Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion of the GameStop frenzy and what we learned from it.
Then we pivot to this week’s question, from Kim in the Bay Area, who writes, “I am 26 and just moved in with my boyfriend at the beginning of the pandemic. We live in the Bay Area where the cost of living is not cheap. We were both lucky enough to have stable jobs and a steady income during the pandemic. But we are trying to get a better handle on our budgeting and begin planning for the future. My first question is, how do you start discussing finances with your partner? Are there any strategies or tools you recommend? We sat down multiple times to try to figure out our finances but get overwhelmed every time and don't really know where to start. What are some topics we should make sure to cover in these conversations? My second question is how do couples begin to save and budget for both a wedding and a house? My partner and I would like to eventually have a wedding and also buy a home. But these two goals feel so expensive and unattainable. Our families are not in a place where they can help us pay for these things. So how do we begin to financially prepare for these big life events?”
Check out this episode on any of these platforms:
When you’re not in the habit of discussing money with a partner, it can be challenging to get started, as Kim has experienced. But it is necessary. Money conversations can start out awkward, but with practice, you and your partner will grow more comfortable with it. You can start with something as simple as groceries — who shops, who pays, who cooks — and whether expenses should be split 50/50 or divided according to income. There aren’t right or wrong answers here, but it’s important to be clear and for both parties to understand.
You also don’t have to decide every single thing at once. It’s really overwhelming if you’re trying to figure out a day-to-day budget, plus savings, insurance and more in one giant summit. You can even put budget discussions on your calendar and break it down into the topic you’ll discuss — rent and utilities this week, saving for a new couch next week. Try making it manageable and small.
If you have a big goal, like saving for a wedding or a down payment, calculate the big number that is your goal, and then work backwards to figure out how much you need to save. If the amount is not realistic, you can either put off your goal date or scale down your goal amount to make your goal achievable. And check in often to monitor your progress, make sure you’re still on the same page or tweak your goals as your needs and circumstances change.
Start with the basics. When you're first managing money with a partner, have conversations about where your money is going now, then move on to your goals and how to achieve them.
Fight the overwhelm. Break bigger tasks down into smaller ones.
Work backward. Figure out how much you need for a goal and by when, then work backward to figure out how much you need to save each month. Adjust as necessary to accommodate multiple goals.
More about money conversations on NerdWallet:
Sean Pyles: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Pyles. This week, my co-host Liz Weston and I answer a listener's money question about how they should start having money conversations with their partner. But first, in our This Week in Your Money segment, I'm talking with investing Nerd Chris Davis about the recent stock market shenanigans and what it does and doesn't mean for your finances. So Chris, welcome back on the show.
Chris Davis: Hey, Sean. Good to be back.
Sean: Good to have you. So let's just dive into it. For those who are maybe a little bit confused about what's been happening in the stock market, or those who hear the word Reddit and immediately just tune out, can you give us a quick recap?
Chris: Yeah, sure. From a very high level, it might be best to start with hedge funds. Hedge funds are basically an investment vehicle that pools money from wealthy people. And hedge funds are similar to mutual funds, but they're actually a little less regulated. And that means that the firms that manage the hedge funds actually have a little more leeway in terms of kind of the investment strategies they can use, and they can take on a little more risk in doing that. One of these strategies is short selling.
So basically if you short a stock, you're betting that the price of that stock is going to go down. In a way, you're betting against the company. And so what happens with this is you borrow the shares of the company — you borrow them from a brokerage — and then you immediately sell them. And if the stock price falls, you buy them back, return the shares to the brokerage, and then that difference in price is profit for you. If the stock price rises ... So, if you imagine, you borrow the stock and then you sell it for $10, and then the price rises to $50. You're on the hook for returning those shares, so you're going to buy that stock back at the higher price, and that's going to come at a loss to you.
Sean: OK. And that is how a hedge fund lost 50-plus percent of its worth over January because of GameStop, right?
Chris: Exactly. They shorted GameStop. The stock surged and billions of dollars they lost.
Sean: Reddit is a really big player here. For those who don't know, it's like an internet forum of sorts, and there are all these subchannels on Reddit called subreddits. There's one called "WallStreetBets," and they're kind of known for being irreverent and taking on some stock market bets, as you might guess. And they saw hedge funds shorting GameStop and said, "Hey, let's turn this around. Let's let the little guy have a big moment and make these people lose a bunch of money," basically. And so they all bought into GameStop, sending the stock rising, skyrocketing to the moon, and it ended up being not so great for the hedge funds, right?
