Archive for the 'Family' Category
My wife got to ride in a single-engine Piper airplane for the first time a couple of days ago, which was exciting for her and scary for me. She even got to fly a little bit. I was surprised she agreed to go since usually I am banned from such “extreme” activities.
This, along with a recent Vanguard article about estate planning, got me thinking. Many of you reading this are the Chief Financial Officers of your households, but would your spouse or partner be able to run things well without you?
It’s funny, right now I don’t feel an urge to buy life insurance (my wife is paid well and does not depend on me for financial support), nor do I feel like I need a will (we are married, so most things would just shift to her naturally), but I do feel like I need to compose some sort of “Financial Will” because currently I take care of most of the finances. In fact, my wife hasn’t paid a single bill since we’ve gotten married! That leaves a lot of instructions to compile…
Where is all the money?
Although she knows where all our major accounts are, I have a lot of smaller accounts. I need to create a list of all financial institutions where I have accounts, what the approximate balances are, as well as a secure system to show her the account numbers as well as usernames/passwords. She already knows where all the bank statements and important legal documents are.
I should also write down all the bills, although this is another reason why I still like receiving paper statements. If a credit card or utility company wants money, she’ll get a letter.
Where do I learn about money?
As for the whole spending less than you earn thing, I think she can handle that just fine. She’s much less familiar with investing, so I would leave her this list of books to start her education. I might change this list later, but I think it offers a decent mix of basic advice and some more slightly advanced concepts.
What if I would prefer professional help?
Let’s say she feels overwhelmed and would prefer to hire a professional. I would encourage her to hire a fee-only advisor who does not work on commissions, and preferably one with a simple passive investment philosophy. I would tell her specifically to avoid names like Merrill Lynch, Ameriprise, and Edward Jones. (There are fine employees at these companies, but the conflicts of interest that exist greatly decrease the chances at finding one at random.)
Although I’ve never met with any of these firms, based on my limited knowledge of their philosophies and reputations, I would give them a shot:
However, these advisors can be very expensive for smaller portfolios, so I would definitely prefer for her learn on her own first. Maybe I would suggest a simple Vanguard Target Retirement fund as an auto-pilot option in the meantime.
How do I keep any passive income flowing in?
Some people may have rental properties, or royalty income, or some other sort of settlement income to preserve. For me, if I die then my day job and freelance income will stop, but this website has the potential to keep earning advertising money for many additional months if not years. I would need a brief manual on how to keep this site up and running (pay the hosting bill!) and who to call if something breaks. Also I would need a list of important contacts to maintain relationships with.
Of course, I would also tell her to read the contents of this site and other sites I link to for more support and advice! 
I would also write down a trusted accountant and lawyer, although we already have those within the family. Hmm… anything else?
Posted in Family | 38 Comments »
Sound a bit bleak, but this lecture by Professor Elizabeth Warren explores how a middle class family in 1970 differs financially from one in 2005. The full title is The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net. The actual talk starts at 4:45 in, and lasts about 45 minutes. Via Economist’s View and gbs at Diehards. My notes below.
Earning More
Starting around 1970, more and more mothers started working full-time. How did this affect finances? Household income indeed went up from 1970-2000 from ~$40,000 to ~$65,000. However, the inflation-adjusted income for employed males actually went down slightly. So the increase was entirely due to the additional women working.
But hey, households are still earning more. Good, right? Next, she crunched some data on what a dual-income, 2-kid family spent their money on in 1970 vs. 2000.
Spending Less
We actually spend less on an inflation-adjusted basis on many things nowadays:
- 32% less on clothing
- 18% less on food - including groceries, eating out, and yes, even Starbucks
- 52% less on appliances
- 24% less on car expenses, per car
Spending More
Not so fast, we also spend more in many areas:
- 76% increase in home mortgage payments . Surprising, the actual house size didn’t grow that much based on number of rooms (5.8 vs. 6.1). I wonder if this would hold true if it was based on square footage, however, as my research on that indicates a big increase in size.
- 74% more for health insurance, even adjusted for healthy family with employer-sponsored health plans.
