Money Management Tips

abrewer5

Hello!
I see a lot of mixed reviews for David Ramsey's money makeover so I was wondering what people do other than following Dave Ramsey's strategies to pay off debt and boost savings. My fiance and I just bought a house and it seems we're struggling a lot to come up with the best way to pay bills, while also paying off debt and planning our wedding that's 4 months away. I know we've taken on way too much at once.

At this point:
We each have a car loan, mortgage and I have school loan. I also have 2 credit cards that I need to pay off, which is a high priority for me (about $2400, most of which came from buying the house), we also have a 24 month 0% interest card which we just opened last month for appliances.  We have a combined yearly salary of $70,000 so you would think we would have month left over, but at this point it just seems like it's all gone right when we get it. He has a pretty good chunk in savings, but I don't (we don't combine money).

Unlike Dave Ramsey's advice I'd rather not sell my car considering I only owe $5000 on it and it'll be paid of relatively soon. I know we've gotten ourselves into this situation, so please don't burn me at the stake for it, I'm just looking to make improvements this year and try to rebuild my savings and pay off at least all of our credit cards. I will be getting a substantial raise at the end of this month, which should really help hopefully (about $10k), but I also know that unless we change our spending habits it won't help in the long term.

Does anyone have any advice for me to help pay off debt and save? How did you go from having only small debt to have a mortgage + utilities? This is the first time we've lived on our own so it's been an adjustment. Ideally I'd like my own savings, his own savings, a joint savings for any house related emergencies, and of course lower debt/less monthly payments.

Thanks in advance.  

hoffse

I have some specific questions for you first:

-How much is your monthly mortgage payment?

-How much is your monthly car payment?

-What is your budget for the wedding - and are you over or under?  Honeymoon?

-What is the balance on your school loan - and the interest rate?

-Interest rate on the credit card with the $2400 balance?

-Have you charged anything to the interest-free card?

I know these are a lot of questions, but we need to know to give you some advice about the order in which to tackle these things.

abrewer5

I'm sorry I should have been more specific!

1. Our mortgage is $1,250 a month
2. My car payment is $250
3. Our parents are paying for most of the wedding, which is absolutely wonderful and we're so thankful, but small costs are adding up. I never really sat down and created a budget for myself. I completely regret this now.
4. The balance on my school loan is $11,600 and there is a subsidized and unsubsidized portion so it's split on rate is 6.55% $5,000 and one is 3.15% $6,500
5. The $2400 is two cards combined one with $400 at 12.99% and one with $2000 at 17.99% which is just crazy I know.
6. We have our appliances charged on the interest free card which is $2000 for all 4, we stupidly didn't want to pass up getting the appliances we wanted on a Black Friday sale for 50% off.

Gosh writing this all out makes me feel like we're in a worse spot than initially realized.

hoffse

Sorry - not trying to make you feel bad!  This is just important info to know

Ok so this is probably what I would do:

1) Wedding - write your parents a big thank you  And while I'm a huge wedding registry advocate, I would probably make your registry minimal.  You are more likely to get cash from your guests without a large registry, and that's something you need right now.  I hope it's not tacky to say that, but really - let's call a spade a spade.  I would take the bulk of the cash you receive as wedding gifts and pay down some of this debt.  It really will be the best thing you can do to start your marriage off on the right foot.

2) Even though I'm definitely not Dave Ramsey's biggest fan, I think a debt snowball could really help you in this case.  But the order matters.  He goes smallest balance to biggest balance.  I prefer going highest interest rate to lowest interest rate (with a couple exceptions I've noted below).  Make minimum payments on everything, and then throw your extra money at your various debts one at a time.  Every time you pay something off, add that previous debt's minimum payment to your next debt.  It will be paid off in no time. 

3) Credit cards come first.  Pay off the $2,000 balance first because the interest rate is so much higher.  Then pay off the $400 balance. 

