Keeping it Separate

Because I think it’s something interesting to write about for a Personal Finance website, I thought I’d write in response to Nelson from Financial Uproar. He wrote in his “Sunday Morning Link Dump”, and talked about how he couldn’t figure out “why married couples feel the need for separate bank accounts”. My wife and I happen to be one of those weird couples who keep separate bank accounts. We’ve been married for five and a half years now, and have been what could be described as financially linked for an extra couple.

Not only do we not have any shared accounts, we haven’t even set up electronic transfers between the two of us. This fact isn’t due to any reason other than we’re by nature kind of lazy with paperwork, electronic or otherwise.

We keep separate accounts mainly because we haven’t found a reason over the length of our relationship to combine them. Maybe if we had kids, or even a goldfish together, there would be enough of a reason to make it worth our while to just have one large shared account – rather than have everything kind of fractured off as it is now. We have about 8 bills per month that we have to pay. We split the bills up, put a certain amount of money towards our “fun savings”, a good chunk towards retirement savings and the rest is ours to spend every month.

This system works for us, it’s not a trust thing, it’s more of a “don’t talk to me about the disposable clothes I buy, and I won’t talk to you about all the stupid golf you play” that we’ve worked out over our years together. If for whatever reason I want to know how much money we have to spend on a potential weekend trip to Niagara Falls, I can ask and find out – the same way my wife can find out how our retirement finances are going, or how we were doing in paying off our mortgage.

We both understand how divorce laws work. We both understand about shared marriage properties work, along with my pension and any other savings that may be somewhere. We just feel that for the spare couple hundred bucks we get to spend every month, we’d rather not have that in a shared account.

Maybe the whole thing works because we don’t have any spare money around – there’s not a lot of “wiggle room”. We never really thought about another way of doing things – I was 25 and had looked after my own money from 17 on, and my wife was the same way. I’m not sure at what point it would have seemed natural to start dumping money together. We haven’t gotten there yet, but maybe after a major job change (like getting fired or laid off), or when we retire it will seem like the right time.

At what point did you combine finances (if you did) – how did it start?

Release the Cash

Well after sitting on just over $100,000 cash in our RRSP accounts for months now I finished my research in various Exchange Traded Funds (EFTs) and came to agree with the model portfolio option #4 over at the Canadian Couch Potato.

In case you are too lazy to click the link, the portfolio is made up of four major ETFs:

  1. VCN – Vanguard FTSE Canada All Cap
  2. VUN – Vanguard US Total Market
  3. XEF – Ishares MSCI – International
  4. VAB – Vanguard Canada Bond

I laughed because I had predetermined that I would break up our portfolios into 60% equity and 40% bond before I started the research and that is ironically the exact break down recommended by Dan (author of the Couch Potato blog).

So you might wonder what the hell the advantage of going to ETFs are?  Well in a word: fees.  The MER on this portfolio is a rock bottom 0.192%, given we were previously in an index mutual funds with fees of 0.7%, that means we are saving just over $500 per year in fees, which more than offsets the $80 in trades it took to deploy the cash into these portfolios today.

Also you have to consider compared to the average mutual fund fees is around 2% or higher.  So on $100,000 portfolio switching to these exchanged traded funds like this will save you $1808 per year in fees.  Yes you can earn almost an extra $2000 per year in gains just by keeping your fees lower…isn’t that just a little mind blowing? Especially when you consider that compounding of that over a decade.

In case you were wondering…if you invest $100,000 at 6.5% return, after fees of 2% you end up with $157,000 in 10 years.  If you lower you fees to 0.192% your final balance jumps to $187,0000…and that assumes you haven’t added a dime into those accounts.

So that is today’s point….keep your fees low.  It will help you in the long run.  So do you know what your MER fees are for your investments?  If so, how low/high are you?

Breaking Habits

Up until 3 years ago (I was 31), I had never tasted coffee before. Now, I’m a 2 to 3 cup per day drinker. I have a dislike of being attached (or addicted) to anything, however benign it is. Last week I quit coffee for a few days, in order to break my daily habit. My normal day was 2 travel mugs, made from home (at a cost of about $0.20 per cup) and maybe a third one in the afternoon from the work cafeteria. The cost of drinking coffee didn’t drive me to change my habit, it was more just changing my normal routine around in the short-term.

I’ve done similar things like this before. I’ve quit drinking for months at a time, most recently for the month of January. I quit drinking for health reasons, as well as to change my normal social outings on weekends from bar or drinking-based to different activities for a while. I didn’t really feel my life changed for the better or worse, it just changed the type of stuff I was doing on the weekends. I’m far from the hard-drinking-stay-up-until-2 AM-and-feel-like-crap-for-four-days like I was a decade ago. I’m more likely to have a few drinks and be in bed by midnight these days, but I think it’s a good change once in a while.

I’ve also carried out many 24-hour fasts in the past, where all I’d consume for 24 hour periods (after breakfast on day 1 to the same time on day 2). I did this because I read of the health benefits of eating in this manner. Although I haven’t had a fast in the past year or so, when you don’t eat for over 20 hours, you learn the feeling of actually being REALLY HUNGRY (from a privileged North American perspective – I’m sure there are people in the world who could probably describe this feeling much more definitively). Now I know that at 10:30 on a Tuesday morning, I’m probably going to survive an hour or two until lunch, and probably don’t need to have that muffin from the cafeteria.

One of the things that has helped me in my financial planning is that I’m not really all that attached to anything. If I couldn’t afford to do something, or to buy something, I try to avoid spending money on it as best I can. I just don’t like to be attached to anything enough that I can’t really get rid of it, whether it’s a habit or something else. Beyond having a pretty good income to start with and having no kids, I think that this ability would probably be what helps me the most daily in reaching my financial goals.

What are your bad habits? Have you quit them before, or wish you could?