- 52% more for cars, since now we have more cars per household. We gotta get to work, right?
- Infinite% more for childcare
- 25% more in effective tax rates, due to higher income
In 1970, credit card debt was 1.4% of annual income for the median household. In 2005, it is 15%.
Education
Finally, we spend a lot more on education. In 1970, you needed a high school diploma to get a good job, which took 12 years of government-provided schooling. Nowadays, the average family pays for 2 more years of pre-school, plus 4 more years of college, all out of pocket.
Net Result: Not Good
Note that the cheaper things are the smaller, more flexible expenses… while the more expensive things are the larger, more fixed expenses. So a family now earns a bit more, but also spends a much, much larger percentage of their income. So much, in fact, that now we need both of those incomes to afford everything we buy. If either spouse loses a job, the family falls behind. Studies show that a family with children has between double and triple the bankruptcy rate of childless households.
I was kind of hoping for some solutions at the end… but none came!
Posted in Family, Frugal Living | 62 Comments »
We are considering renting a room to one of our siblings temporarily. She’s moving out here for a new job, and since we live in an pricey area living with us will offer her a way to save up some money. On our side, we are two people with four bedrooms, so we have plenty of room right now.
Of course, horror stories abound when renting to family members. I don’t know what to say about that. I don’t foresee it being a problem as we are pretty close, and we are all responsible professional adults, but I’m sure everybody else says that as well. Being that we recently rented a unit from a another family member successfully, I also feel good being able to “pay it forward”.
The Plan
We would collect “rent”. The idea is that she would pay 1/3rd of all utilities (gas, electric, water, garbage, cable, internet) plus some buffer for other miscellaneous household maintenance items. This obviously will be much less that what it would cost to share an apartment on the open market, let alone a studio. So she’s paying her way, but we aren’t making much profit if any, ideally preventing any guilt or resentment on either side.
The Problem: Fair Rental Price
But then I did some research about the potential tax implications. Is rent always taxable income, even if from a relative sharing a home? From what I can tell, the IRS says yes. (Someone please correct me if I’m wrong.)
However, if I am reading the IRS “Renting to Relatives” regulations right, the good news is that if I rent out the room at “fair rental price”, I can start deducting a portion of my expenses - including interest, taxes, repairs, maintenance, utilities, insurance, and depreciation. This has the potential to offset the rental income completely (resulting in no net tax owed), although I can’t create a loss since it’s my personal home.
The bad news is that if I don’t charge fair market rent, then I can’t deduct anything. 100% of the rental income is now fully taxable as passive income. Having to pay taxes on money that is basically covering the utilities just doesn’t sound right.
Solution?
From anecdotal evidence, I’m sure compliance is spotty at best in this area. What if a son pays $200/month to live with Mom and Dad? But to fall in line with the rules, it seems like I should either (1) charge something close to “market” rent and maybe buy her a nice gift later or (2) not charge anything at all. My idea was simply have her pay some of the utilities directly. This way I don’t actually accept any money. Any suggestions?
Posted in Family, Real Estate, Taxes | 46 Comments »
I received a very sad e-mail today from reader Tina:
…A recent crisis with my cat has deeply taxed my savings. […] I have spent more than $4500 on my pet in the last three months. She developed lymphoma and the initial hospitalization and testing to find out what was wrong accounted for the bulk of the expense. The rest has been spent on follow-up chemotherapy treatments.
I’m curious how you would handle such a crisis (heaven forbid). Do you think you’d ever get to a point where the price was too high to keep your pet alive (assuming doing so will give it a relatively good quality of life)?
I think this is an important topic, but at the same time it’s very touchy because I’ve found that people tend to have very polarized views on pets. Here is a quote from VPI pet insurance founder Jack Stephens:
Pet insurance is a nonstarter for many pet owners, simply because they take a pragmatic approach to their animals. If the cost of treatment got too high, they would choose to put the animal to sleep.
“About half see the pet as disposable. If it got really ill they just wouldn’t treat it,” said Stephens, whose company conducted research on the issue. The other half “were willing to treat, whatever it took.”
