Planning for disaster is a part of any good relationship that many couples forget.”A lot of people have their finances set up as if nothing will ever happen, but of course that isn’t how reality works” says T. Rowe Price financial planner Stuart Ritter. “Things happening is a part of life.”
With advice from Ritter and other marriage and finance experts, we’ve rounded up seven steps all couples should take to ensure they don’t get caught in the storm.
The last thing you want to think about when your spouse falls ill or you wreck your car is how you're going to pay for it. All too often, our optimism keeps us from preparing for the worst and then we're caught out in the rain.
'Making an emergency fund part of your priorities is acknowledging that good and bad things happen,' says Ritter. 'This means that when those things happen, you get to focus on the unfortunate part and not worry about the money part.'
You've got to be patient, says Ritter, who all too often sees couples get tripped up by unrealistic savings goals. (See why being too patient might hurt your credit score.)
'Don't think you're going to be set in three to four months or three to four weeks,' he says. 'It's going to take time, but not as much time as you think.'
BI's copy editor, Jill Klausen, says it took her roughly two to three years to reach her goal.
The wait was worth it: 'We have security in the event of a layoff, and know we have time to find other work if one of us loses our job (which one of us did, and it worked!).'
'Putting a program in place will keep you on track, even when you're less committed to it,' says Ritter, who finds that when given the choice between a weekend trip with friends and socking away money, nine times out of 10, we'll take the trip.
'It's just more effective to make sure you're consistently saving than saying, 'Today's January 7th, I'm going to decide to contribute to my fund,'' Ritter says. 'All those other things you want are going to keep popping up, and you may not have the same resolve as you did when you were making your New Year's resolutions.' (See 6 tips to help your New Year's resolutions stick.)
Automating your savings is as easy as transferring a chunk of your paycheck into an account on the first and 15th. Set it up today and you'll be counting the zeroes before you know it (unlike this guy).
The cookie jar isn't for rainy days and vice versa.
Keep your savings funds separate so you're not tempted to label Filene's bankruptcy sale an 'emergency' and go overboard buying new shoes.
'Not only does this give you a place to put that automatic contribution, it helps you understand this is for an emergency,' says Ritter. It's not for shoes, it's not for your mortage, and it's definitely not for meals out when you're too tired to cook!
An emergency fund is less about providing a return on investment than having the money when you need it, right now.
'Like car insurance, you're buying so if you get into a big accident you're not taking a huge financial hit,' says Ritter. 'An emergency fund should be thought of as insurance, and having that trapeze so when you fall it's there to catch you.'
Andrew Schrage, Money Crashers's founder, says it doesn't hurt to make the money work for you, either.
'The money doesn't have to be sitting idly by in a savings account that earns little to no interest ... you just need to make sure that it's accessible,' he tells the site.
Good examples would be a high-interest checking account or a money market account where your funds are still readily available.
For emergency funds, skip the Roth IRA, 401(K) and CD, says Ritter. These will tie up your money, and you'll get dinged with penalties for withdrawing from these vehicles too early.
'A fun way to start and build emergency fund savings is to to reward yourself on a percentage-basis every time you contribute to your emergency savings,' says Schrage.
'Give yourself a 10 per cent cash gift of whatever funds you can invest in your emergency fund. So if you recently got a bonus check for $500 and can earmark the entire amount to your emergency fund, allow yourself $50 to spend as you wish.' (See the best and worst things to buy in January.)
'People think the operational aspect is going to be way harder than it is,' says Ritter, before adding that a fear of 'getting it right' tends to keep couples from setting up their emergency fund.
'But it's not as if you have to get it absolutely right the first time,' he says. You're allowed to sign up for the wrong account since you can always transfer it to another one.
And you don't have to go it alone. Your spouse should support this decision and companies will help automate your contribution.
'It feels like a lot of effort so people don't want to deal with it,' Ritter says, 'but it's probably not as complicated as you think.'