Chris: That's exactly right. Yeah, powered numbers. They sent the stock price surging and, yeah, the hedge funds were the ones who were really going to take a loss from this.
Sean: And around the time this was happening, the stock market had some rough days where it was going down day after day. And I was beginning to think, OK, is this going to begin to ripple across the stock market and affect retirement accounts? And is that going to be the case, Chris?
Chris: No. We'll say that most likely that is not going to be the case. We've seen people express concern about that like, is this craziness going to affect my 401(k)? And just the short answer is probably not.
Sean: All right. And why is that?
Chris: 401(k)s and other long-term investment accounts — IRAs as well — they're really made up of these broad index funds, so index funds that track the S&P 500 or the entire stock market. They're made up of hundreds or thousands of stocks. The craziness of a single one, if it's even included in your 401(k), which, again, is also not very likely, that craziness is not going to affect your 401(k). Another point on that is if you've invested in GameStop, you probably know you bought GameStop shares. It's a part of some very small specialty ETFs and funds, and you would generally have to seek those out to include them in your 401(k). So really not a huge worry of it having any kind of outsized impact on your portfolio.
Sean: In my mind, I like to think about the stock market as kind of like an ecosystem where there is a lot of biodiversity in different areas, and what's happening in one corner may not affect everything else going on. If a tree just withers and dies, it's probably not going to affect a bush all the way at the other end of the ecosystem.
Chris: Absolutely. I like that. You talk about diversity in ecosystems, we talk about diversification in stocks.
Sean: Right. Speaking of diversity, that is a pretty sustainable and generally recommended investment strategy. And what does that look like for most people?
Chris: If you have a diversified portfolio, you hear people say, that just means that you are invested in companies that are of different sizes, they're in different industries, even they operate in different countries. So if you have a diversified portfolio, you're invested in all of these companies. And so if something serious happens to one of them, it's not necessarily going to have a huge impact on the others.
Sean: Right. Going back to that ecosystem metaphor, if a tree shrivels up, maybe you can't get any fruit from that, but the one across the acreage is doing OK and you can pull some peaches from that maybe.
Chris: Exactly. It may even be blooming. You don't know. Yeah, it works out that way.
Sean: I do want to say, though, that I've been pretty drawn in by this meme money moment, as I've been calling it. And I talked about how I have Dogecoin on a recent episode. There is something really appealing about this whole prospect. Again, it's a way for the little guys like us to maybe get in on something that we've generally been left out of. There's a huge class division that's also at play that's inspiring a lot of people to kind of show billionaires that maybe they don't have as much power as they think, or at least we'll try to have a stake in that direction, even if it's not totally going to pan out. But that said, there are some pretty significant risks. So if someone's going to dabble in buying GameStop or buying cryptocurrency, what do you think they should keep in mind?
Chris: Just remember that this should not be your investment strategy. This shouldn't be your long-term strategy that's going to help take care of you in retirement. Generally, if you want to dabble in this, make sure you have those other forms of investment in place. So whether that's a 401(k), an IRA or just any form of broadly diversified, low-cost index funds, it's a really good idea to have those in place before you start dabbling in Dogecoin.
Sean: Right. I think it's also important for people to be pretty frank in their understanding of what's actually going on here. GameStop is a brick-and-mortar business that sells video games that you can now buy digitally. Not the most sustainable business model in 2021. This is basically a bubble that is going to burst in some way, shape or form at some point. So, I think it behooves people to maybe not put in money that they can't afford to lose, because this really is gambling.
Chris: Right. Absolutely. This is gambling. It's speculation. If you're buying into GameStop now, you should be prepared to lose that amount of money. Yeah, you can buy in with the idea of you're going to earn a lot, but you should be just as comfortable with the idea of losing all of it.
Sean: Right. And often by the time we hear about some stock like this bubbling up, we've maybe missed the boat, right? The time to buy was a week or two before.
Chris: Exactly. And that tends to be the case, whether it's the Reddit message boards who kind of get that pump going, or it's honestly the institutional investors who have done thorough research on a stock with a team full of experts, there's a good chance they beat you to the stock.