Now, I don’t think it’s nearly as black and white as that, as I think most pet owners love their pets to some degree. But the people on the “pets-as-children” camp are often just as militant as the “they’re just animals-not-humans” camp.
Economic Euthanasia
A recent Slate.com article subtitled What I wouldn’t do for my cat also addressed this issue in depth. (The editor’s choice response letters are also thought-provoking.) It refers to refusing care due to cost as “economic euthanasia”. From reading it, cultural norms seem to be shifting. But in the end, I think it still all comes down to personal priorities.
What is the benefit? Are you talking about the cat or dog coming back to 100% health like a broken bone? Or are you paying to extend its life by weeks while lying in pain? There is a time that palliative care is the most humane choice.
Where is this money coming from? Don’t just look at the number, look at what you’d be giving up. At $2,000, is this money that would go to a vacation to Mexico otherwise? A new HDTV? Payment on your nice car? Now, let’s say it means you can’t buy gas for work or food for your kids. Different story.
Give it away? I think most vets can draw their own line as to what is “necessary”. So if you’re not willing to pay, maybe you should let one of them handle it:
Recently, I called our vet, Dr. Timothy Mann of Northside Veterinary Clinic in Brooklyn, N.Y., to ask him what would have happened if we hadn’t opted to pay for surgery.
“We don’t believe in putting animals to sleep because of money,” Dr. Mann said. “If someone can’t afford or won’t pay to save an animal who can be saved, we’ll save the animal and then keep it or find it a good home.”
Also, be sure to contact local rescue groups. They will be happy to take your sick dog, and will find some way to pay for the care. We are signed up for rescue lists for our specific breed of dog, and we would gladly take another one in if the need arose.
Plan Ahead With Pet Insurance
One way to avoid such difficult decisions is to buy pet insurance. Although it can be expensive at around $30 a month, it will definitely help soften the blow of a huge unexpected bill (although it likely won’t cover it all). Alternatively, put away money regularly in a “pet health savings account”. If you put away just $20 a month and your animal experiences issues at 5 years old, you’d already have $1,200 + interest to cover it.
My Own Doggie Evolution
I never had any pets growing up due to a broad parental ban. Not even a goldfish! My wife, on other hand, was always surrounded by animals. Rabbits, hamsters, guinea pigs, fish, dogs… When we got our first dog from the local Humane Society nearly 3 years ago, I didn’t really know how I would react. Would I love it? Would I ignore it? I must say that our little dude has burrowed his way into my heart. I mean, how can you say no to this buttercream-covered face?
For us, we would give up just about all of our luxuries before withholding healthcare for our dog. We are both in agreement as well, which is great because I know for other couples it can be a point of great tension. Heck, my wife the fashionista would probably wear a potato sack around while selling our car and taking the bus 2 hours to work every day if it came down to it.
However, if it meant sacrificing the health or safety of an immediate (human) family member, I would think twice. By this I mean taking on a dangerous level of debt, or cutting corners in the essentials like nutritious food, health insurance, and safe housing.
But this doesn’t mean I spend my time judging other pet owners for deciding against care due to high cost. For many people pets are not humans, and there is a line to be drawn. But again, if you can’t or aren’t willing to pay please make sure you’ve considered all your options.
Posted in Family, Insurance | 79 Comments »
Now that we have a fixed monthly mortgage payment for the foreseeable future, we are looking ahead to our true mid-term goal of living on one income. Specifically, we’d like to live on two half-incomes when we have children. We live in one of the most expensive areas in the country. Can we do it?
Both of our incomes are somewhat comparable, so our plan is to actually pretend that only one of us is working, deposit that person’s paycheck into a checking account, and work only from that checking account. The mortgage note, utilities, food, gas, all expenses will be deducted from that account. A reasonable percentage (15%? 20%?) for retirement will still be taken out. I have no idea what a child will cost, but maybe we’ll take out an extra $500 a month for food and diapers as well? The second person’s income will still be dealt with, but just separately.
