The Big Payoff

Sharon Epperson

• Publisher: HarperCollins e-books
• Year: 2009
• ISBN:
  9780061828805
• Topic: Personal Development
• Subtopic: Personal Finance

Middle-class couples are working harder than ever. So why are they finding it more difficult to finance their homes, send their kids to college, and save toward retirement?

Couples who are strapped for time and weighed down by costly fixed expenses need more than a personal finance pep talk: They need a plan. In The Big Payoff, CNBC correspondent Sharon Epperson lays out a nuts-and-bolts program that couples of all ages can use to realize their financial dreams. From stretching your budget and investing wisely in your home to protecting your family's money and building wealth over the years, The Big Payoff offers a concise bounty of precious information and practical steps toward financial wellness.

Epperson begins by showing couples how to communicate better about money. She helps them realize that the same qualities needed to create a lasting relationship—understanding, compromise, and patience—are vital when it comes to building a secure financial future. Every important decision couples make, whether it's buying a home, having kids, changing jobs, or preparing for retirement, will inevitably involve a discussion about money, and Epperson teaches them how to handle finances with a cool hand while keeping the marriage vibrant and healthy. In addition, she empowers couples to take money matters into their own hands and shows them that by taking control of their finances, they can stop fretting about cash and start focusing on the important things in life.

Each of the following chapters is designed to get partners talking and thinking about their financial life together. In eight easy-to-understand steps, Epperson unpacks the various options for saving money; creating emergency, retirement, and college savings plans; investing in a home; choosing the right life and health insurance; and drafting an estate plan. A wife and mother of two herself, Epperson knows a thing or two about the pitfalls of financial planning and doses her advice with plenty of humorous anecdotes, hard-earned experience, and down-to-earth language. Additionally, through helpful worksheets and exercises, The Big Payoff helps readers customize a plan that will work best for them and reap the most payback.

It's never too late or too early to start, and now is the best time to start planning. Whether you are newlyweds or fast-approaching retirement, just starting a family or soon to be empty-nesters, this book is for you. After working hard to provide for your family, the reward of discovering your financial strength will be the peace of mind to enjoy your marriage, your family, and the rest of your lives together.

1

ENERGIZER BUNNY MONEY

Stretch Your Budget and Make Your
Money Last and Last and Last.

It’s a conversation that most couples put off as long as they can. Most of them never get up the nerve to have it. Each person may have an imaginary version of the discussion—at many different times, in many different versions—in their head over the course of the years and the relationship. But it’s devilishly difficult to find the right time, if there ever is a right time, to have the talk.

It’s the love handles talk.

Most women have asked their mates, at one time or another, “Do I look fat in this?” The correct answer, of course, is always “No—you look great!” no matter what the truth actually is. The fact of the matter is that almost everyone gains weight over the years. And many people notice their partner packing on the pounds as time goes by. One or both of you may have a health club membership. More than likely neither of you is religiously using it. Perhaps you were devout about working out at first. But now, with kids, work and more, when it comes to working out, you’re an agnostic at best. And neither you nor your significant other ever talks about it. You just keep on keeping on, leaving the top button of your pants undone and hanging your blouse over your waistline, or buying new outfits when you can spare a moment, which is never.

Personal finance is like personal fitness. We let ourselves go because we seem never to have the time, and it’s too difficult to bring up the subject anyway. Getting in financial shape is tough. It requires focus, planning, and lots of sweat. But the end result will be a happier, more fulfilling life. Starting today, you need to make a commitment to manage your money and not let it manage you—the earlier you start, the better, although it’s never too late to begin.

You need to have a talk with your spouse about the love handles that your finances have been developing.