Sean: Right. It's also worth noting, I think, that this is not solely like a little-man type situation pumping up the GameStop stock. Wall Street investors are on both sides of this, so it's not this pure grassroots movement that it might appear to be. One thing that was really interesting when this moment was really at its hottest is I was monitoring the reverberations through my cryptocurrency, through my Dogecoin amount that I have. And I originally purchased 50 dollars' worth the week that this was really hot. There was one night where it was down to $38, and I was kind of getting the womp-womps because I lost some money on it. Again, it was money that I knew that I might totally lose every penny of, but I was OK with that. Within 24 hours, that amount was over $400. And a couple days after that, it was half and down to $200. So it really shows you how very speculative this is, and again, not a long-term investment strategy for retirement or something like that. But it is fun to do, and it's a good pandemic pastime for me.
Chris: Sure, and that's fine, because you went into this with the understanding that you might lose this. I think that's the attitude you need to have, because really it can be fun to learn, especially you're learning how to buy in Dogecoin, in this case, buy this cryptocurrency. If you've never invested in stocks before, you're learning how the market works, and you have some stake in it. It really is a great learning opportunity. Just make sure you have the fundamentals in place first.
Sean: Yes, absolutely. Always good advice. Well, Chris, do you have any final notes or things that you think people should think about?
Chris: Really I'm just curious about how this is going to play out, just like everybody else. So I'll keep watching.
Sean: All right. Well, thank you so much.
Chris: Yep. Thanks, Sean.
Sean: So now let's get to a new segment that we're calling The Best-Of Minute, where we talk with the Nerds behind our Best-Of Awards for just a few minutes. For some background, NerdWallet puts together a list every year of the best financial products based on countless hours of in-depth research from our team of Nerds. This research puts an unfiltered and objective view on all of our winners to present you with the best financial products. So, to help you understand how our Nerds came to these decisions, we're talking with a few of the Nerds who did the work.
And to start, we're once again talking with banking Nerd Alice Holbrook about what makes the best savings account. Hey, Alice, welcome back to the show.
Alice Holbrook: Hey, thanks so much for having me. It's great to be back.
Sean: Let's get down to business. And Alice, I have three questions for you. The first one is, what makes a best savings account?
Alice: When we tell people what to look for in a savings account, we often tell them to start with the APY, or the interest rate. Rates aren't as good now as they were in, say, 2019, but it's still totally possible to find rates around 0.5%, especially if you're willing to go with an online bank. And what's great about these is that these accounts offer the strongest rates now, and they're also the ones that are most likely to raise their rates when the economy improves. So your account's not just going to be stuck at 0.01% forever.
And you also want to look at customer service, especially — especially if you're choosing an online bank, but it may also be true that you don't feel comfortable going into a branch right now. So at that point, you want to make sure that the bank has customer service hours that you can actually use, you can call a person, you don't have to take time off work. And you also want to find out how their app works. Is it highly rated? So maybe you can take care of some of your problems without actually talking to a person.
Sean: All right. I know you put together a pretty lengthy rubric for comparing different savings accounts. What factors were you considering?
Alice: So when it comes to savings accounts, like I said, APY is definitely a big factor. And we also think about whether there's something similar to APY, like a bonus that the account offers. So that even if you're not getting the APY out of it, you might still be getting some extra money out of the deal. And we're also thinking about fees and costs. Is the bank account something that you could afford to open pretty easily, or is it going to be more like a thousand dollars? We're also thinking about monthly fees. So is this something that you're going to have to pay to have? Can you get that waived? And is the way that you waive it something an average person can do without a lot of trouble? And then we're also thinking about whether there are extras, like tools that the bank account offers that other banks don't offer that maybe make it easier to save money. And then we combine the savings score with the overall scores for the institutions, kind of other product areas, as well as scores for customer experience and fees.
Sean: All right. So my last question is, what does the awards process look like more generally for the banking team?
Alice: One thing that's kind of cool about it is that before we even get to awards, we're kind of working on awards all year. We're making sure that we're covering the institutions that people want to read about. So we're constantly adding new reviews to our stable, and we're also keeping an eye on our rubrics to make sure that they reflect the market now. So basically, if we're saying a savings account is five stars, we want to make sure it does have a really, really competitive rate and it doesn't have a monthly fee that's going to be onerous for you. But most of the awards research takes place in about a month. So at that point, the editors in our team split up all the institutions, and the writers and editors will go through and just make sure that all of our information about them is current. So whether that's kind of combing through the terms and conditions or writing to the PR and making sure that we have all the information, we just want to make sure that everything is up to date.
