Hello and happy Sunday!
In this very moment, I realized I don’t typically start newsletters with greetings. I just get right to it.
So anyways - greetings! Hi!
Thank you all for the incredible and thought provoking feedback from last week’s post. This week, we’re continuing the finance theme. Some time ago, folks on Instagram submitted some finance questions, and my financial advisor has so graciously answered them. Thank you, Gabi!
For absolute clarity, this is not at all sponsored. I have learned so much over the past 5 years we’ve been working together, that I want to share some of what I’ve learned!
This is sort of chapter 2, after our finance 101 Q+A a few years ago.
Finance FAQ
What loan repayment option would you recommend for APP with 150K student debt?
This question completely depends on circumstances. I send a lot of my medical clients to a company named Gradfin. They do free consultations on student loans and understand all of the new (and old) payment options. For example, if you work in the non-profit space like at a hospital, there is a chance you are eligible for student loan forgiveness. Your strategy would change if your practice is for profit. Gradfin can give you guidance on which program best serves you and if you are eligible for student loan forgiveness.
Tips for navigating when you and your spouse/SO share different views on saving/spending?
Hire a financial advisor you BOTH like. Having a third party that is an expert hear both of you as individuals and navigate some of your differences makes both people not only feel heard but also comfortable with the financial plan. Especially if your views are different, it is incredibly important to make sure you both feel empowered in the conversation. Too often do I see one spouse take on all of the financial decisions and the other spouse does not feel empowered or worse, feels resentment because they would choose to do things differently. Sometimes I call myself the money therapist because money is one of the major reasons people get divorced. If there is a way I can create open communication where everyone can feel heard and create unique strategies so both parties feel good about their progress together and individually then that is a win.
Budgeting tips
I hate the word budget because it feels restricting. I like to do expense exercises to see what you are spending per month and what is left over. If people have no idea what they are spending and really want to find opportunities, then I have them do the exercise. I send them an excel spreadsheet where it lists out every category people tend to spend money on per month. I ask my clients to look at their bank account and credit card statements from last month and write down every category they spend and how much they spend in each. Mint also does this automatically. Be warned sometimes the Mint categories are not perfect and you have to manually categorize which becomes annoying. This is a good way to see what you are spending freely, what you didn’t realize you were spending on, and areas to cut back. Once there is an established monthly expense expectation, then it gives you the ability to make savings more automated.
Pros and cons of combining finances with a partner (equal ish incomes)
I recently got married which gives me new perspective on the topic of “to combine or not to combine.” In my opinion there are a lot more pros than cons, but we also didn’t combine everything. Ultimately this is a conversation to be had with the two of you. If you use a financial advisor definitely include she or he. It is easier in my opinion to have someone else facilitate conversations around money especially when views differ.
Pros:
You can create household goals. If income is different, then have different monthly amounts to target for saving. Creating automatic, systematic savings is when people are usually their best savers. I would recommend picking a number and doing an auto transfer from checking to savings monthly for each person and to tie in something fun when you hit certain goals.
Compound interest is more fun when there is more money in the account. For example: 10% rate of return on $1,000 is $100. 10% rate of return on $100,000 is $10,000. If you create a joint brokerage account, then you can watch the money grow faster together.
Tax brackets married filing jointly vs filing separate usually has an advantage filing married jointly. The major reason some people don’t is due to student loan repayment options. I suggest you consult a CPA as well as a student loan specialist if you think you fall into this category.
Openness. Combining finances creates a level of transparency and shared responsibility. It is important to have open conversations on goals and objectives with money as a household.
Efficient savings and budgeting. Being able to manage the household budget is easier when there is one unified budget. It also can lead to more money being saved since there is a level of efficiency.
Cons:
Lack of independence can feel overwhelming when combining finances. Having to collaborate to make financial purchases for the first time can be hard.
How I have solved this: Especially as a strong, independent woman the feeling of giving up control feels scary. Griffin (my husband) and I have our own personal bank accounts as well as a shared joint bank account. For any purchases that we just want for ourselves we take it out of our personal bank account and then everything communal comes from our joint.
Different spending habits. In most relationships one person is a saver and one person is a spender. If this is the case it is important to pick a number for each of you to save monthly into a combined savings account (even if the numbers are different). This is a good one to talk through with an advisor to make sure both people feel aligned with their saving and spending dreams.
Difference in financial philosophy. This is a conflict that needs to be addressed as soon as possible. Even if philosophies don’t align, having a mutual understanding of each other’s point of view and a combined strategy is important. I often see one person has more dominant views in a relationship and the other person is completely hands off even if he or she does have opinions.
Lack of privacy. Having a personal bank account and joint bank account allows for some privacy in spending. For example- does Griffin want to know how much it costs to get my hair dyed? Or my nails done? If he had visibility I think I would hear a comment or two about the cost of some things I find to be a non-negotiable. Also, I like to be able to freely surprise him with gifts, or a trip for his birthday. Logically the money is all the same since we are married, but psychologically the money in my account feels special when I want to treat him to dinner.
