When Two Become One
Thomas A. Haunty
Thomas A. Haunty, CFP, REBC, is a senior associate with the North Star Resource Group in Madison, Wis. He has provided financial assistance to lawyers and their clients since 1982 and is the author of Real Life Financial Planning for Young Lawyers.
Gindi Eckel Vincent
POSITION Associate, Pillsbury Winthrop Shaw Pittman in Houston
GOAL To successfully merge finances with her new husband
Gindi Eckel Vincent is deep in the throes of marital bliss.
But nothing can knock the glow off brand new nuptials faster than money talk. And for Vincent and husband Bray there is a lot to talk about.
For starters, the two earn different incomes, with hers as a senior associate at a large international law firm outweighing his as general manager of a chain of restaurants. The pair also have different sensibilities when it comes to spending. Vincent comes from modest means and is enjoying having disposable income for the first time in her life. Bray, on the other hand, is more of a saver.
“He puts aside everything,” says Vincent of her husband. “I am not opposed to it. In fact, I think it’s a great philosophy. I would like to save more money. But I also still want to take Pilates classes and have a cleaning lady, so that is what we are trying to balance.” And while Vincent says that they live well within their means, she and her husband want to make sure that if kids come into their future, their financial foundation is strong enough to allow one or both of them some flexibility to work less than they do now.
Life Audit personal financial adviser Thomas A. Haunty says these young people are finding themselves in a common situation. “It is very, very typical for young lawyers to wake up [several] years after law school and realize that they have no background in financial planning and feel that they need to get a plan,” he says. A new marriage only adds to the pressure to do so.
Vincent believes an important first step in this planning is for she and her husband to combine their separate bank accounts into one. “We both have traditional sensibilities when it comes to marriage,” she says. “To me it does not make much sense to say, ‘You pay this bill and I pay the mortgage.’ It does not seem much in the way of having a union if you are just splitting the bills.”
It’s also important to Vincent for her husband to have equal spending power. She wants them both to feel that they can spend equally now that they are married. “We do not want it to be just like we are living together,” she says. “We are married.”
Haunty appreciates the symbolic importance of financial unity but believes that the Vincents would be better served by setting common financial goals. The key, he feels, is to understand that there is no one right way when it comes to merging a couple’s bank accounts. Rather, it’s pragmatism that counts.
Haunty suggests taking a longer look at the situation to determine the most practical approach. With both of them working full time, the Vincents may find that having one checkbook with multiple debit cards could cause more problems than maintaining the status quo and having each of them taking responsibility for paying certain bills. What is more important, Haunty insists, is building a large financial house that will accommodate their goals for their future together.
Building A Budget
The Vincents already have started creating some of those goals. They purchased a home that is easily affordable with their joint income. She also wants to further reduce her credit card debt and law school loans while, at the same time, cutting back their joint expenses enough to allow them to live on less money if they have kids and want to reduce their work schedules. They also want to have enough money saved for their children’s education and for retirement, she says.
Haunty wants the Vincents to create a budget that will help the couple work toward obtaining these goals. At its most basic, a budget should incorporate four key elements: spending money, investing money, reducing debt and saving money. And while this goes without saying for some, Haunty emphasizes that budgeted outflows must not be greater than income inflows.
But before the Vincents can allocate dollars and cents to these four budget categories, they need to figure out how allocation will help them meet their financial goals. For example, Vincent has an ambitious goal of retiring in her late 50s. To do this, the couple may have to earmark a significant percentage of their incomes for retirement savings, Haunty warns.
He also encourages the Vincents to incrementally increase the amount of money they save and invest every year. Younger people may not be able to rely as heavily on Social Security or pensions to help them live out their retirement, he says.
Another consideration for the Vincents is future expenses. Haunty wants them to create a wish list of expenditures for things like a larger home, if they have kids, or new cars. “Challenge yourself about what it is you want and what are the priorities for acquiring” those items, he says.
Then the challenge becomes how to pay for them. Haunty wants Vincent to start saving now for those future big ticket items. He recommends an “escrow system” approach: Figure out a ballpark cost for a desired item, dividing it by the number of months you want to wait before paying for the item, and escrow that amount of money each month in a savings account to pay for the purchase.
He likes this approach so much that he recommends setting up separate savings accounts for everything from emergency funds to vacation savings.
Once the Vincents have figured out their short , mid and long-term financial goals, they should set pen to paper and allocate their incomes to each of the budget categories. Then they need to start living within the model budget to make sure it fits their needs. Haunty adds that they shouldn’t be afraid to revisit it periodically to make sure it is still propelling them toward meeting their financial goals.
Haunty also wants them to prepare a net worth statement each year as another check on their goals. Use a spreadsheet program such as Excel to create a simple statement listing assets and liabilities. And they will want to update it each year, Haunty adds–it’s an easy way for the Vincents to see how the financial house they are building together has grown.
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Life Audit Hot Tip: Schedule It
Finding yourself in a financial bind each month? Part of the problem may be the inconsistent way you pay your bills. Life Audit financial expert Thomas A. Haunty says inconsistent bill paying is a prime reason that so many people’s budgets get thrown off. Pay your bills systematically at the same time and in the same order each month. With automated Internet bill paying available free at most banks nowadays, it’s a no brainer.