If you haven’t exercised in a while, your muscles can be tight and later you may notice the muscles you haven’t used in so long are a little sore. As you begin “stretching your budget,” you may find this exercise is also a little painful at first as you come to terms with what you can and cannot afford. But in the long run, some discomfort in the beginning can lead to a significant financial gain down the road. Like any serious workout, constructing and maintaining a budget requires a high degree of discipline. A budget is perceived as a limiting factor rather than a plan that leads to financial success. Since many couples are not good at managing their money, they simply want to avoid the issue. Most people will say they don’t have time to create and follow a budget. Some just aren’t sure how to go about it.

This chapter will show you that creating a budget is actually pretty simple. You just need to figure out how much money is coming in every month (your income) and how much is going out (your expenses). That’s a basic budget. But the key for couples is to keep that budget somewhat flexible, based on your wants and needs and your spouse’s (and kids’, too!). You need to talk about your budget—not just put it on paper. That may be the hardest part. Even couples that communicate well about other topics are not great at talking (calmly) about money. This chapter has some strategies that should help.

When it comes to working out your finances as a couple, you have to keep those financial muscles flexible. You may have your own dreams and goals, but the more rigid you are, the tougher it will be to work together to realize those financial objectives. The key to staying limber is to communicate. Talk it out with one another. Identify your dreams and goals. Share them with your partner. Discuss why they are important to you.

The desire to start a family is what got my husband and me to start working on our finances. I’m a planner by nature. I wanted to feel financially secure before I had a baby. I wanted us to have wills, set up separate retirement accounts outside of our jobs, and also create a “rainy day, one day we’ll get a house, then eventually we’ll send our kids to college” fund. We didn’t have a lot of money, but we put a plan in place so that, we hoped some day, some way, we might. We didn’t get these ideas from our parents. Neither of us grew up in house holds where personal finances were discussed very often. But both sets of parents—all educators—taught us the importance of caring for your family, because that’s what they did for us growing up.

As in my own experience, issues that get couples to start discussing money matters and deciding that they need a plan of action are often life-changing events: the birth of a child, death of a parent, divorce of a friend, approach of retirement, beginning a new job or loss of employment. It can also be a relatively small thing. A husband buys a high-end remote-controlled car (price: about $350) and his wife is offended. She thinks his spending is getting out of hand and starts a discussion about their finances. Or a wife may buy a new Dolce & Gabbana dress and silver necklace and the husband decides she’s spending too much money. So he suggests they need to start adhering to a budget. Another couple finally agrees they need a new SUV (they want a $42,000 Acura MDX, not another $28,000 Ford Explorer), so they decide to write down all of their expenses to figure out how long it will take before they will have the money to buy one. They decide to wait six months before making the purchase. In many cases, these “issues”—whether big or small—have become problems. To get the money-talk started, couples often need to realize there is a problem and then decide it’s time to set some goals.

CREATING A BUDGET TOGETHER

When budgeting for two (or a family of three, four, or more), being organized is crucial. Getting started can be a challenge, especially if one spouse is accustomed to handling financial matters and the other is not as knowledgeable, or interested—a frequent occurrence with many couples. It isn’t always the partner who is making the most money who is the most interested in managing it. A lot of folks enjoy raking in the cash, but don’t have the patience for sorting it all out. Imposing a budget on the less interested spouse isn’t the answer. Both spouses need to work out a budget that encompasses the spending and saving habits that will get them in better financial shape. You may find that the two of you are able to stretch your budget very simply once you’ve found out exactly how much money is coming in and how much is going out.

So think of your budget as an ongoing exercise in communication. A well-run budget can save a marriage before it needs rescuing. Some financial advisers suggest setting up a monthly meeting to go over your expenses, using the time to go over the items you’ve purchased and to brainstorm solutions to problems as well as ways to increase your income. Which of your wants are you willing to give up? If spending $10 a day on coffee means you won’t be able to go on vacation and a vacation is more important than going to Starbucks, the decision to cut back on the venti skim lattes is an easy one to make. (Instead, just try to picture a beach in Jamaica every time you gulp down the tasteless-but-effective joe that’s given out free in your office kitchenette.) Maybe you’ll decide reducing your workweek one day a week exceeds the gear-shifting thrill of having a luxury sports car. (Plus, you’ll be able to cut back on child-care expenses.) The key is to make mutual decisions that are realistic. You may need to discuss cutting back on the clothes you buy for work, change the way you shop for groceries (consider wholesale clubs, buying in bulk, and comparing the “unit price” of items), or try out a public school for your child for a year instead of the expensive prep school. But you both have to be open to communication.

