If there is one word that sums all this up is really "Communication".
We talk about everything. It's sometimes said that talking about money will affect the relationship. I don't believe that is true. Discussing about the finances and working out the finances will help the relationship grow. Many relationships are broken due to finances, or rather the lack of it. If they got together to work out how to better plan and manage their finances, things might not have come to a bad situation. Discussing about money is not about just saying "You don't make enough money!" or "You spend too much!". Discussing is about working things out. Here's how we do it.
I started out on investing long before I met her. She was just a typical Singaporean girl. Never a second thought about spending. Like other Singaporean youths, planning for the future could be done tomorrow. Always waiting for tomorrow. The first financial discussion we did was about her study loan. It was the CPF loan which she had to return to her parents. It was at 5% interest of the Special Account. Like many other youths, she had opted to pay the small sum of SGD100 per month upon gradation. I told her if we were to move to our next phase in life, we would need to clear this debt first. She knew I was doing investments and was willing to invest together. (I know of a friend who's wife is very risk adverse and is not willing to do any investments.) I told her before she even starts thinking of investment then she will need to clear that debt first, as I personally feel that a guaranteed return of 5% will not be easy to beat. I told her that she needed to put every excess dollar of her salary to paying off her student debt. If she needed any emergency fund, I would be the credit line. The debt was cleared in about a year.
GREAT!!! We now can start on the more exciting business of investing. We pooled our investment funds into a joint investment account. As I had more assets, I claimed a 5% interest on the funds above our joint amount. Meaning if she put in SGD5k, I would put in SGD5k. If I had another SGD20k of existing investments, then I would get 5% on the SGD20k as cash into my own bank account. The agreement is that she can contribute more in future and equalize the total contributed. Some of you might think this is too calculative of me. But I would put it in another way. If this allocation was not done, then there is no meaning to having a joint investment account. It would be better for me to keep my own investment account and she keep her own. In that way I can have more funds for my retirement planning as I am the one looking for early retirement as she happy and willing to work til later years in her life. But by keeping separate accounts, it would be inefficient. Brokerage costs would be slightly higher, however, I am more concerned about the joint management of risk. As we would not be properly aware of each other's investments and we could be too highly invested in a particular stock or industry. By combining investment accounts, I could oversee the whole risk profile of the portfolio. The 5% interest is also a double edged sword. If the total portfolio does better than 5%, she would get a bigger proportion of the gains as compared to her contributed amount. If the total portfolio does worse than 5%, I get returns of 5% on the amount I contributed. As I expect my long term portfolio growth to be about 7% year on year, I believe that this arrangement is actually in her favour. Furthermore, as my portfolio comprises of mainly dividend stocks, the 5% return is typically paid to me from the dividends.
We also keep a joint bank account. But it's not a normal joint bank account that most couples have. Money that goes in NEVER comes out. That is the rule of that account. It is not used to pay for our joint expenses. It is the joint savings account. Every month, we will match each others' transfer into the joint account. The amount per month is not fixed. We will transfer as much as we can and whatever excess from previous month into this account and leave fair living expenses for the month in our personal accounts. The funds in this account is be used only for our investments. Dividends go directly into this joint account. The only money that comes out is the interest on my excess mentioned in the above paragraph.
Our personal accounts are were our salary goes into. After the transfer into the joint account. Yes we transfer the funds into the joint account when the pay comes in. This is called pay yourself first. Then we will live on what is left. If there are any joint expenses, we will take it out from our personal accounts in equal amounts. This account is really very much for ourselves. So we can do whatever we want with it. There's no risk of excess spending. After the transfer into the joint account. There isn't very much left to spend in excess. Just enough for our food, transport, credit card bills, phone bills, insurance, paying our parents, some luxuries. Luxuries are things such as maybe a SGD10 Korean meal for lunch instead of SGD3 economic rice. Weekends out are considered luxuries where a meal could cost SGD50 between the 2 of us, clothes, our quarterly short trips, whatever else besides basic living expenses is considered a luxury to us.
