One of the most critical discussions a couple can ever have is around personal and shared financial goals. Questions like, “will we buy a house or travel?” “have kids or start a business?” or “retire early or support my parents?” can potentially grow or separate a couple in love.
Mr. Budget and I have been trying to talk through these questions for years, and we still aren’t on the same page about everything, but talking is important to understand where each person places value in their life. Sometimes, money goals and decisions can have a lot to do with how you were raised and the experiences that you personally were exposed to.
B’s background: His early youth was spent living w/ 6 people in a two bedroom house smaller than our current one-bedroom apartment. Money was always tight so he and his siblings would choose one family member to buy a gift for instead of buying gifts for everyone. Consequently, he considers us to be very well off as a couple and doesn’t see a need to save as much as I do.
G.B.’s background: My family raised me to be frugal, though on several occasions, we were also struggling to keep up with the Jones’. I was constantly in school with kids whose parents could afford nicer things than mine, and when the recession hit and both my parents were unemployed with an underwater mortgage, we all suddenly realized the extreme luxury we had been living in prior to our catastrophe. Now, I make it a priority to keep a healthy emergency fund that earns $140/yr in interest, and paying down debt or saving is constantly on my mind in case I wake up one morning without a job to go to.
So, after going through our assets/debts/credit reports last week to evaluate the state of our new union, we took these perspectives and came up with the following list of goals. We think we can knock them all out by this time next year if we focus our attention and savings to it.
- Pay off B’s student loan debt
- Open and max out a Roth IRA for B
- Pay off B’s car loan three years early
- Save money to travel to New Zealand next year
1. Pay off B’s Student Loan Debt
If working at debt separately, my husband wouldn’t have very much incentive to pay this off early. He can claim student loan payment interest as a deduction on his tax return and the monthly payment is low enough that he’s not put out by the expense. After our wedding though, we have enough money left over in the wedding fund to completely wipe this out. For a while, we fought over whether we should kill this loan or go after the higher interest loan instead, but in the end, I think we’re both okay eliminating this one to create the debt snowball effect and minimize the number of people we pay every month. Expected completion date: August 2013
2. Open and max out a Roth IRA for B
I want to do this at our earliest opportunity in order to start his 5-year Roth IRA clock, which is really just a way of saying we can simultaneously invest in the stock market + save for retirement + still have money available tax free in case we need it for emergencies… the only catch is that your Roth must have been open for a minimum of 5 years. By using catch up months at the start of next year, and also utilizing bonuses and paid over time well, I think we still have time to max out his (currently unopened) Roth at $5,500 for 2013. Expected completion date: February 2014
3. Pay off B’s car loan three years early (last payment in July 2014)
This could be the hardest to do as it will require a lot of diligence and saving, but if we can start minimizing our spending immediately, it shouldn’t be so bad. We have $12,860 left on this 4.5% interest loan (maybe less or maybe more depending on loan details) but if we can quadruple the minimum monthly payment of $276/mo to $1104/mo, we will be completely paid off by August 2014. A couple financial changes were made in order to make this possible. (A) I reduced my 401(k) contributions from 14% to 5% which is the minimum possible to reach my company’s maximum IRA contribution match. (B) I just maxed out my own Roth IRA for the year since I sent my March work bonus to my Roth earlier this year! Now I have $440/mo free to spend on anything I’d like. (C) $67/mo for his student loan payment can be redirected here once that is paid off. (D) He’s already paying $276/mo so don’t forget to include that! Expected completion date: July 2014
4. Save money to travel to New Zealand next year
I think after all our debt is paid off, we’ll be eager to celebrate our new financial freedom with something that feels extravagant! Visiting his Aunt’s hostel in Australia and his old roommate in New Zealand have been on his “maybe one day” goals for 7 years now. THIS is something I can give to him. During the last two years, we had enough success saving money for our wedding and earning free flights with our travel rewards cards that I think we can do this FABULOUSLY and on a budget. Saving money isn’t half so fun until you have a a purpose on which to use it.
So this sums up our Year 1 financial goals. What do you think? Is there anything you would change if you were in our shoes?