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We’ve brought back the reader mailbag. Today we’re answering your questions about marriage and money!
Community Mailbag: Answering Your Money Questions!
One of my favorite parts of Couple Money is the community. Having you be a part of this has definitely made the work more enjoyable.
Whenever I hear from you about what you’re working on, questions you have, or ideas you think will be helpful, I’m happy.
When I started Couple Money 11 years ago, it was basically a journal of us and our journey of paying off debt.
Then you came in and other couples sharing your stories and it’s really been a blast.
So today’s episode will be a bit of fun, I’m answering the most popular questions I’ve received this year along with one covering a new topic I haven’t really got into before.
In this episode, we’re answering your questions such as:
- How our spending has shifted this year with everything going on
- Quick way to figure out how much you need to retire
- How defined benefit plans work
Ready? Let’s get started!
Thank You to Our Sponsor Coastal!
Support for this podcast comes from Coastal Credit Union. If you’re living in the Raleigh Durham area and looking to bank better, come check out Coastal today!
Resources to Get the Most Out of Your Money
Here are some resources to make managing your money much easier!
- Best Budget and Money Apps: Personal Capital, Tiller, Mint
- Grow Your Stash Faster: High Yield Savings with CiT Bank
- Jumpstart Your Marriage and Your Money
- How Your Family Can Become Financially Free
- Saber Pension & Actuarial Services <- Defined Benefit Plans
- Which Financial Independence Path is Right for Your Family?
- Couple Money Guide to Building Your Emergency Fund
How has your budget and spending shifted with everything going on this year?
Ooh. Okay. So this is a really good question. Like everyone else, a pandemic is not something we planned for specifically.
I know you put together an emergency fund or you're thinking about building that financial cushion. You're looking at scenarios that you're likely to encounter based on your circumstances.
The global pandemic was definitely not on that list.
However, because through the years we've paid off all of our non-mortgage debts. We have that financial cushion in place. I'm happy and grateful to say that financially speaking, we've been minimally impacted. And that was years in the making, going through that process, but it gave us a bit of a cushion so we could focus on their day-to-day, which definitely shifted.
So I was looking at our spending for the year 2020, and not counting those big projects before the pandemic. Remember we bought a car in January now, looking back, I kind of shake my head on that, but we had to replace Rob's car and then. In February, we had updated our kitchen, which is something I'm definitely grateful for because we've been using it quite a bit, but starting in March in going till now in November, our numbers have been fairly steady and a big part of this is because our finances, it is automated.
Paying our essential bills, making sure that we have money going to savings contributions for our retirement and other goals. Those are bits and pieces that have been automated.
Even though 2020 is kind of the case study for why is a good thing to do this our normal day-to-day being working parents with two kids, it's a lot easier to stay on top of the money when most of it is automated.
All we have to do is check-in and if things need to get adjusted because things come up during the month. Throughout the year, we can quickly and easily pivot.
In terms of actual spending, looking at this giving has increased. Like I mentioned, I'm grateful. We're in a position that on a financial side, we're minimally impacted, but we know that's not the case with a lot of families right now.
So we looked for opportunities where we can increase our giving, whether that's locally with organizations, like we have the food bank here of central and Eastern North Carolina, or it through your congregation, it could be neighbors, people that you meet. Like we looked at different avenues and we thought.
If there are opportunities to give, we definitely want to increase that, which feels a little bit weird talking about it out loud on the podcast. But I think this is something that should be discussed in personal finance. How can we help out our neighbors? Another thing that increase and it's kind of hilarious.
If you knew us is we're eating out. Which in this case with the pandemic we're eating in, but this is specifically because we want to support local businesses, especially those in the restaurant industry, where a lot of sacrifices have been made, where they have to shut down for public safety, but how do they stay in business?
They need support. So we have increased on that, but our spending's been fairly consistent because with groceries, we've been smarter, getting more creative with our meals. And I feel like that. Has even out things. So we're still supporting local businesses without breaking our budget. Obvious decrease is gas and car maintenance.
This is something you're not really using, but yeah, we've been fairly staying at home or doing day trips at parks. So we're pretty much local this year. Increased spending is basically like around the house, improving quality of life. We haven't taken on any big projects besides that kitchen, which again, that was a considerable expense.
So we knew anyway, before the pandemic started, we weren't going to do any big, expensive projects around the house. Basically like if we spend extra money, it's finding activities that can improve quality of life. So for example, one recent purchase that we made was a game. What's a ticket to ride board games, card games, strategy games.
That's been one of our newer expenses in terms of rebuy more frequently, because as a family, we're now at home, let's keep ourselves entertained. Let's find ways to interact with each other. So that's how things have shifted with us. I'd love to hear from you and let me know, like, how has your spending shifted with everything going on here in 2020?
How Much Do We Need to Retire?
We've done a few episodes about finding out how much you need to retire, because it's on the minds of so many couples.
