Saturday, October 31, 2009

Money Management for Couples

I haven't posted very much yet about the journey Craig and I are on to get out out debt, but I wanted to mention some of the things we have found useful.

A lot of people both on and offline have been using the Dave Ramsey method of debt repayment and personal finance, however LONG before Craig and I ever met my Mom gave me a book titled Debt-Proof Your Marriage by Mary Hunt of Debt Proof Living. My Mom has always been a cash (well, debit) only person, and never carries a balance on her credit card, even all of the years she was a single parent AND while going back to school part time to get her Registered Practical Nursing diploma. A lot of the views that I have about money I got from her; Craig was raised by a mother who also as pretty similar views about money BUT through the course of his childhood (which I may shed more light on in a later post) he developed quite an affinity for accumulating 'stuff' (including pick-up trucks) and with 'living in the moment' for fear of coming home one day and having nothing. Regardless to say I married more than just Craig.
So...we have been ploughing along through the debt for these first couple years of our marriage, and hope to be debt free before our 2nd anniversary (June 14th).

Anyway, all this to say that we have found Mary Hunt's book (and website membership, I'm a joiner by nature I think) to be very helpful in helping us to find a money management system that works for both of us, as well as to help us to quickly pay off the debts and prepare for the future (recession, anyone?).

Mary Hunt's Debt Proof Living philosophy is in many ways similar to Dave Ramsey, with 2 big exceptions: 1. the Contingency Fund (emergency fund) is funded throughout the entire debt repayment process, designating the typical 10% of your income to this purpose, instead of just building up to $1000 and then stopping; 2. a Freedom Account needs to be set up in a separate chequeing account into which monthly installments are made to cover the cost of abnormal expenses such as car repairs or appliance replacement, again throughout the entire debt repayment process and into the future.

A Quick Debt-Proof Living Snapshot

Give 10%; Save 10%; Live on the remaining 80%. It's as easy as that. Out of the 80% comes your Freedom Account contributions, as well as your Rapid Debt Repayment Plan funds.

Giving, whether through tithing or donations to various charities or research funds, helps to instill in us a degree of humility and awareness of what it is to be without.

Contingency Fund
Build up a minimum 3 months worth of living expenses in a separate account. Fund this with the 10% of your income that should be going to savings. A better idea would be to save 6 months to a year to be on the safe side. If you have extra monies coming in (i.e. tax returns, cash gifts, or bonuses at work), throw it in here first. This is what will keep you back from the 'edge' and ensure that you won't erase all of your hard work if you are temporarily out of work, have a medical emergency, or have major repairs to cover before insurance kicks in.
The 10% that is designated for savings can be moved around a little bit once you've gotten a fully funded Contingency Fund ready for any emergencies. Once your contingency fund has been topped up to your desired amount, boost your contributions to your Freedom Account so that you have a year's worth of coverage in each of the sub accounts. Next, focus on your Rapid Debt Repayment Plan, and add in your extra 10% so that you accelerate the whole cycle. Finally, begin building an investment portfolio, including paying off your mortgage or saving up a sizeable (conventional mortgages only people!) down payment, funding various retirement and education funds, and add in any 'dream' sub-accounts you may have, to your Freedom Account to begin saving for things like snowmobiles, extended vacations, and additions or renovations to your house!

Freedom Account
Certain things in life are guaranteed. The tax man will come; people will get older, get married, and have babies; cars will break down, so will appliances and toilets; vacations will be needed and our life, auto and health insurance will need to be paid (even if they are charging too much!). If these things don't need to be paid on a monthly basis, most of us forget to budget for them, and very few of us put that money away for when the bill comes due.
Take a look at all of your irregular or abnormal expenses, including car and home repairs and upgrades, gifts, vacations, personal spending, property taxes, auto insurance, and more, and decide on a figure that represents how much you spend (or think you will spend) on these things each year. Then divide that number by how many pay cheques you get each year. Each month, put that money aside in a separate chequeing account, and whenever an expense comes up, write a cheque for it using that account. Keep a ledger documenting each of your debits and credits to the account.
Check out how I keep track on mine here, and download the excel document to get started on yours!

Rapid Debt Repayment Plan
Basically, order your debts from shortest pay-off to longest pay-off, and pay the minimums on everything but the first one, dumping everything extra you can into it. Then, when that debt is paid off, redirect all of that extra money into the next debt. She recommends ordering your debts in order of interest rate (highest to lowest), but says that in our 'instant gratification' society, some may need to see single creditors paid off sooner, so they should stick with the shortest to longest method.
On her website she has a RDRP Manager that you can use to track your debts and your payments and it will show you how many payments you have left and your final pay-off date. I like seeing the reminder, so I joined with the monthly membership, which also gives me access to all sorts of calculators, newsletters, and great tips for saving money.

That is perhaps the biggest thing that (in my mind) separates the Dave Ramsey and Debt-Proof Living methods. Even for non-members, you can join the free Everyday Cheapskate daily column and receive great tips by email on ways to save money. She really teaches frugal living, and shows how you can find that extra money in your income to have your debts paid off sooner.

Right now, you can get her Live Your Life for Half the Price book on sale for 1/2 price with FREE shipping, and I've just put in an order for my first copy because I've read hundreds of comments on her blog and in the forums that mention great advice people have found in the book, and I want to know them all (like I said, I'm a joiner!).

Happy Frugal Living!


Chelsey said...

I Love Mary Hunt! I have read both of her books and passed them to friends who have found them very useful(so much they haven't been returned!). The freedom account really works. Although we still carry some debt (car & home renos) We have achieved tremendous freedom (hence the name) by saving for our emergency fund, and things that just come up regularly (x-mas, vacation, car repairs). I'm glad to have found someone as excited as me about Mary Hunts books and paying off debt. I also love watching till debt do us part, have you seen it?

Moomah said...

How lovely top read your post and your kind words about Debt-Proof Living. Wow ... I need to sign you up as my official ambassador to the world. What can I do to make sure you reach your debt-free goal? I'll be our cheerleader, that's for sure! So happy I found your blog. Don't let that Moomah name throw you. I really am ... Mary Hunt


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