Telling stories is what bloggers do, and most bloggers tell stories because the people in their lives are tired of hearing them...at least that's what my wife thinks. As we move along in this process, we'll occasionally take a detour to story time. This gives me the chance to share some personal aspects of our financial journey to being debt-free, but also breaks up the instructive nature of many of my posts. Today, I'm going to tell you about bank accounts. Before I was married, the only married couple I really had to look to for advice was my father and my step-mom. They were married when I was about 14 and they both had long lives before their marriage. They both came into the relationship with their own money, their own spending patterns, and their own bills. So, when they were married, they retained their separate bank accounts. Makes sense, after all, when you have two people, two incomes, and two expense streams. So, when the time came for Heather and I to join our financial lives, it seemed reasonable to have separate bank accounts. That idea was slightly complicated when we moved in together and Heather's bank didn't have a branch in Washington, DC. Then we started looking at the numbers and realized that, unlike my father and step-mom, we barely had enough money for one bank account, let alone two. It was a bit of an anti-climax, deciding to keep the one account. When you're engaged, you place a lot of importance on the little things that you think matter, like changing last names, but you soon realize those aren't important issues. The bank account was the same way. I thought it'd be important, but ultimately it didn't really matter, at least not at the time. But, remember, every action you take builds a memory, or a habit, that you're going to appreciate or regret in the future. Having one bank account, or more accurately, only having enough money for one bank account, was one of these small things that we didn't realize would impact our lives in the future. Looking back, I can't imagine having two bank accounts, or at least two checking accounts. As you'll discover in future posts, we now have a few bank accounts, but only one that we use for daily expenses. Having one bank account means being accountable to your spouse or partner for your spending. If you have separate bank accounts, it's too easy to view the money in your account as your money. In reality, though, all the money belongs to the marriage, not to the individual. When you have one account, you have to discuss your spending and be accountable to your partner about how much and why you spend your money. You can't just go blow $100 on something you "want" without discussing the impact with your partner. At the same time, it's important to not make one partner dread talking about spending to the other. Someone is always going to be the financial spouse, the one that checks bank statements and balances the books, so it's important to provide enough freedom where both partners know they can use the money, but enough accountability so neither spends recklessly. For Heather and I, we decided on an upper limit to personal spending and didn't exceed that without checking with the other partner. This level of accountability was very important as we started chipping away at our debt. The accountability ensured we were both on the same page, financially. When we decided to do "Our Debt Year" this level of accountability was already a habit, and a good one. It meant we didn't have to argue about whose money we'd use to pay off a debt, or whose account a bill payment came from. We saw the money as collectively "ours". This way, Heather never felt slighted when we used extra money to pay off a credit card debt I ran up and I never felt taken advantage of when using my freelancing money to pay off "her" student loan. So, what works for you? Do you have one account or multiple accounts? How has either option helped you get control of your financial situation?
The journey you’ve embarked on isn’t like anything you’ve ever done before. This isn’t a New Year’s Resolution or a fad diet. This is a lifestyle change that requires work, dedication, and commitment. Without a clear vision and a clear goal, you will never be able to muster the focus and determination to get there. You can’t set abstract goals like “Be more responsible with my money” or “Save more for retirement”. If you did, you could easily cut $50 in spending every month and meet the first goal or add an extra 1% to your 401k contribution and move on. Think about how the military operates. The military isn’t given flaky goals like “Go protect the population from bad guys”, they are told “Use all the forces at your disposal to take that hill”. That is a clear statement and a clear goal. Now is the time for you to create that clarity of vision and clarity in goal-setting. Where do you want to be, financially, in five, ten, or twenty-five years? Be specific. Do you want to be out of debt? Do you want to own your house outright? Do you want to pay off your student loans early? Do you want to increase your retirement savings by 50%? Whatever it is, have clear goals. For Heather and I, the goal was to pay off our consumer debt and car loans, leaving our student loans as our only debt. This is terribly important to your success, so make sure you are having a conversation with your spouse or significant other about goals and vision. If you’re single, have a serious conversation with yourself, because the process isn’t much easier for a single person. So, what are your specific goals? Grab a piece of paper and write them down. Now, let’s talk about timeline. This entire process is an exercise in realism. You have to be realistic about your current situation, the work you have ahead of you, the sacrifices you have to make to get there, and the amount of time it will take you. Don’t lie to yourself. Don’t tell yourself that you can make a bunch of drastic changes and get out of debt in 6 months. It’s not realistic to change your life in one year or even three years, so don’t think it is. Instead, think about what you can reasonably manage while maintaining a decent and enjoyable lifestyle. Sure, you could decide to eat only beans and rice for two years, walk everywhere, never travel or eat out, and you might be able to do it, but that’s not a sustainable lifestyle. The key to your financial success is slow and sustainable change. With Heather and I, we decided that 5 years was a reasonable timeframe to conquer our consumer debt. At this point, it was hovering around $50,000, so that meant we needed to come up with about $10,000 per year, or about $833 per month, to put towards our debt problems. That was in addition to the minimum payments we were making on some credit cards and our student loan payments. This isn’t something you can take lightly, so think about how much you can stand to spend every month to accomplish your goal. What’s your timeline for your goal? Now, you have a clear goal and a clear timeline, but you still need a clear vision. Of course you can imagine your goal, let’s say it’s to be out of debt, you can imagine not making those payments every month, not worrying about the interest rates or what happens if you miss a payment, you might even have an idea of what you would do with the money you will save when you don’t have credit card bills anymore. But those are abstract ideas and as we discussed earlier, abstract ideas don’t help you achieve goals. Instead, paint a picture in your mind about what you want to do when you’re out of debt. Imagine being able to take that vacation you’ve always wanted and pay cash for it. Imagine being able to buy a newer car, for cash of course, that’s safer and more fuel efficient. Imagine being able to quit your job and start that business you’ve always wanted. Whatever it is, imagine the details. Imagine how you would feel showing up at the airport for your vacation. Paint a picture of the airport, the ticket agent checking you in. Imagine the smell of the airplane and the taste of the food. Ok, maybe not the food, but imagine the journey to your dream vacation. Feel the heat of the tarmac when you step off the plane in your tropical paradise. Imagine the friendly faces and the amazing food. That’s the kind of vision that’s going to get you through the hard parts. Imagine, instead, the looks of relief and comfort when you family finds out that you were financially well prepared for your life, retirement, and death. Imagine the feel of your new car, and the peace that comes from knowing that your kids or spouse are safer. For Heather and I, the vision was going moving from the comfort of our apartment in the DC suburbs to a distant village or town and living with people from different backgrounds as Mission Coworkers. We didn’t know exactly what country or what village we were imagining, but we knew it would be a much different life than the one we had. We knew that without the discipline and commitment to our goals, that vision would never materialize.