Dual income savings ideas

[pikey412]

I will be married in a few months and I was wondering how everyone goes about saving and paying bills when you have two people with different streams of incomes coming in.

I was thinking about doing this:
One checking account that both of our incomes get deposited into. All bills will get paid from this account. We will keep a minimum of $5000 in it and anything over that at the end of the month after bills are paid will get transferred to an online savings account.

Does this sound like an okay plan? Does anyone seem any drawbacks or have better ideas? How does everyone do it?

[jIM_Ohio]

I would save first, not save what is left.

Meaning pay yourself first, save first, or whatever you want to call it.

Figure out your gross pay. Might be 100k per year, 200k per year or 40k per year. Save a fixed percentage of that gross. I suggest 20%.

Put 15% into a retirement account (401k or IRA or similar).
Put 5% into a savings account (online, brick and morter bank or other) and use for short term financial needs- vacations, mortgage down payments, kids college, new car or house improvements. You can decide what the 5% is used for, but 5% to cash each pay period is my suggestion.

You want 3 months of expenses in your savings account. Probably another 3 months in conservative financial investments. For example 3 months in a money market, probably earning about 3%, then another 3-9 months expenses in something earning 5% but might have some restrictions (like a CD) or volatility (like a conservative mutual fund) to get a slightly better return.
--
next figure out a budget for the other 80%.
Pay all bills on 80%.
If 80% is not enough, reduce expenses until it is.
All taxes are paid on the 80% piece too...

Your gross pay might be 100k and 60k after taxes.
20k (20%) is going to be set aside (see 15% and 5% explanations above), so you might be trying to live and pay bills on 40k unless you get your head around taxes (you might be able to save 15k in a 401k and see take home pay only drop 10k because of taxes).

If you get a raise- save 20% of it.
If you get a bonus- save 20%.
If your income is reduced, unless it was reduced by 20%, you have room to aborb a short term drop in income without it interupting anything except retirement and vacations. Not a bad worse case plan.

[MonkeyMama]

I think it's a good start, to see what your income and expenses are. It will probably be an adjustment. It's hard to set too many goals until you see how marriage affects your expenses, etc.

That being said, for the long run, I would come up with a more concrete plan and more long-term goals. Develop a budget, etc.

For the short run, sounds like a great start.

[zetta]

I agree with Jim that you need to automatically deposit into 401k and/or ROTH IRA as well as into a savings account, then pay your montly bills.

At a minimum, add up all your semi-annual bills (car insurance, property tax, life insurance, etc.) and send 1/12 of this amount to savings each month. Send 1/12 of the amount you need for big purchases, vacations, Christmas presents, etc to savings each month. In addition, build up an emergency fund in savings -- first $1,000, then 3 months income, then 6 months expenses.

The Finish Rich Workbook might be a good one to start with to help you set up your system.

[snafu]

Do each of you understand what money means to the other? Are either of you coming into the marriage with debt? Do you have significantly different earnings? In the early years I earned significantly less than DH so we split expenses 60%/40%.
This is another take.. Spending allocated on income:

Housing 30% [includes utilities]
Auto 15% [includes operation,service,repair]
Food 17% [includes restaurant/take-out]
Insurance 7% [home,auto,life]
Entertainment 5%
Clothing 4%
Medical 6% [acknowledge our system is v/different]
Debt Repayment 5%
Savings/Investment 6%
Misc. 5% [personal allowance, gifts, holiday]

This system kept us on track in the early years while friends buried themselves in debt. Fighting over money has the power to wreck relationships.

[jIM_Ohio]

Originally Posted by snafu

Do each of you understand what money means to the other? Are either of you coming into the marriage with debt? Do you have significantly different earnings? In the early years I earned significantly less than DH so we split expenses 60%/40%.
This is another take.. Spending allocated on income:

Housing 30% [includes utilities]
Auto 15% [includes operation,service,repair]
Food 17% [includes restaurant/take-out]
Insurance 7% [home,auto,life]
Entertainment 5%
Clothing 4%
Medical 6% [acknowledge our system is v/different]
Debt Repayment 5%
Savings/Investment 6%
Misc. 5% [personal allowance, gifts, holiday]

This system kept us on track in the early years while friends buried themselves in debt. Fighting over money has the power to wreck relationships.

I agree a plan like above is needed.
I would mention that any plan which only had 6% going to retirement is probably going to fail, unless someone expects to work 50 years or retire and spend 50% less than they did while working.

Possible but not probable.

[pikey412]

Thanks for the responses. These are some great ideas to get me started.

To answer some questions asked in this topic, both of us are fortunate not to have any debt coming into the marriage. No student loans, cars are paid for, and credits cards are paid off in full each month.

One of our goals is to purchase a home in the next year. We've got about $30k saved between the two of us right now and are living below out means. I feel we have been saving pretty aggressively. One down side is that at 27 and 24 years old, neither of us has started to save anything for retirement. I just opened a Fidelity Roth IRA account online and plan on starting to contribute to that.

One thing that is tough for me is that, as a contractor, I don't have a set pay schedule that allows for auto deductions. All saving has to be manually done.

[zetta]

If you use online banking, you can set up an automatic transfer from your checking account to an investment account. Set an amount you can pay to your investments like a monthly bill, just like the electricity or house payment. When you have a really good month of income, have a set percent you transfer into the account.

[swanson719]

My wife and I have been married a year. First thing we did is make up a tight debt repayment plan. All the debt was to be paid off w/in a year except the house, which we accomplished w/o too much heart-ache. We also kept a minimum of $1,000 in savings at all times. Once this was done, we started paying ourselves 5% each out of each check to do with what we want, no strings attached. We don't separate money - everything is ours, not my check and her check. It wasn't her debt and my debt, it was our debt.

We pay all the bills and living expenses on 45% of our net, including our spending money. 5% goes into our retirement account. 50% goes into finishing up our 6 month emergency fund. Once the emergency fund is gone, the full 55% will go to finish out our yearly cap on our Roths. Once that is done, we will start aggressively paying down our mortgage, while ensuring our Roths are maxed each year. Once the mortgage is paid off, we'll start looking for other tax free or tax deductible investment vehicles, and spend more too.

I'm a huge subscriber to Dave Ramsey though too. My biggest piece of advice would be to live very frugally, rent a cheap little hole in the wall for a while, save for five years, and pay cash for your house. If you have to buy a house as opposed to rent, do your shopping. There are a lot of deals out there, and there are organizations that will pay your closing costs for you as a first time home-buyer if you search the web. Best of luck.