http://www.iht.com/articles/2008/09/25/healthscience/25money.php

“Among the problem financial behaviors identified by psychologists in recent years are: overspending, underspending (a k a Depression mentality), serial borrowing, financial infidelity (”cheating” on a spouse by spending and lying about it), workaholism, financial incest (lording money over relatives to control them), financial enabling (throwing large sums at, say, adult children who then are not motivated to support themselves), hoarding, and plenty of guilt and shame around poverty and wealth.”

Sure you may get hit by a bus tomorrow but the chances are that you won’t. Given that the pro-consumerism attitude is everywhere with banks and lending institutions giving people the okay to continue spending. Is it any wonder we face the economic peoblems that we do?

Its almost as if we all simply took leave of our senses and joined a crazy spending party. And boy do we have some hangover now.

How I handle these is to have a seperate (high yeild savings) account for these funds to isolate them from the month to month expenditures. I have a regular budget item where I transfer funds from the checking to that savings. ING is nice because of the sub account feature, you can keep your allocations seperate, and still transfer funds between them and back to the checking. For the ones like property tax where I’ll need the money within 6 months, I just put those funds in the account linked to my checking.

If I don’t need the escrow funds, they just keep adding up, because sooner or later that ‘cash flow’ will need ‘buffering’ LOL.

I’ve actually posted something on the subject: http://thankfulforfools.blogspot.com/2008/09/joint-budgeting-for-fools.html

What it all really means is that in each primary bank account anything that’s left belongs to yourself. You each have your own savings for anything that wouldn’t fall into the realm of “family purchases,” which I tend to think includes RRSP contributions, as well as gift purchases for the other.

And then any monthly bills, groceries, etc, come out of the joint account. With a joint savings for an emergency fund.

And it only goes deeper.

The more automation the better. Once you treat it as though it’s out of your hands, your personal finances will finally truly be in your hands.

Thankful For Fools

I have one nit to pick, but I think it’s actually a big deal: It’s a disaster if their car breaks down or they lose their job – immediate panic mode.

You talk about having an emergency fund, but I’m going to level with you: car break downs, job losses, glasses replacements, these are eventualities not emergencies.

I think that the terminology here is really important. If you own a car it will break down, likely at an inconvenient time (when is it really convenient?). It’s nice to think of this as an “emergency”, but it’s really not, it was going to happen at some point.

Maybe it’s time to think of a “cash flow buffer” instead of an “emergency fund”. If you own a car today and you’re not putting aside money for repairs (or a down payment on the next one), why not? Do you have cash in the bank to cover the car’s deductible? If you own a home similar questions apply.

Many people are often completely blindsided by unexpected expenses.

From what I see with most people, the problem isn’t lack of a “cash flow buffer” and it’s not “being blindsided”. The problem stems from the ignorance of the inevitable.

I think that was my greatest expenditure during my early to mid teen years.

I work in the financial industry, and I can’t tell you how many clients I speak with on a daily basis who are very close to retirement or are already retired and are 100% in the stock market and are now panicking because their portfolios are tanking. I don’t care how diversified among different stocks you are, if you have less than 10-15 years to retirement you should start incorporating some bonds and fixed income products into your portfolio, and should only be weighted more heavily towards bonds and cash as you get closer to retirement. THAT is why target-date funds are appropriate for a lot of people- not only do they diversify the stock portion of the portfolio, but they also make sure people are in the proper overall asset allocation for their time frame.

Separate finances work for my partner and I, even though only I have a paycheck. I think the key is:

1. Having an JOINTLY worked out and AGREED upon budget covering shared bills, emergency savings (and what constitutes “emergency”), retirement, joint purchases, etc.

2. Each person having an EQUAL amount of money that they have complete control over (to save or spend as they see fit) outside the aforementioned budget, regardless of who earns more.

If we both worked, then the budget would include an agreement between each of us about how much we each put into retirement, and how much we each contribute to joint expenses, in such a way that we each had the same amount left over to do with as we saw fit.

(Though I agree that separate finances doesn’t work if the one with more money has more freedom/control, or if the one who declines to contribute to a retirement fund thus has more spending/fun-money.)

The last one we had to get over was giving family a loan and finally coming to the realization we probably wouldn’t ever see that back. But it wasn’t a huge amount for us so it wasn’t that terrible.

This is a great article!!!! Very detailed & much needed to all in this country. Especially w/all the financial issues Americans are facing.