Credit cards are also held jointly. I hold the main card, with a supplementary card for her. We target a joint expense of SGD1500 per month on our UOB One Card. I've written an article on SG Credit Cards which you might want to read on (http://earlyretirementsg.weebly.com/1/post/2013/12/credit-cards.html) and why I spend SGD1500 per month. Everything is charged to our credit card if possible. Yes. Even that SGD2 item from the supermarket. SGD1500 is our main expense for the month. Spending drops drastically once SGD1500 is hit. The amount comprises of phone bills, food and luxuries, our quarterly short trips. But there's a catch! If we go out for shared meals/gatherings, we will offer to pay first and collect cash from the others. This means that we would have less to spend for the month as the SGD1500 would be hit faster. Why would we do that? You ask. Well truthfully, we struggle to hit SGD1500 every month. I really have no idea how folks spend SGD3k in a month. Most of our expenses, we can't use credit card. We eat at hawker centers for lunch. The only times we can use our credit card is during weekends when we go out. Max charge on a Sat or Sun would be SGD100. We go out on Sat or Sun. Seldom both days. We also use the credit card to pay for our air tickets and hotel bookings.
Another thing we find particularly helpful in our finances is planning our expenses. Every once in awhile, something unexpected comes up. Like buying a new mattress or visiting the dentist. In such situations, we would plan our expenses. The "budget" never changes. WHAT?!?! YES! Nothing changes. These expenses will come from the same SGD1500. What we will do will be to allocate expected purchases to the following months instead. I will monitor the credit card balance regularly and say, "Dear, we're down to SGD300 for the next 2 weeks. Any big ticket items will need to be pushed to next month's bill." This means that we need to book our air tickets for our trip on 1 month and hotel bookings on the next month. Else we can't keep within the SGD1500. We book our trips 6 months in advance. I feel this discussion and planning is very helpful in keeping our expenses relatively constant throughout the months and we don't get significant spikes of spending on any particular month. The only problem occurs when the SGD1500 is hit, we're not expecting any big ticket items coming in for the rest of the month, then suddenly... The car breaks down. It's happened before...
Insurance planning is also very important between couples. We plan our insurance together. I know of a colleague (female) who insured herself, but her husband is not insured. What kind of lousy planning is that. If something happens to her, her husband will have an easier time taking care of her or her kids. Whereas if something happens to the husband, she will struggle to maintain her existing standard of living. One good thing to note is that both of us are insurance trained. I've taken my tests to sell financial products previously as a financial planner and she has taken the same tests for her work as she deals with insurance related products within her company. So we're pretty familiar with what's available in the market. What I've noticed is that most of the time couples don't plan this adequately together and don't share with each other their financial situation. This works against the couple as insurance planning is about protecting against financial loss. And how can you plan to protect what you do not know. I don't really want to go into details on what we buy as different couples require different coverage based on circumstances. You'll need a trusted Financial Planner for that... an oxymoron as those hardly exist and most FP's don't know their product.
Wow this article was a lot longer than I expected. I went through a lot of what I currently plan with my wife and as I mentioned as the first point, communication is really the most important thing. I believe that it is because we are able to discuss things out and plan together, then we are able to achieve synergies to maintaining a healthy financial situation. There are plenty of other ways to save and cut expenses and I will continue writing on what I feel and do to achieve my financial independence. I hope this has been of help to you and an enjoyment to read. Some folks might think my actions are drastic. I'll like to say that I do not lead a pauper's life. I'm an advocate of balance and value. Spend money on things that are necessary and get the most of your dollar.
After writing about all these, I realized that to be more accurate, I should use Trust and Communication. As only with Trust can you communicate truthfully about your financial situation for planning together. If my wife was always after my money then I would not trust her and would not be willing to communicate. But then again... If there was no trust, why did you get married in the first place. So Trust is implied to be existing already.
<<PREVIOUS POST // NEXT POST>>