This way, we will get as close as we can to simulating living on one income. If the checking account starts to shrink too fast, we’ll have to think of ways to cut expenses further. I think this is an interesting idea that could be applied to anyone who wants to stretch into a new financial goal. You may think you can do it, but failure might be costly.
- Buying a new home. Can you afford a mortgage payment that is significantly higher than your rent? You should be sure, otherwise you might be joining the million other people in foreclosure.
- Kickstarting your retirement contributions. Maybe you’re afraid of putting too much in a 401(k) or IRA and not being able to take it out. Why not just use savings account and stick your imagined contributions in there for a while? That way you won’t have to deal with penalties.
- Increasing your debt payments. Some people are afraid to pay off too much debt in case they need the money for later. An emergency fund would help solve this, but also the “pretend” debt account might be a good temporary solution.
- Going back to school, switching careers, etc. Again basically the same idea - how will you react to living on less income?
Posted in Family, Frugal Living, Retirement | 42 Comments »
From Washington, D.C. to New York City, from Atlanta to Portland, a huge part of finding a house is balancing the desire to have a shorter commute to work and the higher price tag that inevitably comes with it. Some people live farther away to spend less, while others simply want more house for the same price. I know people who commute 2 hours each way, every day. They are not alone - According to the NY Times, the Census Bureau states that nearly 18 percent of New Jersey workers leave their homes before 6:30 a.m. every day. Nationwide, over 3.4 million workers take more than 1.5 hours to get to work one-way. That’s a 95% increase since 1990.
How do you strike a balance? It’s easy to measure how the housing prices drop the farther you go out. Just look at the MLS listings. As one quote puts it - “Keep driving until you can afford it.” However, it’s harder to measure the many costs of a longer commute.
Increased Car Costs: Gas, Depreciation, Repairs, and Maintenance
The more you drive, the more all these costs add up. Let’s say I want to move 20 miles further out. If I get 25 miles/gallon in commuter traffic and gas costs $3.50 a gallon, and I work 22 weekdays per month, that works out to an extra $120 per month in gas alone.
That also amounts to an extra 10,600 miles of driving each year. So more oil changes, more frequent repairs and other maintenance. Your car might depreciate faster by an extra $1,000 per year. That could work out easily at least another $100-$150 per month.
Treating Commute Time As Unpaid Work Time
Now what if we convert that commute time to actual paid working time. If you earned $30 per hour x extra 2 hours commuting per weekday x 22 weekdays per month x 12 months = $16,000 per year (essentially 25% more). Even if you don’t get paid hourly, there is some value involved. Imagine if you used that time to perform better at work and impress your boss, or if you used it to start a business of your own.
Let’s use the very rough multiplier that you can afford a mortgage that costs 3 times your gross income. Saving an extra $270 per month in car costs would let you theoretically buy $10,000 more house by living closer. Earning another $16,000 more per year would let you theoretically buy $48,000 more house. Earn $60 per hour, and that’d be $96,000. I just pulled some numbers from the air here, but the idea is simply that there hard costs involved with that longer commute.
Effect of Fatigue On Work, Family, and Happiness
Forget the extra wear and tear on your car, what about the extra wear and tear on you. If I had just spent two hours in traffic, by the time I get to work I’d be tired and ready for a break. My work quality would suffer. Then instead of arriving back home by 6 or 7 pm, now you’re looking at 8 or 9 pm. You don’t have time to cook, so you buy take-out. It costs more and is less nutritious for your family. You have less time to exercise, less time to play, less time to relax. You get the picture.
From the BusinessWeek article Extreme Commuting:
This is what economists call “the commuting paradox.” Most people travel long distances with the idea that they’ll accept the burden for something better, be it a house, salary, or school. They presume the trade-off is worth the agony. But studies show that commuters are on average much less satisfied with their lives than noncommuters. A commuter who travels one hour, one way, would have to make 40% more than his current salary to be as fully satisfied with his life as a noncommuter, say economists Bruno S. Frey and Alois Stutzer of the University of Zurich’s Institute for Empirical Research in Economics. People usually overestimate the value of the things they’ll obtain by commuting — more money, more material goods, more prestige — and underestimate the benefit of what they are losing: social connections, hobbies, and health. “Commuting is a stress that doesn’t pay off,” says Stutzer.
