When Dave and I first met finances weren’t my strong suit. I used to be very reckless with money. My parents told me that if I were going to move downtown right after graduating from college then I needed to understand that I could only live the life I could afford. It took me awhile to understand that concept as a 23 year old living in the city! Every month was a fingers crossed situation of whether or not I could pay my rent, I spent wayyyy too much money on my credit cards barely able to afford the lowest monthly payment, paying so much in interest and basically just SURVIVING. When I met Dave I could tell he knew what he was doing and I always felt insecure about my money situation. As we got more serious he would ask more serious questions about my personal checking and savings accounts (which I didn’t have a savings account! how in the hell could I SAVE money?), my credit cards, etc. It was terrifying and I always just tried to dodge his questions. But it was always a reminder that I needed to get my sh*t together!
My blog started to make more money and the corporate job I was working at had me working heavily in Quickbooks. This helped me realize how important it was to set up Quickbooks for my own business and really start tracking, invoicing and SAVING for my business. A year later my business was actually at a really good place (this was 2011!) and I asked my dad if he trusted me to leave my job and focus on my blog full time. He was basically like “what is a blog?” and I told him to trust me. I asked that if I needed it, would he help me pay my rent if times were tough and he said yes but if in 6 months I’ve gotten no where then I knew my job would take me back. Luckily that didn’t have to happen! Learning Quickbooks really helped me refocus the importance of finances and saving for my business which ultimately reflected on my personal accounts. When Dave and I got engaged I was still working to pay off my credit cards, I still wasn’t saving anything personally (everything I made stayed in my business) but I realized I needed to be more honest about my financial past. Dave was so understanding and helpful! I still felt very protective of my business accounts (I still was until we had kids!) but I let Dave help me realize what was the best payroll set up to pay myself, help pay off my credit cards and more.
I’m going to tell you this funny story (Dave told me not to specify $ but I’m going to because it is part of the story): when Dave and I got married and went to the bank to combine our accounts they reviewed Dave’s and all of the various accounts he had opened over the years (savings, ROTH IRA’s, savings account in the stock market, personal checking) and I was like first of all, how the hell did you save this money and also hell yeah Dave! Then they looked at me and said “ok and Liz, you’ll be contributing your personal checking account with a total of $26.27?” And I was like YES, YES I will! Haha I remember Dave looking at me and saying “good Lord this is only the beginning.” But it was such a funny way to financially join together as a family!
I’ll let Dave take it from here!
HOW WE HANDLE OUR FINANCES
Dave Adams here! First and foremost, so I don’t go to jail, in no way am I telling you what to do or am I a financial advisor of any kind, this is just my view of best practices.
I think the single most important thing I learned at MSU, Go Green!, was that compounding interest is a beautiful thing. Save early and save often because it’s amazing what a few thousand dollars will be worth in 40 years when you hit retirement. Liz and I have a personal checking account that we keep just enough money in the bank to pay all of our bills, a savings account and 2 personal credit cards. Liz then has a business checking account which does her payroll and gives her a paycheck twice a month plus 2 business credit cards.
So, how do you start saving for retirement??
1: If you’re employed, it’s likely your employer has some sort of retirement plan set up with an employer match. No matter what it takes, max out your contribution. It’s free money! For example, if they match up to 3% of your take home, then make sure 3% of every paycheck is put in to your 401K. Once you set up the withholding with your employer you won’t see the cash and you’ll forget about it for your day to day budgeting. Easy math: if you make $50,000 per year, you would contribute $1,500 that doubles to $3,000 which is paid for by your employer. If you never put another dollar in to that account, 30 years later it will be worth around $30,000. Yes that’s a long time but you don’t have to do a damn thing. Realistically you’ll keep working every year and continue to max out your contribution so there will be another zero or two on that total come retirement.
2: Take advantage of your ROTH IRA. This is another retirement fund but you put post tax dollars in this account so it gets to grow tax free and you get tax free withdrawals come retirement which is a huge advantage! The IRS only allows you to contribute $6,000 per year so do your best to max this out every year. You actually have till April 15, tax day, to contribute for the previous year so you technically have 16 months to max out your contribution. If you graduate college at 22 and in your first year of employment put that $6,000 in a ROTH IRA. In 40 years it will be worth around $100,000. The power of compounding interest at its finest!
3: Savings accounts! If you’re with a big bank stay with a big bank. They are easy to use and have so many great features, but open up a secondary savings account with an account that pays a higher interest rate. They are becoming more popular but Ally.com is what we use and they offer very high, competitive rates for a savings account. If you had $10,000 in a savings account you’ll make a couple hundred dollars annually in interest vs. pennies, yes pennies, from a big bank. It’s not life changing, but why leave money on the table? We had a lot of questions about savings accounts for our kids and we have two college 529 college savings accounts for our boys and the benefits of it is you can deduct your donation up to $20k per year in total of your kids (it sounds like this varies state to state!). Each state has a specific bank that helps you set this up! Just look up 529 accounts in your state.
4: Budgeting. I’ve been with Liz for over 10 years and this is a tough one for the Adams Fam but we are trying to be better in 2020. It’s very important to live within your budget so you can save as much $$ as possible every year. We all have goals to buy a new house, save for our kid’s college, get a new car, etc. and you can’t do this unless you set spending limits and goals of how to achieve it. It sounds simple but it’s not!! Like most people you have a lot of fixed expenses. It’s hard to renegotiate a mortgage, rent, car payments, or get a discount on daycare but we can limit our expenses on our credit card every month. The majority of our expenses involve eating out and groceries. We are making a conscious effort to limit big restaurant bills and plan better for our grocery store runs so we don’t waste any food or money. The easiest way to start budgeting is to pull up your monthly spending statement from your Bank to see what is taking the biggest chunk of your money. Start by making small changes in that category! When Liz meal plans more efficiently we see a big difference in this! We also have an Excel spreadsheet (that Liz never sees but I need to visualize!) of all of the things we HAVE to pay every month – daycare, insurance, gym membership, mortgage, car payment, etc. so we can see what $ is left over for the fun stuff.
I could dive deeper in to some topics, but I hope this is a good start. I’m happy to answer any questions, [email protected] or call me!