3) Then I would do the appliances, because if you don't pay that off before the 0% interest rate expires, they might charge you interest for the previous two years in one fell swoop.  It will be in the teeny tiny fine print in your agreement if they are going to do that... but it happens sometimes.   I know this is 0%, but you don't want to be stuck at the end here. 

4) Then move to the car because that's a depreciating asset.

5) I probably wouldn't pre-pay on the student loans because they are low-balance and low-interest.  But others on this board disagree with me on that.  I think the way you approach student loans is pretty personal, but if they are going to continue to make you feel stretched, then do the 6.55% one first and the 3.15% second.

Some other things I suggest you do:

-Go back through the last couple of months of credit card bills, bank statements, etc. and categorize EVERYTHING you spent - we all leak money, and the only way to plug the leaks is to know where your money is going.  Be brutally honest with yourself about things you spend too much money on.  If you aren't sure if your numbers are high (you said you've never done a budget before), post it here and we will tell you (nicely) where you should be able to cut back.

-Then create a budget for the future.  Track your spending to make sure you aren't going over in your various categories.  If you give yourself $50 per month for fast food, don't spend $51.  And do build in some buffer - at least $100 extra per month to pre-pay these debts.  And maybe $100 extra per month to go toward your savings.  Keep this up at least until your wedding.  In 4 months it will hopefully become a habit, and then you can start your marriage off knowing where your money is going.  It's so important.

-Build your savings.  I like at least $3K-$5K to start.  But that can take time.  It's ok.  As long as you are working on it slowly, you will get there.  And once some of this debt is paid off you can focus on your savings more heavily.

-Finally, think about how you and your FI want to approach money together.  Some couples do really well splitting finances, others fight about it.  To me, money is fungible and if H saves more or I save more it doesn't really matter - because we both benefit from any savings that one of us achieves at the end of the day.  But that's just our approach.  I'm saying this because wedding gift money is "ours."  But your debt might be "yours."  In my view, paying "your" debt with "our" money is fine, because it improves the standard of living for both.  And on that point - if you H has significant savings, it might be smart for him to pay some of this off (after the wedding) with that savings.  But talk to him about it.  You guys need to be on the same page.

abrewer5

Thank you so much for the advice! It's really helpful!

Getting on the same page about finances is definitely a hurdle for us. We both have different money management styles, I'm a bit of a freak and plan everything out, super strict with tracking, and regularly check my accounts to make sure things are clearing properly. Since we've moved in together I've taken the brunt of the household expenses (everything but 50% of the mortgage) because I make more, which is fine, but it's getting to the point where I have no money left for myself, paying extra on credit cards, etc. which just leads to putting more on credit cards. We actually had a chat tonight about the budget and where he could contribute more so I can feel more comfortable as well. I think step 1 is making sure we're on the same page and then getting him to help more financially in order for me to be more comfortable as well.

I'll definitely try the snowballing technique and I'll work on track our expenses. I'd like to know where all of our money goes. My guess would be the majority of unnecessary expenses go to eating out, which is definitely something we need to change!

ETA: As far as the wedding registry goes, that's definitely minimal at this point. I have been buying stuff in preparation for moving out for years so the majority of our house is furnished and we have most of the stuff we need to function! We definitely plan to write our parents a big thank you! It's a huge help to have their support

Thank you so much for the advice! I makes it all seem so much more manageable.

brij2006

Invest in the book "Smart Couples Finish Rich" by David Bach.  That would be a great place for you both to start and understand each others' connection with money.

Hofse gave some great recommendations and suggestions.

We have just begun to follow Dave Ramsey's plan, and in your case I would say to debt snowball from smallest balance to largest.  But start with the credit cards first. You wouldn't need to get rid of your car since you only owe $5k on it.  He doesn't want you getting rid of a $5k loan to buy a $2k car that you have to dump another $2k into in order to get it functional. He would rather you have a manageable slightly used vehicle.

Another recommendation would be to sit down with your FI and put together a budget.  Do what Hofse said, and figure up all of your income and expenses from the past month (together). Then work off of that.  That's when you can see that you spend more than you thought on eating out or gas. 