Got Public Transportation?
While not a complete solution, all of this gets reduced if you have decent public transportation. The costs are most likely lower than driving, you might get some work done en route, or at least you’ll arrive less stressed. I’ve already noticed that housing near good public transportation commands a premium, and it should.
Our Experience
We really wanted to have a short commute, but we still ended up with a compromise like many others. We looked at houses that were 15 minutes from work and play, but they simply cost too much. So, we moved farther out where the houses were newer and cheaper. But thankfully not too far. Our commute is still about 45 minutes each way if we had to drive during rush hour. However, whenever we can we try to shift our hours earlier or later to make it more like 20-25 minutes. My main worry is that as time goes on the commute will only become longer and longer.
Posted in Family, Real Estate | 55 Comments »
Well, it’s official. My wife and I didn’t get each other anything for Christmas. For one, we were too busy buying gifts for others and trying to get our handmade holiday cards out on time. (Okay, she was too busy with all that. I was just a slacker.) We had the following conversation about 10 times while shopping for stuff:
What do you want for Christmas?
Nothing. What do you want?
Nothing.
Okay, I’m getting you nothing then.
Okay. You too.
Okay.
Not that we are being especially frugal or eco-friendly or whatever, we just have too much stuff coming in from other folks as it is. Is that weird? I always thought it was a bit funny for wives and husbands to buy each other large gifts. Like how Lazy Man explores those Lexus commercials where the husband surprises the wife with a brand-new car.
If you use the “one-pot” method of managing married finances, doesn’t it just end up as you spending each other’s money without permission? Or it simply “letting up” when you usually would be like “heck no, you’re not buying that!” Anyhow, I hope everyone is enjoying their holidays and all the wonderful things out there that can’t fit in a box.
Posted in Family | 46 Comments »
I’ve talked about this in bit and pieces under the Goals category, but I thought I should organize our life goals into one post. Hopefully, this will outline our priorities and shed some light on why we choose to do the things we do.
First, I’d like offer what I am afraid people think our life goals are:
Incorrect Goals
- Find the highest paying job possible. Work long hours, but tolerate it for the money.
- Live a very spartan lifestyle, with minimal luxuries and worrying about money constantly.
- At age 65, abruptly stop working so hard, finally relax and begin enjoying our life. Hopefully live long enough to enjoy this period.
In fact, that’s not what we want at all:
Actual Goal #1 - Finding A Job That Fits
If your going to spend almost 50% of every weekday doing something, shouldn’t you enjoy it? Sure, even great jobs have their challenges - bureaucracy, boring meetings, office politics, the occasional annoying co-worker. But finding a job where you don’t dread getting out of bed in the morning was a huge priority for me. It took a few different degree programs, a couple of resignations, some stressful interviews, and several rejections, but we are definitely making progress in finding work that is challenging, enjoyable, and reasonably well-compensated.
I would also add that having a simple lifestyle initially allowed us to take some risks in order to get where we are now.
Actual Goal #2 - Less Work, More Life
Read the rest of this entry…
Posted in Career, Family, Frugal Living, Goals, Retirement | 38 Comments »
There are lots of reasons to retire early, but will it help you live longer as well? One study seems to suggest so, and is often cited in websites discussing early retirement. Dr. Sing Lin wrote a paper in 2002 called Optimum Strategies for Creativity and Longevity which studied the relationship between the age of retirement and the average of death for retirees of Boeing Aerospace. The results are startling:
As the retirement age increases, the average age of death decreases almost linearly. The average person who worked until age 65 lived for only 18 months after retirement! In contrast, the person retiring at 50 lived for another 36 years.
There is some dispute as to the validity of this data, but I haven’t found anything solid either way. The author does make some very bold conclusions, though:
Read the rest of this entry…
Posted in Family, Retirement | 20 Comments »
A few very forward-thinking readers have asked me about ways to help their kids or other young folks by giving them a Roth IRA. This seems like an awesome idea to grab them some tax-sheltered action. I’ve thought about this in passing, but never really did the research into the technicalities of it. One good article on this subject is over at Fairmark called Roth IRAs for Minors. Combine this with official IRS publications and a few magazine articles about employing your children, and here’s what I found:
The Facts
- There is no age requirement to open an IRA.
