My name is Kevin Campbell, I’m 30 years old, and recently married, as of Feb. 2022. I live in Costa Mesa, California with my wife, Katelyn, who is 29 years old. Katelyn is a Dental Hygienist. In August 2020, Katelyn and I purchased our first town home.
Buying a home is arguably one of the biggest purchases most people will make, and at the same time, if you are also starting your “couple life” together, this makes for many changes in your lives. This blog is as much a view on the important foundational considerations around finances and planning for a big purchase, as it is a plug for open, honest communication with your significant other, with regards to these same topics.
As a couple of 20 something love-birds, dreaming of our future and of one day being homeowners, and eventually starting a family, we figured out pretty quickly that we would need to have some serious conversations around finances. We would need to decide how we would start to combine our income/assets, and how we would pay for or pay off our expenses/liabilities. We were going to need to understand each other’s individual goals, couple goals, and how each of us could keep having some of our own money to spend. We did not want either of us to be frustrated about what the other was spending their hard-earned income on.
Money talks and talking about money
During the heart of COVID, Katelyn was furloughed from work, and I was working from home. To decompress we would often go for walks, and it was during one of these walks that we first began dreaming of purchasing a home together. We were both very excited and eager to start to plan for this big decision and purchase.
MONEY TALKS can be hard conversations, possibly some of the most argued conversations for couples. We understood that if we wanted to have peace at home, we would want to figure out the expenses and how, and who would pay for them.
Moving in together/buying our home would increase our expenses (mortgage, utilities, property taxes). We made sure to communicate with each other the type of lifestyles we each wanted to live (hobbies, shopping, dining out, vacations, gifts etc.). This wasn’t a really “fun” conversation and we did have to push each other and dedicate the time to build out an excel worksheet to understand what our budget was. Once we determined what each other’s net income was (after taxes & work expenses), we were then able to identify our individual expenses based on a ratio of income each was bringing to our household vs. the total shared expenses. (i.e. my income divided by total income = __%) Based on the percentage, we would multiply these by the household expense and that determined the cost for each of us. We also agreed that as my income or Katelyn’s income increased, we would continue to pay the same expenses as determined prior, but that any surplus (extra money) would go towards our goals (vacation, new home purchase, new car, retirement/savings, fun expenses). So far this has worked for us….
Time to combine!
It only made sense to us that we would create a joint savings and checking account. We already determined the expenses that each would pay, and we understood that we would want to have a slush fund (for emergencies) as well as a savings account for our future goals (new home, new car, vacation etc.). We had decided that all expenses would come from the joint account, therefore we would create an automatic transfer each month for the allotted savings and expenses that we predetermine. This was very helpful! Not me asking Katelyn where her money was, her asking me for money, it was all saved into one spot with the idea that we would have a surplus amount transferred into the account beyond our monthly expenses to help with property taxes, home maintenance, groceries or any emergencies. This has made paying for expenses much more convenient and reliable.
Were we ready to buy a house?
After all the dreaming, talking, combining, and saving, we got to the main event…. figuring out how much money we could pull together to buy our home. As a planner I knew that the rule of thumb is to have an emergency reserve of 3-6 months of your expenses (assuming we had the mortgage and monthly expenses), and this is how we determined how much we would be able to put as the down payment. Next was focusing on cash flow. The goal was not to be home rich and cash flow poor. After this, we needed to understand the loan process. We understood that an important piece of this Real Estate Purchase would revolve around how much money we would need to put down (Down Payment) and how much expense the loan would cost on a monthly basis (Mortgage Payments). We had run a few scenarios with putting a larger deposit down, waiting for Katelyn to go back to work and a combo of the two. Once we understood that finances (how much we would have to put down, how large of a loan we could get, what the monthly expenses were anticipated to be) or ($ down + $ we could borrow= $ price of home we can afford, assuming the monthly expense fit our budget). Next step was to shop! We hired a family friend as our realtor and explained the financials, and we were off looking for homes. We were disappointed early on during 2-3 separate occasions we either got out bid (they made a larger offer than us) or our offer did not meet the seller’s criteria. But… then we found “the place”. We knew that we would have to strike fast and hard, so we made an offer right after we viewed the home… scary and exciting at the same time. Next thing we knew, financing started, and we were in our new home in August 2020.
Life continues…
We’ve had our home for 1.5 years and been married for a couple of months, we have our money and then we have our own money. We have our couples goals, and we have our individual goals. We involve each other on expenses that are going to be greater than a set limit, like anything over $500. We try to help each other with these expenses and sometimes this comes at the cost of taking from our individual goals and couples goals. This is why we find it to be invaluable to communicate with each other, always and often. For instance, at some point, God willing, we will have children in the next 2-3 years, and we hear, they are VERY EXPENSIVE…but worth it! And as life goes on, there will always be expenses to pay for, goals to save for, dreams to be dreamed, and money talks to be talked. So, it's very important that we are on the same page when it comes to all of our goals and expenses.
Closing out
I may be a young professional in Financial Planning, but by no means am I an expert in how my household is handling our finances. Katelyn and I have found a process that works for us. The foundations are solid and sturdy, and our communication is key. Regardless of whether you are in a relationship or not, create and write down your goals. Quantify your goals and try to come up with a savings plan to determine the amount of time it will take to reach these goals. Educate yourself on the process of buying a home, qualifying for a loan and the cost to maintain your property. Financial Literacy is power, if you don’t have the time or patience to learn and be an expert at all these topics, leverage professionals in those fields. Financial Planners, Accountants, Estate Attorneys and Insurance Agents. I know you will be able to count on our team if you need anything or have any questions.
Kevin Campbell is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp. a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. 18400 Von Karman Avenue, Suite 550, Irvine, CA 92612, Phone: (800) 622-0734. Lincoln Financial Advisors Corp does not provide legal or tax advice. Oakwood Wealth Partners is not an affiliate of Lincoln Financial Advisors Corp. CRN-4673925-041322