Sean: Doing all the dirty work that people don't want to do themselves.
Alice: Exactly. And in some cases, might not have access. We can talk to the PR people and they know who we are. And then when it's done, we look at all our results to determine the winners of our awards categories. And then we make sure that all the rest of our content is accurate as well.
Sean: Well, Alice, thank you so much for talking with us.
Alice: Yeah. Thank you.
Sean: Now let's get to this episode's money question. And Liz, will you do the honors of reading it?
Liz Weston: This episode's money question comes from Kim in the Bay Area. She writes, "Hi, NerdWallet. I am 26 and just moved in with my boyfriend at the beginning of the pandemic. We live in the Bay Area where the cost of living is not cheap. We are both lucky enough to have stable jobs and a steady income during the pandemic, but we are trying to get a better handle on our budgeting and begin planning for the future. My first question is, how do you start discussing finances with your partner? Are there any strategies or tools you recommend? We sat down multiple times to try to figure out our finances, but get overwhelmed every time and don't really know where to start. What are some topics we should make sure to cover in these conversations? My second question is, how do couples begin to save and budget for both a wedding and a house? My partner and I would like to eventually have a wedding and also buy a home, but these two goals feel so expensive and unattainable. Our families are not in a place where they can help us pay for these things. So how do we begin to financially prepare for these big life events? Thank you, Kim."
Sean: Kim, you are giving me deja vu here. I had many of these same questions when my partner and I found our first apartment together in San Francisco back in our mid-20s. But unlike you, I internalized most of my worries, so kudos for reaching out for help instead of bottling up your worries. So, to help us answer Kim's question, on this episode of the podcast we are talking once again with personal finance Nerd Sara Rathner.
Liz: Hey, Sara, welcome back to the show.
Sara Rathner: Thank you. Glad to be back.
Sean: Good to have you. So our listener Kim is new to money conversations with her partner and is getting a little bit overwhelmed by the process. Where do you think that she and her partner should start?
Sara: This is definitely a topic I think every couple goes through, because talking about money is really, really hard. It's really scary and it just feels icky, right? You're not alone, Kim. Point being, we've all been through this. And I know there was an earlier podcast episode, I believe, about scheduling money dates and talking with your partner. That's a great resource, too, to listen to. But if we want to start talking about those initial money conversations, it sounds like because you moved in together somewhat recently, you're relatively new to having these talks.
You have a mix of the day-to-day and week-to-week money conversations because you're sharing some expenses. So you're talking about when is rent due, who's picking up the groceries this week, do I need to Venmo you back for something? I Venmo my husband all the time and vice versa, so that's pretty common. Those are obviously really important discussions, because where your money is going on a day-to-day basis is important when you need to know that you have money to cover your bills. And then you talk about the big-picture stuff too.
It sounds like you're talking about some pretty big life steps with your partner — getting married, buying a house. Your relationship is somewhat established, at least established enough to be seriously considering these things. It's a mix of this day-to-day, week-to-week money talk with big-picture talks about your goals, your values, your dreams, what you would do if you won the lottery. All of these types of conversations can bring up, in a more natural way, these money talks.
Sean: Yeah. In my experience, these conversations started out of a place of necessity. And, at the beginning, I was really uncomfortable with it. Garrett can attest to this. When we first started having money talks, I would have to put on the same Erykah Badu mixtape every single time, so I had some ambient noise and something that kind of set the mood and made me feel comfortable so that there weren't any of those awkward silences. But once we had them, we realized we really need to figure out what we're doing because our rent is so expensive — Kim, like I'm sure you know. And also how are we going to pay for groceries? How do we divvy this up? What does it mean when one of us makes more money than the other? And how do we balance this out? We pretty much had to do this from a practical perspective. And then once we had those initial conversations, it just got easier and easier over time because it becomes a habit.
Liz: Sean, I love the fact that you had a soundtrack for these conversations.
Sara: Me too. It's a great idea.
Liz: Yes, it is.
Sean: I mean, it just made me feel comfortable, and I love the song. I still play it all the time. I'm a person who has music going pretty much constantly, so it helped me feel like I wasn't just sitting down for a business conversation, but we were living our day-to-day life and we just happened to be talking about how we're paying rent that month.