- Many, but not all, IRA providers will allow you to setup an IRA account for minors.
- The primary requirement is the child needs to have taxable earned income to make a contribution. So to make a $4,000 contribution, they would need $4,000 of income. Earned income means that dividend or interest payments don’t count.
- An important difference between IRAs and 529s is that once the child reaches 18 or so, they get complete control over the money and can do whatever they want with it.
The Payoff
How much money are we talking about? Umm.. a lot! From the Kiplinger article:
Let’s assume you give your 15-year-old daughter $1,000 to fund a Roth IRA. If the money inside the account grows at an annual average rate of 8% — well below the long-term average return for stocks — that $1,000 will grow to about $47,000 over the 50 years it takes for today’s teen to reach retirement age. If you added another $1,000 a year until she turned 20 -? and never added another dime — that initial $5,000 investment would be worth nearly $250,000 by her 65th birthday. With a Roth IRA, the full amount will be tax-free when it’s withdrawn in retirement.
Now the question is how to obtain that taxable earned income?
Income From Non-Parental Employer
This is probably the most legitimate and straightforward way, also the hardest to get. Examples for small children might be acting or modeling from an agency not directly owned by the parents. For teens this could include money from tutoring, bagging groceries, or working at the movie theater. In addition, this income may be subject to payroll taxes like Medicare and Social Security Tax at 7.65%.
Income From Parents As Employer
Maybe you already run your own business, and could use the services of a child - web design? computer set-up or consulting? From the Fairmark article:
Read the rest of this entry…
Posted in Family, Investing, Retirement | 21 Comments »
Thanksgiving rocks. I couldn’t care less about the arguments about the true origins of this holiday, I just like how we celebrate it now. You actually try to use your kitchen and are suddenly okay with inviting strangers (okay, friends of friends of friends) into your home. No gifts, no Hallmark cards, no crazy decorations, no costumes, no excess crap.
Most importantly, today you actually appreciate what you already have, instead of focusing on what you want. It’s very ironic that the day after Thanksgiving has been twisted into the exact opposite.
And yes, I love cranberry sauce from a can!!
Posted in Family | 15 Comments »
In the book Your Money and Your Brain, author Jason Zweig explores neuroeconomics, which apparently is a mix of psychology, neuroscience, and economics. This book looked like it would be an easy read, but it turned out to be very densely packed with information and data from numerous psychological studies. Truth be told, it got kind of tedious and repetitive, which is why it took me over a month to finish reading it. I think more aggressive editing would have helped this book a lot.
Instead of trying to do an in-depth review, I’m just going to focus on a few interesting points brought up in my favorite chapter titled “Happiness”. Isn’t being happy our ultimate goal?
If I was rich… I’d be happy. Right?
When you are below the poverty line, then yes, making more money is correlated with happiness and even better health. But as long as you have enough to meet your basic needs, more money doesn’t buy very much more happiness. We think it will, but it reality it doesn’t. This has been shown in studies comparing African tribal herders with the Forbes 400 Richest People, ones comparing people with $500,000 net worth and those with $10M+ net worth, and even between different generations of Americans:
In 1957, the average American earned about $10,000 (adjusted for inflation) and lived without a dishwasher, clothes dryer, television. or air conditioner. But 35% of people surveyed said they were “very happy” with their lives. By 2004, personal income had nearly tripled after inflation, and the typical house was bursting with consumer goods. Yet just 34% of people now said they were “very happy”. Somehow, almost tripling our wealth has made Americans a little less happy - and still we want more.
Chasing Happiness
Similarly, people think that “splurges” or getting that next hot gadget will make them happy. In truth, studies reveal that the anticipation of obtaining that object makes your brain’s dopamine levels go nuts and you feel happy. Actually getting it? Not so much. Which leads you to thinking about the next hot gadget… and so on. The “thrill of the hunt”, eh?