Suggestions for combining finances (some? all?) when you get married
This is personal preference. Some people have no personal bank accounts and only a joint savings and checking. Some couples keep a personal bank account and use their joint bank account for household bills and savings goals as a family. Retirement must stay separate in the individual’s name and usually the spouse is the beneficiary (ex. 401ks, 403bs, when you leave a company, you have the option to open an IRA). Investment accounts are mostly joint investment accounts as a couple.
As a new grad PA, should I prioritize saving/investing or paying off student loans ASAP?
Congrats on making it through PA school! Most PA’s end up with a substantial amount of student loans. For some reason they all have the same thought- get rid of all debt ASAP! I would suggest taking a step back and understanding if that is a logical approach to the financial plan or simply an emotional approach. Paying off debt sends endorphins to our brain, but does it mathematically make sense to overpay them? Unfortunately, this is case by case so I would need more information to give true guidance. Some things to consider/most questions I have.
PAYEE and SAVE are two programs with federal student loans that might make sense to look into.
Student loan forgiveness options.
What is your interest rate on the student loans? Are you doing autopay (usually it takes off 0.25% of your interest!)
The student loan interest can also be tax deductible (depending on income).
Would it make more sense to invest the money you would overpay the student loans and pay it all off in 10 years?
What is the balance of the student loans and what is your savings capacity?
Do you have other goals (getting married, buying a house, owning a dog, etc) that would be delayed if all of your savings goes to the loans (this is called opportunity cost).
Shameless plug for financial advisors but truly there is so much that goes into creating a financial plan for someone. If you google this, there is no direct answer. It takes a conversation to figure out what are your goals and objectives. What is important to you? What makes the most sense with the student loans so it gives you peace of mind knowing you have a plan so you don’t have to think about them in the back of your mind.
Best ways to save besides IRAs and 401ks? High yield savings account? CDs? It's all so confusing.
There is no real blanket statement of where the best place to put money is. If you are going to need it in the next 6-18 months then a high yield savings account is likely a great place to put the money. It offers some interest, but no downside. The interest is subject to change but your account balance cannot go backwards. This is good for an emergency savings house or short term goal.
Ideally having 3-6 months of living expense in cash in the bank for an emergency.
Anything you are saving for in the next 6-12 months should also be in a liquid cash form.
Outside of short-term goals, there are a lot of options depending on risk tolerance, time horizon, and the amount you are able to save. This sweet spot is the person place to chat with a financial advisor to get some perspective on what you should be doing after the emergency savings fund is completed.
Retirement is great to start when you are young. I would suggest understanding the difference between roth and traditional (or pre-tax) in your 401k and 403b. Roth is a newer option in an employer sponsored plan. Roth allows you to pay taxes now, have your money grow, and take it out (including all of the interest) tax free in retirement. Although retirement feels far away, starting when you are young and maxing out your 401(k)/403(b) (or getting as close as possible) will put you in a position of power in the future.
With the housing market the way it is, when is the best time to buy?
In the Boston area the housing market may feel unattainable, or there is a better time to buy. There is not a lot of supply but there is still a lot of demand. Interest rates are higher than they have been in a long time but they are scheduled to go down (according to the Fed’s projections). So much can change in the course of a year, but nobody really knows what is going to happen. If you can afford to pay the monthly mortgage plus homeowners insurance plus property taxes plus HOA (if applicable) and there is still room to save, then purchasing the house can make sense. If interest rates go down there is always the option to refinance at a lower interest rate which will decrease the monthly cost of owning. I would not suggest over stretching in hopes to refinances soon because there is a change that interest rates won’t move for a while. The challenge with waiting for interest rates to decrease is that there are a lot of people waiting to buy homes so the competition might pick back up. If you can make the mortgage work within your means then it might make sense to connect with a realtor/loan officer.
Is it worth getting a high yield savings account?
Totally. If you go to NerdWallet there are the latest options for high yield savings accounts. For dollars that are emergency savings fund or short term goal this is a great place to put them and have them grow. The interest is subject to change, but for now with interest rates high so are high yield savings accounts.
Hope this was helpful!! If there are additional questions, maybe we’ll do a part 3!!
Warmly,
Katie
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. Gabrielle Joyce Siegel is an Insurance Agent of NM and Northwestern Long Term Care Insurance Company, Milwaukee, WI, (long-term care insurance) a subsidiary of NM, and a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser and member FINRA (www.finra.org) and SIPC (www.sipc.org).
Representative of Northwestern Mutual Wealth Management Company®, Milwaukee, WI (fiduciary and fee-based financial planning services), a subsidiary of NM and federal savings bank.
Not all Northwestern Mutual representatives are advisors. Only those representatives with “Advisor” in their title or who otherwise disclose their status as an advisor of Northwestern Mutual Wealth Management Company (NMWMC) are credentialed as NMWMC representatives to provide advisory services.