Realistically, the two of you may rarely have a formal meeting about finances. For me and for Chris, our “formal” finance talks only happen when we meet with our financial adviser, but it seems we talk about our money issues and try to find solutions nearly every day, or at least every week. It’s probably hard enough for most couples to arrange times for the family to have regular sit-down dinners. Conversations about your personal finances will probably take place in fits and starts: You read an article on Social Security and retirement in the morning newspaper or your spouse opens a credit card bill while going through mail in the evening, and it sparks a discussion. (And not, one hopes, an argument.) Setting time aside for a meaningful discussion about finances is often difficult, but it can be done. Try to find time in the evening after the children are in bed or before you get hooked on the latest episode of your favorite TV show to talk about your finances. (Yes, Law and Order can be put on hold for a night—trust me, there’ll be another episode airing tomorrow.) Later, as emergencies and opportunities arise, you may have to alter your budget. But that creates another chance for both of you to reevaluate your goals and priorities.

A budget helps facilitate communication. It may not seem like that at first. It’s not always fun to talk about who spent how much, on what, and why. Often, that’s when the finger-pointing—and sometimes the crying, the arguing, the raising of voices, the slamming of doors, the eating of trays of cut-and-bake cookies to console oneself—begins. But getting all of your expenses out on the table lets you evaluate them all together, at once. It also creates an environment where you can both honestly express the importance of each item. How does each expense fit into your plans, priorities, hopes, dreams, and goals? Which of the items represents something that you need and which is something that you want? And frankly, anything that prevents you from eating trays of cut-and-bake cookies is probably a good thing.

HOW TO SET UP A BUDGET

The best way to set up a budget that will help you reach your future goals is to figure out what each of you is spending and saving now. You need to keep track of what money is coming in and what is going out. You may want to set up separate budgets and then compare the two. Be sure to do the following:

1. Track money that comes in. Collect your pay stubs and tally the money that you can count on every month.

2. List your expenses, starting with your savings. Remember to pay yourself first. Include savings for emergencies, retirement, and your kid’s college education.

3. List your big bills next, such as rent or mortgage, car payment, child care.

4. Add up monthly bills that are about the same every month, including utility, phone, Internet, groceries, cable TV, and credit card payments (which you should try to pay in full every month.)

5. Brainstorm to make sure you include all other expenses. (Clothes, transportation, dining out, golf, hairdresser, pet supplies, etc.)*

Then review each other’s budgets to come up with a comprehensive one that reflects your combined spending and savings.

(Quick tip: Get a large envelope to keep all receipts and pay stubs for the month. At the end of the month, write down everything that you spent money on and how much you spent. Compare that to your take-home pay. If the receipts total more than your pay, you’ve got some work to do. If not, make sure you note how much you were able to save that month.)

What is the difference between needs and wants? Needs are things that you cannot live without, the goods and ser vices that have the biggest impact on your quality of life: housing, utilities, food, clothing, child care, emergency savings, and home, auto and health insurance. Wants are items you desire but are not essential: cable TV, movies, eating out, a day at the spa, a new car, vacation. Understanding the difference between needs and wants is important when you are managing money. Most couples realize they need to have enough money for their mortgage or rent, food and clothing, but home or renter’s insurance is also essential and so is having emergency savings, in case you lose your job. That means you can’t spend all your money on things you want, like a spa vacation or a new car. Sometimes the selections are a bit subjective. Your spouse may think season tickets to the Yankees are a need. You may think they are merely a want. Or you may be of the opinion that the money is better spent on the Mets. These are the kinds of things you need to work out and should wa...