Keeping Up With Those Darn Joneses
It turns out that your happiness is related money in one way - how much money the people around you have! Social comparison is a very primal instinct in humans and other animals. One theory is that such attention allowed people to imitate the stronger hunters and learn to be more like them.
For example, should you buy the nicest house in a middle-class neighborhood, or a below-average house in the richest neighborhood? Your real estate agent might point out that buying in the rich neighborhood offers the best potential for home value appreciation. But the data suggests that buying in the middle-class neighborhood and getting a bigger house than everyone else will likely make you happier.
A study of more than 7,000 people in over 300 towns and cities found that, on average, the more money the richest person in your community makes, and the greater number of neighbors who earn more than you, the less satisfied you will probably feel with your life.
The relationship between money and our brains is an interesting one. It’s good to learn about those innate tendencies, so we can recognize them and react appropriately.
Posted in Book Reviews, Family | 24 Comments »
You and your significant other love each other. Still, I bet there is still something that one of you loves spending money on that the other simply doesn’t see any value in. It might be manicures, gadgets, designer clothes, online poker, or Star Wars collectibles. If you have joint finances like we do, this can cause some resentment. Why is our money being spent on Yoda PEZ dispensers??
One possible solution to relieve such stress that we are currently trying out is the Adult Allowance, where each person is given a certain amount of money that they can spend with no questions asked. I’ve seen it in a few places, including Him and Her over at Make Love Not Debt. No rolling your eyes, no passive-aggressive sighs, no exasperated “Why would anyone buy that?”. Actually, one annoying question from me is “Why didn’t you let me spend 10 minutes researching the best deal for your XXX purchase?” The idea of paying more than needed may cause me physical pain, but why should I let that ruin her purchase?
Yes, this is essentially budgeting, but many couples view budgets as tedious and restrictive. I see this as a specific subset of budgeting which focuses not just on the ability to track spending, but the freedom of enjoying your spending without guilt. This may be a good place to start if one of you is spender, while the other is a saver.
On a technical level, some people use cash in envelopes, while other use completely private and separate bank accounts. That way, after you run out of money there’s no going back for more. However, we’re keeping it simple and just tracking it on the honor system.
We mentioned this to some of our friends, and some of the responses were the expected “An allowance? Whoa, that’s harsh.” But one of the couples actually implemented it for themselves as well! It turns out that the guy was getting some flack for driving around his gas-guzzling 4WD beast around instead of the econo-box they also own. Now, he’s been given a monthly gas budget each month so he can still have fun, while she can feel that the gas bill is under control.
What do you think about adult allowances? Good idea for resolving potential conflicts? Or unnecessary for those in a good relationship?
Posted in Budgeting, Family | 61 Comments »
Up until recently, I never really thought about my parents’ financial situation. While growing up, they did a really good job of shielding us from their financial worries and setbacks. Looking back, I’m sure there were some tough times.
As my mom and dad start to near retirement age, they’ve become more open with their finances. They assure me that they are on track for retirement. They know all about the “catch-up” IRA contributions allowed for people over 50 and are taking advantage of them. They’ve even asked me to look at some of their accounts, like the TIAA-CREF retirement annuity.
As long as they stay healthy, I’m actually pretty confident they will be fine. This is mainly due to the fact that my father loves what he does and plans to work until 70 if not longer. While he does take more vacation time now, I don’t think the words “early retirement” are in his vocabulary. Any financial planner will tell you, even delaying retirement for a few years can make a big difference. You delay taking withdrawals so your nest egg gets more time to grow, and your expected withdrawal period is shorter.
But what if they do run into issues, for whatever reason? I know that I’d step in to help for sure. For one, I know that my parents regularly give my grandparents money. I don’t know how much or how often, it could be just spending money, but I know they do send something. I guess this is what some people call the “sandwich” problem. Young families have their own retirement worries on one side, their kid’s education in the middle, and their parents’ needs on the other side.
Do you worry about your parents’ retirement plans? Should a child ask their parents about such details or get involved? How does one incorporate this into their own financial plan? Just my Saturday morning musings…
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