including most cards that do not charge annual fees) offer a limited amount of additional authorized user cards for free. If your credit card has an annual fee, however, check with the company to see if additional cards will cost extra. American Express, for example, charges for each additional charge card (Green, Gold, Platinum) it issues, although the fee is usually less than the annual fee on the primary card.

Perks of Joint Credit Card Accounts

If you are married or at a point in your relationship where you think a joint credit card will work for you, it’s an easy way to track joint spending. Ideally, you’ll want to use the card only for purchases that benefit both of you such as:

Groceries
Dining out
Home improvements
Vacations

Rather than worrying about keeping track of who paid for what, you can simply use the joint credit card for every purchase and split the bill at the end of the month.

Of course, you can also increase the amount of cash back you earn on a cash back rewards card like Amex Blue Cash or the Discover More Card. However, whether you are trying to earn cash back rewards or not, use a joint credit card account with the same caution as you would any other credit card—pay off the balance in full every month or be prepared to deal with the consequences.

What About You?

Have you added authorized users to your credit card or been an authorized user on somebody else’s card? Did it work well, or end in disaster? Do you think it’s a good idea? Let me know!