Monday, March 18, 2013
This isn't 100% Do It Yourself because I had help. I spent an hour and a half on the phone on Friday with a financial advisor. Mark. He was excellent. It occurred to me during our conversation, that finacial advisors for couples could also be considered a couple's therapist, lol.
Anyway, now that the Mister's reenlistment has been approved, it has really hit home that he only has four years and six months (give or take a few days) left in the Marine Corps. Getting married young and almost directly out of high school the way that we did, we went straight from our parent's house to having the military take care of us. This means that financially, we still behave like idiots. We have very little in savings and a LOT of debt. Student loans are going to be the death of me. And four years is not that long.
Mark gave me a lot of info concerning the Mister's retirement, life insurance, and budgeting. We are on a budget. A strict budget in which we now have to account for every penny of income and every penny spent. I admit, with the advent of mobile banking, I have stopped keeping a checkbook register. I check the bank account several times a month to make sure that there are no transactions that I don't recognize and to make sure there's enough in there to pay the bills. Those days of leisure are over. Mark says that if you want to save for retirement and you want to get out of debt, you have to make that decision, both members of the couple need to be on the same page about it, then you have to account for all of your spending. You can't expect to save if you're not going to stop indiscriminately spending.
Step One: Figure out your monthly total income. That's take home pay.
Step Two: List all your bills, when they're due, and how much is due. This includes all the auto-payments you have like Netflix. It may only be $7.99 a month, but it's still outgoing and still a bill. This also includes money for gas and groceries. Everything you pay out on a regular basis.
Step Three: Take your income minus your outgoing which equals your surplus.
Step Four: Determine how much money you need/want in your emergency fund. This is your savings account. Some people say it should be three times your monthly expenses. So, if you spend $1000/month paying bills, buying gas, and groceries, then your emergency fund should have $3000 in it. But, this is personal and should be what you and your SO (significant other) consider to be sufficient. All of your surplus goes into the emergency account until you have reached your goal.
Step Five: Now you attack debt and start building a retirement fund. Ideally, you have started a retirement fund way before you're 35. We have a little, but it's not nearly what it should be because we have a problem with instant gratification. Anyway, once your emergency fund is built, you take 80% of your surplus and attack debt with it. Mark's philosophy is to start paying off whatever gets you "more bang for your buck". This is about ratios and math and confused me but the Mister knows this part. It all has to do with the amount of the debt to the interest rate to the minimum monthly payment. Once you pay off one source of debt, you take that monthly payment, add it to the 80% and attack your next piece of debt, continuing on until you are out of debt.
Step Six: Take 10% of your surplus and put that into your retirement fund.
Step Seven: Take that last 10% of your surplus and put it in your emergency fund. Why? Because say your car needs new tires and you need to pay for that out of your emergency fund. Well, now it's short that money, right? Your emergency fund should never go under the original threshold that you set which means that you continually need to add to it. If you have to make a withdrawal that puts you under your original threshold, then you have to go back to putting 100% of your surplus into that account until you get it back up where it should be.
If you get a pay raise, 1/2 of that monthly increase in pay goes to retirement, the other 1/2 goes to your surplus to be divided up as determined above.
Your monthly budget should be as detailed as you can make it. We have ours set up to include not only bills, but the girls' allowances, eating out (something we're trying to cut back on), spending for the Mister and I (I have an Ulta addiction and he's been golfing like a fiend) etc. etc. Be realistic and don't set yourself up for failure. This is why we've included a monthly spending allowance for ourselves. We're not delusional and think that we'll sit at home staring at four walls until we're completely out of debt and have millions in retirement.
I'm sleeping better at night knowing that our emergency fund is already seeded, that we can concentrate on whittling away at debt, and that we have a plan. I'm telling you what, our emergency fund is what makes me feel okay about our upcoming move, having an elderly dog, and having three vehicles. I wish we had done this years ago. I also admit that this is stuff I already knew. I needed to hear from an unbiased professional that we need to get our act together though. Hello!! Act your age!