Also sit down and ask him how much he has in savings.  The general rule of thumb is 3-6 months of expenses.  Dave Ramsey says to only have $1k while you're in debt reduction mode, then the next step is to save the 3-6 months.  If he has a lot, and it will make a difference with the credit cards, then I would look into using it toward paying off some of the debt (after you're married).

ETA: This is something you will want to give a lot of time and effort to right away in your marriage.  Finances is one of the top reasons for divorce. 

jessica490

You may also want to sign up for mint.com to start to see where your money is going

abrewer5

Thank you all so much for the suggestions! I am going to work on starting all of this today, especially tracking where all of our money has went/is going. I really appreciate the helpful tips. Hopefully we can figure this out. It's killing me to be in this situation, I've always been pretty good with managing my money.  

Xstatic3333

PPs have great advice! To add to it, you might consider trying DR's envelope system for your spending money. Whatever you budget for categories like fun and groceries each paycheck, put it in a physical envelope. Once it's gone, it's gone-no possibility of overspending.

H and I just got married in August. Pre-wedding, we were open about our finances but kept things separate. Post-wedding, we used some savings to pay off our CCs and have since committed to never carrying a balance again. H was resistant to budgeting at first, but has really come around. Key for us was budgeting some money to just be for "fun" each paycheck, and to allow each of us to save for separate goals (a new computer for H, travel for me, etc.) as well as our shared goal of a DP. I also have a second job on the weekends, and for me it has been a huge comfort that allows me to save quicker.

Good luck! Ditto PPs about dealing with this quickly. Keep it open and non-confrontational with your FI, and you should be able to get right on track.

brij2006

Oh, another tip.

Shred the credit cards.  If you don't have them, you won't use them.

abrewer5

Yes that's perfect advice and I was actually thinking the same thing too!!

I had done that at one point, and it worked out great. I have one that is still paid off and has been for a year or two now so that was a big help. I plan to cut the cards tonight and live off cash alone from here on out. I'm also hoping taxes will help me pay them down some and build a small savings until I can pay them off completely and save more. We just bought a house so I'm really hoping to get a decent refund this year, but know I cannot bank on that alone.

zzbb

It looks like you may have put the appliances in your name only so it appears that you have all the debt in your name and he has all the worth in his. I think that you guys will need to figure out a way to even things out so there will be no resentment which would be terrible starting out.

Like pp said I'd figure out how much emergency savings you need for your household and move that amount into a joint savings. If the appliances are in only your name then I'd say the balance owed on that is a good amount to have in a shared account until you are married then increase it.

If something were to happen before you were married you would be stuck with all the debt and him or his heir with all the money.

Personally I'd pay the 400 cc first because it is such a small amount and I'd want to be done with it then do as others said cc then appliances, car, student loan.

I have always made more than my husband but we live off of his income for the basics because he was raised as the provider and doing it this way has allowed me to be home with my baby for 9 months so that may be something you think about. If you base everything off your income because you make more then you will be expected to maintain that bread winner status through your relationship and there are times you may need to step back from it but are unable too.

When i work it is put into savings to use together. Its never his money or my money as its all developed for the common good of the household.

abrewer5

Thanks for the tips zzbb. The appliances are in my fiance's name and I'm an authorized signer on the account. The house is in both of our names, so not all the debt is in my name and the worth in his, it's a pretty equal split for the most part. He just has more in savings because he had more to start with before we bought our house.  

Unfortunately we cannot live off either of our incomes alone, so we don't have the option to put our paychecks into savings alone, but that's awesome you're able to! Hopefully once we pay off some debt we will be in a better place to do so. We're a little non-traditional in that my money is mine, and his money is his. This might change when we get married, but I doubt it. Our main hurdle as a couple is just figuring out how to make sure each of us is pulling their weight and learning to be more strict with our budget.

Thanks again everyone for your help and tips!

zzbb

abrewer5 said:

Thanks for the tips zzbb. The appliances are in my fiance's name and I'm an authorized signer on the account. The house is in both of our names, so not all the debt is in my name and the worth in his, it's a pretty equal split for the most part. He just has more in savings because he had more to start with before we bought our house.  

