How did they get such big credit card tabs? "I charged all kinds of everyday expenses while starting my career, living in London and then New York - two expensive cities," explains Louise, who currently has $10,000 in credit card debt. Matt says his $20,000 debt ballooned out of control because he didn't take his cards' high interest rates seriously, paying only the monthly minimum balances. "When I realized how big a hole I'd dug, it was a quite a hole," he says.
When they got engaged, the couple needed help to pay for their wedding. "We felt we couldn't not invite someone to cut costs," says Matt. But they also didn't want to accumulate more debt, so that's when they made the risky decision to each withdraw $6,000 from their 401(k)s. "Turns out that was the last place they should have tapped to pay the bill," says Bach.
Another factor that made money management a challenge: Louise and Matt still keep separate checking accounts and divide household bills. "Since we were used to keeping our savings and checking accounts separate when we lived together before our wedding, we didn't give a lot of thought to merging them once we married," says Louise. They now have only one joint account to pay monthly bills like rent and utilities, which they split in half. Beyond that, they each pay for their own clothes, entertainment and the debt on their individual credit cards. (Even when they dine out, the couple takes turns paying the bill.)
"We're independent. It's a control thing," she says. Matt explains that it's because they respect each other's privacy: "I don't know how much she pays for shoes. She doesn't know how much I spend on fantasy football." The mix of keeping separate accounts and not communicating about finances is a tricky one. They may not be stressing over it daily together, but when the money problem does rear its head, it's a huge stumbling block.
The last factor complicating their finances? They have subtle differences in their spending habits. "Matt is more open to spend money on going out," says Louise. "He feels that since we're young we should be having fun. I agree, but it's always on my mind: Given our goals of owning a home, should we go out so often?"
While Louise and Matt's combined salary of $150,000 seems like it could keep them out of financial trouble, Bach warns they are making typical newlywed errors. Fortunately, says Bach, they're easy to fix. Here's how:
Invest in a 401(k) account, then leave it there. "Taking money out of a 401(k) savings plan before you're 59 1/2 [the age set by the government for withdrawal in order not to incur penalties] is one of the biggest financial mistakes you can make," says Bach. "It's not just the present value of the money that you're losing, but the value of the future money that it would grow into if left alone." For example, the $12,000 that the Boyles withdrew from their 401(k) accounts would have grown to $391,664 in 35 years (assuming a 10 percent rate of return), according to Bach. A payback plan works only if you'll be continuously employed during the time it takes to make good on the loan. If you lose your job, you usually have 90 days (depending on your employer's policy) to make full payment; otherwise you can incur a 10 percent penalty and taxes. (The government allows withdrawal for hardship cases; check with your employer.) The positive news: When Matt and Louise made the withdrawals, they signed up to get automatic deductions from their paychecks to pay the total back over five years.
Pay off your credit and pay into your future. The key to erasing credit card debt and building a strong financial future, says Bach, is to use his trademark "half-hour rule." Here's how it works: Divide your weekly take-home pay by 40 (the number of hours in a workweek) to get your "hourly rate." Then, allocate a half-hour's worth of salary per day to a retirement fund, a half-hour's worth per day to pay off debt and a half-hour's worth per day to an emergency reserve (you need a six-month cushion in case of unemployment or other unexpected crisis) each paycheck. (This adds up to seven-and-a-half hours per week.) "No matter what you earn, this equation will work for you," notes Bach. "With this plan, your savings will grow and your debt will decrease." Then pay your fixed monthly costs, such as rent, phone, insurance, and groceries. Only then, if there is leftover cash, should you indulge in splurges.
Merge your financial future. While it's increasingly common for married couples to keep some finances separate, says Bach, it's not a good idea - and can slow couples down from reaching shared monetary goals. "Couples need to work as a team, developing a 'we' attitude, building up 'we' portfolios." Once they've pooled at least 80 percent of their money into joint accounts, according to Bach, the couple must then decide which financial roles they'll play. "Louise and Matt need to negotiate who is going to take on the role of the family's chief executive officer (CEO) and the chief financial officer (CFO)," says Bach. "In the short term, the CEO will pay the bills monthly from joint funds; it's a better system than splitting bills." Tick off payments online through a bill presentment company, such as paytrust.com and quickenbillpay.com, advises Bach. "In the long term, the CFO will monitor where the money goes, making sure financial goals are on track." These jobs could be switched every six months or so if they'd feel more comfortable trying both roles.
Talk about your money background. "Most couples fight about finances because one person wants to discuss it while the other doesn't," says Bach. This communication friction gets in the way of finding answers. Since people are often emotional, rather than strategic, about money, Bach suggests easing into the conversation by exploring how your parents handled money. How did their financial styles impact your outlook? Once you have a take on the past, then ask how comfortable you both are following your parents' leads or doing the opposite. "Patterns in our upbringing can be hard to shake. Get your feelings on the table," says Bach. "This will help you both see the directions you're coming from and where you need to head."