If you recently joined us, I recommend you tune into an episode in October about contributing to your 401k. When key discussion we had was figuring out how much to contribute.
In case you're not aware, I also have a second podcast called Simplify and Enjoy where we specifically focus on families with kids and finding that balance between financial freedom and enjoying the now.
I did two episodes back in July, where we talk about that, finding your financial independence number or FI number, it's the point where you could live off your investments and work would be optional.
So please give a listen to those episodes if you want a nice deep dive, but right now, I just want to give you a back of the napkin way to figure out what your target number is.
Typically those retirement calculators, online base, your financial independence or retirement nest egg number on your income.
They figure you need to replace a certain percentage. It can be 70 or 80% of your income to be able to comfortably retire. I think they get that wrong because it's really saying that lifestyle inflation is inevitable. And then two, this is really no reflection of your specific circumstances with your family.
And I know we're doing a ballpark figure, but I think it should be more catered to what you're actually doing. So for me and others in the financial independent space and more helpful and relevant way to approach this is by looking at your spending. You could be living a pretty frugal life and enjoying it while making good income.
If you want to maintain that lifestyle that you have now, how much money would you need to set aside an easy way to ballpark it is to take that annual spending and multiply it by 25. So let's say that you're actually spending about 40,000 a year. We're going to keep this simple that's means that you're going to need to set aside $1 million.
Listen, I get it. A million dollars is not a small amount, but if you try those calculators, you get some pretty crazy numbers. So what I did is I punched into one of them using our income. Again, that's what they're looking at to see what they would say. Would be the retirement number we needed to shoot for.
Can you guess what they threw back at me? Just under three and a half, a million dollars.
Now, since we've been tracking our spending for years, we know this number is ridiculous for our lifestyle.
If you're not aware of your spending, you could use one of these calculators,
- get immediately discouraged to the point you don't even want to bother or
- you could be burning yourself out, trying to hit that number.
So if you're looking at figuring out what is your target number to shoot for for retirement, whether it's for early retirement, financial independence, whatever.
Here are a few things to knock out:
- Review your spending. You can use an app spreadsheet, pen, and paper. (Kudos to you have used pen and paper!) and see what's the pattern of your annual spending.
- Take the average amount of your annual spending and ask yourself, is this a comfortable level for us?
- If so, then take that number and multiply it by 25.
That's your target ballpark figure number to shoot for.
You could definitely do a deep dive and I encourage you to do so, but here's a quick way to give you an idea of what you need to shoot for when it comes to figuring out how much you need to retire.
What are Defined Benefits Plan? Are They a Good Idea?
I know it's impossible to cover every scenario question for every couple, but I do enjoy discovering new topics and learning things myself when it comes to that intersection of marriage and money.
Sometimes that means I have to reach out to a financial expert to learn more about a topic. And this one definitely fits the bill.
So I had the pleasure of speaking with Brent Headington, chief executive officer of saber pension and actuary services about defined benefits plan and how they work and how, if you're a business owner, they may be the right option for you.
How Much of a Financial Cushion Should We Have?
First off. I want to say that while we may me a little more conservative with that amount this year, based on our own personal experience, there are certain principles that can help us figure out what to do and how much to save.
Now, when I talk about financial cushion, I want to be really specific because I know this means different things to different people.
I feel like a financial cushion is a broader term in connected, but not the same as an emergency fund.
For me, I define an emergency fund as the essential expenses you need to keep doing your day to day.
So say if you lose your job, what is that amount? You need to keep the lights on, to keep your house, to have food and clothes on your back.
I think that is a foundation that every couple, every family needs to have, which is that emergency fund that will cover you. When things go wrong, your car breaks down, your kid gets sick, or you have several things happen at once.
With your financial cushion. I would love for the two of you to kind of sit down, look at your current circumstances, and think of what scenarios could likely come up.
You may have found that while you kept your job during this pandemic, the hours were cut. Things were shifted. It doesn't feel as stable as you had hoped or had thought of before.
So you want to include that in your financial cushion, should something come up. Put some money aside now, and then also realize, and I feel like this year has definitely been a reminder.
You can't anticipate everything. I know some families have reached out to me because they want to have a financial cushion.
That's big enough to cover every scenario and that's not going to happen. We can't anticipate everything, but if we have some. Solid ground. If we have the emergency fund. And then again, looking at our circumstances, what are things that are likely going to happen? We'll be in a better position to ride things out.
It does give you enough breathing room that you can focus on the more important things.
So for us, knowing that we had this financial cushion in place, we could focus our attention more with the girls and with school now being remote. Making sure that they're in a good spot.
Of course, as parents, we're going to do that regardless, but at least it's one less weight on our backs on our shoulders when we're trying to process everything
I think at the minimum for emergency funds, especially now least have six months of expenses set aside, make that a goal, and then looking at your particular circumstances and what's coming up, put a little bit extra in that financial cushion.
And that can be something that you put aside an extra $50, $100, $200, whatever that is a month till you get to a number that you're both comfortable with.
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