Unfortunately we cannot live off either of our incomes alone, so we don't have the option to put our paychecks into savings alone, but that's awesome you're able to! Hopefully once we pay off some debt we will be in a better place to do so. We're a little non-traditional in that my money is mine, and his money is his. This might change when we get married, but I doubt it. Our main hurdle as a couple is just figuring out how to make sure each of us is pulling their weight and learning to be more strict with our budget.

Thanks again everyone for your help and tips!

One thing about money is that it's ever evolving and you will change your views with all your life changes which is good. Before we were married we had everything seperate and I had seen on suzi orman how to split it based on income when you make different incomes and keep accounts seperate.

Basically you each put a percentage into a joint account to cover all your expenses. For example say your combined bring home pay is 1000. You bring home 600 and he brings home 400. That would mean that you would add all your expenses and pay 60% and him 40% for house hold expenses. That would also need to include planning for household expenses like repairs and unplanned costs.

I found it too hard to keep everything seperate once we were married like when we had medical bills...who paid for them? So over time it all merged. We still have some seperate accounts and our own fun money and it's less stressful.

dragonstarjk

My H and I have been together 11 years, married 4 1/2, and still keep our finances separate.  You just really have to be on the same page as far as finances go.  We are each responsible for some of the joint bills-H pays the mortgage and I pay utilities, phone, etc.  We each pay our own car payments, medical bills, student loans, etc. 

 I think it's perfectly fine if you keep your finances separate; however, in order for it to work, you both definitely have to be on the same page as far as who is responsible for what.  One thing I find helpful is once a year or so, or whenever our salaries significantly change, I will make a list of each of our earnings vs. each of our expenses.  He earns about double what I do, so we try to keep the ratio of what we pay about the same so we both have some 'fun' money.  This would probably be helpful for your budget as well. 

hiketheworld

I'd recommend using mint.com. You can both add all of your accounts onto one mint account- they stay separately owned in reality, but you can have a joint budget, and track debts and assets for planning and budgeting purposes. Seeing what you spend is enlightening to say the least.  

Once you have the full picture of your finances and have a budget in place, then you can choose who pays for what out of your actual, individual accounts. My DH and I "joined" our accounts on mint before we did so in reality and it has worked really well for us. 

strickland8052

strickland8052

Watch Suze Orman and read her "Young Fabulous and Broke" book!

strickland8052

I'd also recommend that you "pretend you didn't get a raise". By that I mean, put every single bit of your raise towards debt and eventually savings. In a year, you could probably have all your consumer debt paid. In four years, you could have a 9 month emergency fund. If you need to psychologically, just have the money automatically deducted from your account and "forget" that it is/was ever there. Pay off the credit card loans first (highest interest rate to lowest interest rate). Then pay off the appliances. Then you should either focus on the other debt or on your savings. If it were me, I wouldn't worry too much about paying extra on the car, house or student loans if the interest rate is lower than 3%. If the interest rate is higher than 3%, maybe you should look into refinancing. The reason I wouldn't be concerned about low interest debt is that you could be getting about a 7% or 8% return if you invest that money in a mutual fund. That means you'd make enough in interest to pay the interest of the debt plus you'd be making even more. With interest rates so low on homes and cars, it just doesn't make sense to be an anti-debt fanatic. Once you start saving money and paying down debt, remind yourself how good it feels so you don't end up in the same situation (not that your situation is THAT bad; you are actually doing pretty good). Really prioritize your needs and wants. My husband and I didn't go on a honeymoon, because we do not have a full emergency fund yet. If we would have gone on one now, it would have just made us feel guilty for months.. maybe years. Instead we are waiting until we save a full $20,000 emergency fund. It might take 2 or 3 years, but then we can enjoy the delayed honeymoon knowing that we actually deserved it and could afford it.

