Finances are the root of more arguments and long term misalignment between couples. Get ahead of things and set yourself up for success! We are big advocates for having clear and open communication in your relationship especially around finances. We talked about finances early on when we dated and still revisit it at least once a year since we’ve been married.
So, how should your finances work when you’re married if you’re a DINK (double income with no kids)?
Bank Accounts for DINKs
You should look into setting up several bank accounts.
To make things fair, things should be done based on a percentage of income rather than each person contributing the same dollar amount. As an example, it isn’t fair for one person to use their entire paycheck to help fund joint costs when the other person with a much higher salary is using only a little bit and the rest goes to whatever personal expenses they want. If you make more, you will still have more personal money to do with as you want but you won’t leave your partner high and dry without anything personal money.
The most important thing is to have a HYSA from a bank that is FDIC insured. Never keep more in the account than what is insured and if you’re at that limit, open another account up at that institution or another institution as long as it will be insured.
It’s recommended to setup an automatic disbursement from your employer so the right percentage of funds go to each account type.
We suggest setting up accounts like the breakdown below.
Joint Checking
Setup a joint checking account. This covers joint expenses The joint account yearly total being deposited needs to cover your joint expenses (home costs, utilities, food, vehicle expenses, couple vacations, etc.) with a little buffer. You’ll need to know your yearly spending total to figure this out. When in doubt, estimate on the more expensive side. Once you have that number you need to see what percentage of income, after taxes, should be allocated by both parties to the joint account. To calculate this, take your total expenses and divide it by your joint total salary after taxes are deducted. That answer is the percentage each is contributing. I would bump it up 5 percentage points for good measure if you were estimating and didn’t think you were generous enough or have bad spending habits.
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Savings
Most standard bank savings accounts earn next to nothing. In our opinion they shouldn’t even be called savings accounts. You want to open a joint high yield savings account (HYSA) so you can make money on your savings that is otherwise sitting.
The big downside to most high yield savings accounts is:
- No brick and mortar access (you usually need to use the app or online portal)
- You can’t use funds directly from that account (no debit card, checks, etc. that pull for your HYSA)
- It may take a few days (usually up to 3) to move money from the HYSA to an account where you can use the money (debit card, check, etc.)
It is liquid but it isn’t immediate. If most cases, a credit card can bridge the gap for a few days until your funds are available in a usable account if an emergency happens.
Links:
- Historical Federal Funds Effective Rate track close to HYSA’s so can get a quick idea of where rates have been and are at
- High yield savings account rates here
Emergency Fund – High Yield Savings Account
You want to have a nest egg / emergency fund equal to at least 6 months of total joint expenses, if not 12 months. If you don’t have that saved yet, you’ll want to set aside all of your income outside of your joint funds until that is achieved. This is always the first priority even before any personal spending. Spare yourself the cup of coffee or going out to dinner, put the money in your emergency fund first.
You make that a high yield savings account because it’s nearly liquid and you can earn a decent interest rate (opposed to a standard bank savings account). It doesn’t have a time commitment on it like a CD. Your savings only go up (opposed to what can happen in the short term with the risk of investments or stocks).
You want at least 6 months if not 12 months of what you spend in a year sitting as nearly liquid cash on hand. This is your nest egg that you cannot touch unless it’s a true emergency. You want to fund this with all the leftover money after the joint expenses are covered. Once this is fulfilled, you don’t need to add anymore funds to it unless your joint spending habits change in which case you’ll want to readjust it.
Emergency Fund % of Salary for Each Person = 100% – A
After it’s funded, 0%.
It’s important, prioritize it and set your life together up for success.
Savings Goals – High Yield Savings Account
If you have major initiatives that pop up and/or you are saving for (house down payment, car, vacation, remodel, IVF, etc.) – you’ll want to agree on a percentage you’ll want to deduct from your salaries personal spending percentage to allocate to your joint savings account where the high yield savings is, to fund those initiatives. Some of the high yield savings account platforms will allow you to make separate buckets for those saving initiatives.
Is it important and you want it soon? If so, everything else will take a break and you’ll devote all your extra money to this thing. Set your personal account contribution and investing account contributions to zero, funnel everything to your HYSA for this thing you need soon. When you have enough funds your personal and investing contributions can go back to normal.
Do you need it eventually? If so, decide how aggressively you want to save and put that extra percentage in your HYSA each month. Do the math and know how about how long it will take you to save at that rate. Knowing where you money is going and when to expect to reach the goal are details you should be aware of.
Personal Account
Each person has their own bank account. This is where all of your personal expenses come from and from which your significant other has no jurisdiction in what you can or cannot spend it on. If you are in a respectful, healthy, relationship – you should consult your significant other out of respect for high value purchases but it’s the account owners call how they use those funds (assuming it doesn’t impact the other party).
Only after you have your joint funds covered, emergency fund saved, and decided on what percentage to contribute every month for your savings goals (if you have any) can you put anything into your personal account. It’s essentially whatever is leftover. The theory is that it is important for you as the individual to have your own say over what you do with some of your money but only after the initiatives of the couple is taken care of first.
If you have kids or plan on having kids, you may want to set a very low percentage that goes into your personal account (perhaps 5%) and put the rest into investments or savings. That way, as your family grows and ages, you have funds ready to support all the things that pop up. However, DINKS don’t need to worry about this.
Investing & Retirement Funding
Then there’s investing / saving so you can be financially independent and eventually retire or better yet, retire early. Let’s be honest, it is not feasible to continue providing Social Security to the aging American population. Or if we do, the government will need to print more money to make it possible which will drive more inflation which will devalue what the Social Security funds can even buy anyways (lose-lose). So, plan for your retirement and don’t rely on Social Security.
If this is something you are actively looking into (which you should at least discuss with your partner), you’ll want to decide what amount from the personal account percentage you want to move to planning for retirement / long-term investing. It’s advised to do the same thing as before, you each put the same percentage of income into a joint account that is being used for buying stocks/bonds/crypto or saving for residual income initiatives that are inherently more short-term risky like rental properties or businesses.
How Much Do You Need to Retire
- 25x your annual spending budget is a good guess of what you need saved or invested before you can retire. Example: if you both want to retire with a lifestyle where you spend $100,000 annually, you’ll need $2.5M invested or saved. Because the cost of living is lower in most countries outside the United States, some people spend their working years in the US but plan to retire outside the US.
- Historical data says a yearly draw at 3-4% should last you indefinitely, this accounts for historical inflation figures vs gains. If you want to die with nothing to your name (Die with Zero) you can have a higher draw. We suspect inflation to increase at a rate greater than historical averages so in our calculations we error on the conservative side and use a 3% draw.
- Retirement calculator: Here’s a really basic FIRE (Financial Independence, Retire Early) calculator: https://docs.google.com/spreadsheets/d/1JYVWXv0uqgR0WvH4e_l5eYztt3BdiVvtMKbRK3c05Dg/edit?usp=sharing
If you fill out the FIRE calculator, you can adjust the yearly savings number to see how much you need to save to achieve your retirement age goal . To get the percentage you need to put into retirement savings that make you money (hopefully) like stocks/bonds/Bitcoin/etc. you will take the total you need to save each year and divide it by your joint total salary after taxes.
Keep in mind things like stocks, crypto, and even residual income initiatives or business (like rental properties) are all risks. But, over a long term, most have lower risks due to the historical averages over long periods of time. But, history doesn’t need to continue the way it was so do realize the risk that exists with where you put your money. And, the advice is to diversify as to hedge your bets if any one thing or several things go down in the market. What you put into retirement and where you put it should have a risk amount you feel comfortable with given your timeline and situation. Everyone is different.