Roth IRA Challenge: The Money Mine

Today’s amazing post is from our friend Nick over at The Money Mine. One of my favorite things about The Money Mine is the variety of topics Nick covers (from amazing interviews with Greeks about the economic crisis in Greece to negotiating fees with your dentist). Nick’s post today covers a variation of the Roth IRA Challenge: finances in a marriage and the steps they took to start saving money together! I hope you enjoy this post as much as I do!

A little over 2 years ago, my finances were very stretched. My girlfriend (now wife) was finishing her global MBA. Global is key word here, because it means that each module was held in a different location. We ended up traveling to San Francisco, New York City, Shanghai and Barcelona.

Life was awesome. And unreasonably expensive: we were saving <5% of our combined income.

After she graduated, we planned on getting married. We knew that weddings are large expenses and we started to talk about our finances to plan the event. Then we had THE financial talk: “So how much do you make? Do you have any debt? How many accounts do you have and how much is there?”.

That wasn’t sexy at all, but oh so useful.

Fast forward to today and we are doing great financially. We now save more than 50% of our incomes and we plan to be financially independent in 6 years. While we drastically cut our expenses, our lifestyle has barely changed.

In the process, we have saved the equivalent of multiple IRAs and not just on travel. I’d like to share with you what I’ve learned in the process.

You get married, your finances do too

Eventually, we decided that if we had to live as a married couple, we should also merge our finances together. It had to be everything: income, debt, spending, accounts…

We didn’t want to manage ‘his’ money and ‘her’ money, we wanted to manage ‘our’ money.

Since we now could look at things as a whole, it became a lot easier for both of us to see activity on all accounts. It was also easier to work together on improving both sides of our finances, because we had mutual transparency.

The first step for us to build strong finances was understanding what the household earns and spends as a whole.

Some of the steps we took to achieve this:

• Had THE talk. I’d say that 95% of the results come from that discussion. 
• Opened joint accounts and made all our bank accounts visible from each of our individual online banking accounts (we’re at the same bank).
• Moved all income and spend to our joint accounts including our paychecks, the credit card payments, the mortgage, utilities … 
• Funded a family emergency fund, that represents about 6 months of living expense because we knew how critical an emergency fund is.

We (mostly I?) talked about Financial Independence.

After we put our finances together, I spent a huge amount of time online to see what and how other people were doing it. Just like you!

I came across personal finance sites like Mr Money Mustache and Financial Samurai that showed me what was possible once finances are under control: a whole lot.

Then we talked about the concept of Financial Independence. Discussing financial freedom and having one day the option to do work we love, even if it doesn’t pay well, was easy. When I mentioned that we could work outside a cubicle, I closed the argument. She was onboard!

We calculated our 5 most important numbers and set our Financial Independence date for 2022. I’ll be 41 then.

We know that after FI, at least one of us will start working as an independent worker. Maybe start a business and sell it for millions of dollars. But in any case focus on what makes us happy, especially outside a cubicle.

Some of the steps we took to achieve this:

• Calculated our expenses x25 to find out our Net Worth target. When we saw it would take another 7 years, we tried to project ourselves in the future to see if our assumptions would work. So we set the date and had a nice celebration dinner (cooked at home of course!)
• Talked about how life would be afterwards, regularly. This may sound futile, but it is proven that being able to visualize the goal and its benefits keeps you going when times are tough. Instead of saying things like “One day, I’d like to be a yoga instructor”, we now say “When we’re FI, I’ll be a yoga instructor”. Suddenly we feel like we have a lot more options. We imagine how awesome being FI will be and we’re happier as a result.

We ditched the budget and do a monthly progress review instead

Doing a budget is not easy for everyone (is it for anyone?). It’s hard to follow-through because every month is different and things rarely ever happen as planned.

For example, we could spend more on travel in January than in May, simply because we went on vacation. Our spend at restaurants could be higher than usual in a September for birthday celebrations (including mine). To avoid the stress of it, we abandoned the traditional idea of doing a budget.

instead we have a net worth target for each year until 2022 and we track our progress every month.

For this year for example, our goal is to reach 43% of our Financial Independence target by December 31st. Next year it will be 54%.

Some of the steps we took to achieve this:

• Track finances in a Google Sheet: we initially had an Excel spreadsheet but it was difficult to share with my wife so we opted for a Google Sheet instead. We track our incomes and our spend by categories, which we get from Personal Capital. This is our cashflow. Separately, we also track the value of each account including savings account, 401k, mortgage account,…
• Track reviews in a Google Presentation: there’s always something we find during our reviews that we need to follow-up on. It could be a charge that looks suspicious that we need to dispute, a refund that we haven’t received yet or a reminder to apply for homestead exemption. We write these down as a follow-up for the next session. 

Conclusion

This year is the first year that we have been following-up fully with our system and the first year that we actually planned together. This process has saved us tons of money that ended up in our 401k, a house and gave us the idea that we could be financially independent soon.

This process has worked remarkably well for us and I’d recommend it to anyone looking for ways to improve their finances.

What techniques do you use to keep your finances under control? Let us know in the comments below!