strickland8052

I'd also recommend that you "pretend you didn't get a raise". By that I mean, put every single bit of your raise towards debt and eventually savings. In a year, you could probably have all your consumer debt paid. In four years, you could have a 9 month emergency fund. If you need to psychologically, just have the money automatically deducted from your account and "forget" that it is/was ever there. Pay off the credit card loans first (highest interest rate to lowest interest rate). Then pay off the appliances. Then you should either focus on the other debt or on your savings. If it were me, I wouldn't worry too much about paying extra on the car, house or student loans if the interest rate is lower than 3%. If the interest rate is higher than 3%, maybe you should look into refinancing. The reason I wouldn't be concerned about low interest debt is that you could be getting about a 7% or 8% return if you invest that money in a mutual fund. That means you'd make enough in interest to pay the interest of the debt plus you'd be making even more. With interest rates so low on homes and cars, it just doesn't make sense to be an anti-debt fanatic. Once you start saving money and paying down debt, remind yourself how good it feels so you don't end up in the same situation (not that your situation is THAT bad; you are actually doing pretty good). Really prioritize your needs and wants. My husband and I didn't go on a honeymoon, because we do not have a full emergency fund yet. If we would have gone on one now, it would have just made us feel guilty for months.. maybe years. Instead we are waiting until we save a full $20,000 emergency fund. It might take 2 or 3 years, but then we can enjoy the delayed honeymoon knowing that we actually deserved it and could afford it.

Erikan73

The biggest and hardest thing that we did was actually develop a spreadsheet to figure out expenses versus income and tracking our spending. The first year of home ownership was the hardest because bills varied for different times of the year (got put onto budget system with utilities so bills are equal month to month making it easier to plan for) and so much stuff comes up too. I am using DR envelope system and using cash to pay for things instead of our cc or debit cards. CC was way too easy to lose track of what was going out, debit card was better, but we were still spending more then we should. Cash is turning out to work much better for us. I think you have to play around and figure out from all the different people out there, what system will work best for you.

My husband and I have joint & seperate accounts. We figured how much each of us needs to contribute from our incomes to cover the monthly expenses & we give ourselves an allowance for lack of better terms. What each of us does with that money, is our own business. I like to save it up for clothes, he likes to go out to lunch & golf. But it's money neither of has to answer for.

On the financed items, figure out what you owe divided by the terms of the agreement to help you know what the minimum is that you need to pay each month to have it paid off in time. I financed some things at zero percent and noticed that if you pay the minimum listed on the invoices (for many companies, not all) you won't have the item paid off by the end of the finance term, which then causes all the back interest.

To save for your wedding, shopping around & searching online will be a huge benefit (also trying to keep things simple). Check out facebook to see if there are any local buy/sell groups in your area with wedding theme stuff. We have one where I live and you can get some great deals from brides trying to get rid of things after their weddings. Also many craft stores offer coupons in the newspaper, email or on their apps. That can add up to huge savings. For tuxes, compare prices of renting a tux to buying a nice black suit. Depending on what stores you have in the area (like if you have a K&G) you might be able to buy a black suit & just rent the vest & tie for less then what it costs you to rent a tux.

Good luck!  This is a very exciting time in your life, and you'll figure it out, give yourself some time. 

VadersValkyrie

H and I started talking about joint finances when we got engaged in February.  We were sort of being good about putting money towards our extra expenses (I got into debt when we first bought the condo, because H was not working at the time). At that point, we were doing the % method of bill paying.  We didn't split the bills 50-50, but I paid more because I make more.

Once we got married, and got cash for our wedding, we started talking about how we were going to pay off our bills, especially when H said he wanted to go back to school.  That might require him going back full time, and we'd lose his income.  So, I signed up at whatsthecost.com and we're going to use H's income to pay off our extraneous debts (CC, car loans, student loans) and see how easily we can live off just my paycheck.  

I've also got a spreadsheet that shows our monthly expenses, including things like gas, groceries, massages (once-a-month mental health check for both of us), and our arts lessons (dance for me, voice for him). 

Hope this helps. Good luck!