Sara: Yeah. I find it easier to have these tough conversations, or not necessarily tough conversations, but serious conversations when you're together but you're not facing each other. There's going for a long walk or going for a drive. And if you're driving, you could have music on in the background too. So that's really helpful. Some of the most deep and meaningful money conversations I think my husband and I had when we first got together and as our relationship progressed were on road trips.
We had this weekly ritual of walking like 45 minutes each way to get a bagel on Sunday mornings — it was like our favorite bagel place. And those long walks provided a lot of time to have these deep conversations. And plus, you got free exercise and a bagel in the middle of your exercise, though. Really all around, it was just a win-win-win. Having rituals like that can really be helpful. It gives you something to look forward to. It's something that you really love.
Liz: And Sara, it sounds like Kim is really feeling overwhelmed by this whole process. How should she go about dealing with that?
Sara: That's why I'm actually writing an article about this very topic, about how money tasks can feel so big that you just put them off forever. And you lose out as a result, because sometimes time is money. And over and over with everybody I speak to, as I researched this article, a lot of what comes up is, break big tasks into small manageable pieces. So, if your goal is to save for a down payment and you haven't done anything to start yet — you have no account earmarked for this, you have not yet established, like, how much you want your down payment to be, everything is brand new — you want to break it down into tasks. First, you start with, like, "Well, what's a realistic down payment to have given where we want to live and the type of home we want to buy? Where should we keep the money? Oh, maybe a high-yield savings account because we want to buy our house within the next two years." Things like that. You start by having those big conversations. And from there, you can say, "OK, well, what do we need to do this week or this month to further this goal?" And that could be opening a savings account. Step one, open a savings account. Just create it, create a space for that money to go. And that could be the only thing you do that week, and that is a step in the right direction.
And then from there, you say, "OK. We're going to set up an automatic contribution of X amount," and you take five seconds, because it really doesn't take long to set up an automatic contribution, and you set it up. That's the thing you accomplish that week, and that's a step in the right direction too. If you can do that week to week, suddenly in a month or two, you've put yourself on the path to meeting your goal.
Sean: I think there's also an aspect of just ripping the Band-Aid off with things like this. When I first opened my savings account, for some reason, I was just dithering for months before I found the right account. I eventually just scoured through NerdWallet, found the right one for me and then opened it. And it took me five minutes to do. And then setting up the funding took me another five minutes to do. And 10 minutes is no time at all. It was something that took me five months to actually begin to sort out.
Sara: Yeah. A lot of these tasks actually don't take very long, especially this isn't ... Thirty years ago, you'd have to go into a physical bank branch and talk to a person to get a lot done. And now you can do everything from your phone. You don't have to talk to anybody to open up a bank account anymore, and you can do this from wherever you are, preferably on a very secure Wi-Fi connection. Don't do this on public Wi-Fi, of course, but your home or in your office, perhaps on your lunch break. It is easy to do these things. It really takes a lot less time than you think. So if you could say, "OK, today's the day. When I am on my coffee break, I am going to open up that account." And five minutes later, you're done. It took you longer to get the coffee.
Liz: In this case, they're trying to coordinate two very expensive goals, at least that's how Kim is framing it. So how do they go about figuring this out? How much they're going to need, and how they coordinate the two, and how long it'll take. How do they do that?
Sara: Those are two very big goals, as you said. You might have five- or even six-figure budgets for one or both of them. Especially a down payment in the Bay Area — that's a lot of money. So these goals do take time. And whenever you're dealing with a really big goal, it can be helpful to work backwards. You start with the big final number in mind, and then you say, "OK, well, how much do we have to save every month to get there in a certain amount of time?" And it could mean that you only work on one goal at a time, which might mean you delay the wedding, or you delay buying the house to accomplish the other goal first, or you do the courthouse wedding and then you save for a party later. I mean, that's an option too. A lot of people, unfortunately, this year because of the pandemic, are discovering the love of eloping in the yard. So that could be ... And then you have the party later when it's safe. And that could be a path if you feel very strongly about being married before buying properties together, for example. That's something that a lot of people feel very strongly about. You kind of have to prioritize and then you work backwards from that big goal. I did a word problem in preparation for this episode of let's say you budget 20 grand for your wedding, and you want to get married in three years. And how much do you need to save each month to reach that goal in three years? And the answer is like $555 a month. There are online calculators for this and they can be very helpful.
