Love and Money

 
Do you and your partner fight about money? Or do you avoid talking about your finances? Many couples sidestep the subject out of fear. Yet money may be the single most important topic in a relationship. This story can help other couples find their way to a brighter financial future.

Coming together, right now
Veronica Chambers, freelance writer and writer-in-residence at Princeton University, 31, and Jason Clampet, a Web site editor and soon-to-be graduate student, 27

Marital status: Engaged
Income: $75,000 to $100,000
Expenses: $7,163 a month, including saving $1,100 a month for their June wedding
Major assets: Jason owns a house, which he rents out
Debt: Jason carries a $67,000 mortgage on his house and $8,000 in credit card debt
Biggest worries: Meeting expenses when he goes to school in 2003; learning to live with different spending and saving styles

Creating a Joint Account
Veronica and Jason are starting out on two exciting new ventures at the same time. They are about to get married, and the following year, Jason begins full-time graduate studies in architecture. They asked me how they could make ends meet while he's in school and still create an equal financial partnership. But when I looked at their finances and talked to them, I realized that their questions were less about dollars and cents than about feelings: Jason's secret fear that he can't control his spending habits; Veronica's unspoken concern of sacrificing too much for the marriage while Jason is in school.

Credit Card Debt
Jason and Veronica are incredibly smart and capable. When they first met two years ago, he already owned a house, while Veronica had paid her own way through college and was already a successful writer. But, both were in debt: Jason still owes $8,000 on a credit card with a high interest rate, and Veronica had credit card debt, student loans and back tax debt totaling about $23,000. "When I saw how responsible Jason is, that he even owned a home, she says, "I promised myself I'd get it together." When she says "I do," she'll be debt-free.

To lower the rate on Jason's credit card debt and turn his interest payments into a tax deduction, (interest paid on credit cards is not deductible) I suggested he look into refinancing his house at today's mortgage rates. If he refinances his 30-year, $67,000 mortgage, currently at 7.5 percent, into a 15-year, $75,000 mortgage at 6 percent, he will be able to pay his credit card debt with the extra money from the mortgage, he will own his home outright in 15 fewer years, and, since he won't be writing a check for the $550 he is currently paying each month on his credit card, he will be saving more than $300 every month that he can put toward his and Veronica's living expenses.

Different Spending Styles
It might seem strange that Jason has bought his own home yet also has huge credit card debt, but it isn't that unusual. He says his habit has been to make a budget using only what he brings in. In the past, though, he has had to cover unexpected expenses with his credit card. This is one reason he is afraid that he can't control his spending—and that his spending will end up controlling him.

Veronica's style is different. When she wants or needs something—a new coat, an expensive handbag, even to pay off a credit card—she goes out and earns the money for it. This worries Jason. Deep down, he admits, he feels a little guilty about buying the things he does. He also feels pressure to take extra work.

Veronica, who has paid off a huge amount of debt, would like to see him plan to buy things rather than just get them. And his joking objections to Veronica's way of dealing with money set her teeth on edge and remind her of the way her father used to talk to her mother.

The Solution
I advised them to set up three accounts: two individual checking accounts, to use for private needs and wants, and one account for joint expenses, in which both partners deposit equal percentages of their income, not equal amounts of money. And when Veronica earns extra money for the things she wants, a percentage of that money should be treated as income for joint purposes and go into their joint account; Jason needs to use his extra refinancing money to pay his credit card debt. In this way they are never taking from each other but always adding to what they have together.