It can sometimes be really helpful depending on what motivates you to put real numbers behind it, instead of saying, "Well, $20,000 is a realistic budget for the type of wedding we want," and then you don't actually find out, well, what does that mean? Because 20 grand doesn't just materialize out of thin air for most people.
Sean: I've got to say that hearing that number makes me very scared. My partner and I are engaged right now, and we don't even have a date or a year when we think we're going to get married. Because, like you were saying, we prioritized buying a house first. I was saving up for that. We wanted to have our own properties each. And eventually I think we'll get down to planning a wedding, but we also might just do it in the backyard or go to the courthouse or something to save a little bit of money.
Sara: Well, what's interesting, if you compare those two goals, buying a house is ... The day you close on a house, you have this massive cashier's check that you hand over. It's one giant expense at one time. Planning a wedding is a lot of slow trickles of money out of your bank account. You start by making a deposit on a venue, and then you make a couple of deposits on a few of the vendors that you have to book pretty early on. And then it's not until much closer to the wedding that you make final deposits on things. And then there are some last-minute expenses that you simply don't know .... you can't pay for until you know how many guests you have. There are always things that pop up even just in the days before your wedding. It's more of a sustained trickle of money — sometimes a flood of money, depending — versus buying a house and having that one massive check that you hand over in one day. Very difficult to hand that check over. That's a lot of money. I've done both. I got married and bought a house, and my god, they're both scary.
Sean: I want to circle back to something that was in the first part of Kim's question, which was key things to talk about in these initial money conversations. Because I have a feeling that the wedding, the homebuying is going to be a couple of years down the road, but they still need to figure out how to balance their immediate financial priorities. And we talked about maybe setting up a high-yield savings account for them to maybe share or have individually. And I think that is at least one great thing to talk about. But I'm wondering if you guys have other topics that you think that they should make sure that they discuss in these conversations?
Liz: Well, obviously one of the things you need to decide is, are you going to have joint accounts? Are you going to have joint and separate, which a lot of people do? Are you going to have everything joint? Are you going to have everything separate? There's lots of different ways to do this. There's not one right way. Sara, it sounds like you've got more of a separate financial account system set up. Is that right?
Sara: Yeah. I've been married for five years. It's important to say that what works for you as a couple today, you can change in the future.
Sara: You don't have to say, "Well, we're going to do joint and now we can never separate our money ever." And as your life evolves and your goals change, you can shift your money. Don't think that you're locked into one thing today. That's fine. You can always renegotiate. We started completely separate. And then just as life kind of went on, we started combining some of our money. And then now just owning a home together, of course, we have more joint savings than ever before, especially pertaining to house-related goals like renovations and things.
Also, if you're getting married and you come from a culture where monetary gifts are common, which I do, then you'll want to have a repository, some sort of joint repository to put this money as you begin receiving wedding gifts. It's not something we really thought about before we got engaged, then suddenly we got a check and we were like, "Oh, what do we do with this check? We don't have a place that's ours. Everything is yours or mine." That was actually the first joint savings account we opened while we were engaged was for any sort of cash or monetary wedding gifts we received, which we later spent on furniture for our house. So, thank you to all of my wedding guests. That is something to think about as well. Often when you get engaged or when you move in together, that's when you start sharing money. You really do begin thinking of things as being both of yours. How do you want to split that up? Now how we arrange things, like I said, we have some joint stuff. We have some separate stuff. Frankly, I find that having a lot of separate money makes us have to talk about money more often.
Sean: Well, that's what I was going to say. My partner and I are completely separate in terms of where our accounts stand, but they seem almost connected just by virtue of the fact that we're talking about these balances, what we're doing with our money constantly. It feels like we're still pretty intimate and connected with where our money is and how we're managing it, even though they're completely separate.
Liz: There's also a couple other topics that I think we take for granted that people will be talking about this, and it's often not the case, which is retirement and emergency savings. When do we want to retire? How much money do we need to put aside for that? And, do we have enough in our emergency savings to get us through a tough time? So when she's thinking about what kind of topics to bring up, I think those are some important ones to cover.
Sara: Yeah. And how you're employed really affects your retirement savings too. Because what's available through your employer, are you self-employed — there are all sorts of, like, IRS limitations on how much you can contribute each year. And so those are very different ... That can also evolve over time. You work for a big company, and then you go to work for yourself, and then you decide to change that again. That can absolutely change from year to year as well. So those are very worthwhile conversations to have, because one or both of you might only be able to set aside so much every year for those long-term goals.
Sean: And speaking of employment, I think it's important for couples who make different amounts of money to figure out how they split up expenses. In the past, when I've been in this situation, I've handled rent 50/50, just because that's a big expense — we know we're going to have it. We just bit the bullet and had to split it. But then when it would come to groceries, if I was making more, I would maybe pay more for that, or vice versa. And that worked for us, but I think this is also a really important topic of conversation.
Sara: Yeah. Who has the electric bill in their name? Who has the gas bill in their name? Who has the cable or internet bill in their name? Those are all really important things to ask. Especially if one person moved into another person's apartment where that first partner already lived, a lot of the bills might be in that original person's name, and then you might want to change that. Those are all really great conversations to have too.
Liz: And if you do decide to go the joint account route, which we did, I think it's very important to have a "slush fund" of money, no-questions-asked money, that you can spend on whatever you want. Trust me, it keeps the arguments to a minimum. I don't want to know what he's spending on art supplies. He doesn't want to know what I'm spending on massages. It really helps us both.
Sara: My husband doesn't need to know how much my hair costs.
Sara: A lot less this year, because I haven't gotten my hair cut in a year, but that will change, hopefully sometime in the near future. But yeah, that's really important. It's also really important to realize that when you have a joint, let's say, checking or savings account, if things were to perhaps go sour in your relationship, it is not that you each have access to 50% of the money. You each have access to 100% of the money.
Sara: So your partner can drain the account. You can drain the account. You have that power, too. But that's just important to know, because you might be contributing, maybe proportionally to your income or 50/50, so maybe you might be doing a 70/30, depending on what works for your relationship. But you should just understand that you might be contributing 30% of the account because you make less money, but you have access to 100% of the money.
Sean: What you're saying is, before you break up with someone, take your money and run?
Liz: Wait a minute. Wait a minute.
Sean: Just kidding. Just kidding.
Sara: We stopped contributing to it for a couple of months.
Sean: Do not do that. We are here for honesty and transparency and not taking the money and running.
Liz: There we go.
Sara: Yeah. Yeah.
Sean: Well, that brings us to another topic, which is talking about your values and how your money is really an extension of that. Sara, how do you think these topics should be brought up, and what should they discuss?
Sara: I have a background in improv, which is sort of game-based, so if you ask yourself sort of fun, like, pie-in-the-sky questions that can sort of reveal a lot about you and your partner that you didn't think. So if you were to say, "What would you do with the money if you won the lottery? If you won $100,000,000 tomorrow, would you quit your job? Would you buy a bunch of vacation homes? Would you travel the world? Would you give money to charity? Would you send your nephew to college? What would you do?" And the answers to questions like that can be very revealing about what's important to a person, whether that's charity or travel or family or material possessions. Frankly, if you had $100,000,000, you could afford all of those things, but maybe $1,000,000 might be more realistic because you kind of have to prioritize a bit more. That can be fun. You can even talk about — I mean, this sounds terrible — but talk about people in your life and how they manage their money and whether or not you agree. That tells you a lot about what's going on with somebody — just kind of seeing how they live. Do they spend more on an apartment because they value a certain type of lifestyle or a certain location over financial security, for example? That can tell you a lot about what they value. They might value a shorter commute, but a higher rent payment because of that. Every decision you make about how you conduct your life, at its core, can be a financial decision too.
Sean: Well, Sara, thank you so much for talking with us. I always appreciate it.
Sara: Thanks for having me back.
Sean: And now let's move on to our takeaway tips. And Liz, do you want to kick us off?
Liz: Absolutely. First, start with the basics. When you're first managing money with a partner, have conversations about the essentials like rent, groceries and your personal budgets.
Sean: Next, to fight feeling overwhelmed, break bigger tasks down into smaller ones.
Liz: Finally, work backwards when saving for a big goal. Know how much you want to save and when you need the money to figure out how much you should save monthly.
Sean: And that is all we have for this episode. Visit nerdwallet.com/podcast for more info on this episode. And remember to subscribe, rate and review us wherever you're getting this podcast.
Liz: Here's our brief disclaimer, thoughtfully crafted by NerdWallet's legal team: Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean: And with that said, until next time, turn to the Nerds.