DR 077: Teamwork for Your Budget – An Interview with Listeners Kate and Trevor

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Podcast Listener TalkOne of the great things about producing a podcast are the emails I receive from listeners. Recently a listener named Kate emailed me about the 50-20-30 budget. One thing led to another, and now Kate and her fiancé Trevor are guests on the show. Kate and Trevor’s story was so inspiring that I wanted to share it with all of you.

In this podcast you’ll learn how Kate and Trevor use the 50-30-20 budgeting rule of thumb, and how they have reconciled their different approaches to personal finance. Their story is an excellent lesson for anyone interested in personal finance, but especially for couples just starting out.

Topics Covered in the Interview

  • How Kate and Trevor approach money separately
  • How they combined their money styles using the 50-30-20 budget
  • Why Kate and Trevor schedule biweekly money meetings
  • How much they are saving
  • How they’re investing that savings
  • How they are paying off $100,000 in school loans in just 5 years

Resources Mentioned in the Interview

Transcript of Interview

Rob: Kate and Trevor, welcome to the show.

Trevor: Thank you.

Kate: Hi Rob.

Rob: First of all, this is a first just so you guys know. You are the first listeners of the Dough Roller podcast who have become guests on the show. I am grateful for your willingness to do that. You guys have a lot of courage.

Kate: Well thanks. We’re excited to be on the show.

Rob: For those listening, how this came about was when Kate  emailed me in relation to the 50, 20, 30 budget that I had talked about in a previous podcast. We had an email exchange, and one thing led to another and I suggested you and Trevor— he’s your fiancé right?

Kate: Yes.

Rob: Congratulations.

Trevor:I’m very lucky.

Rob: Do you have a date set yet?

Kate: We’re getting married in August.

Rob: Wow. My wife and I got married in August, although it was more than a couple decades ago. Well, good for you. Congratulations.

So we were emailing back and forth on a couple of topics and one thing led to another, and here you are on the show. I appreciate your willingness to do this, and I think folks will really benefit from your experiences and what you’ve learned so far. I kind of want to jump right in and start with you, Kate.

Kate: Sure.

Kate’s Financial Story

Rob: Why don’t you give us a little bit of background in terms of your approach to personal finance. I know you moved out to DC, where you guys live now, in 2012?

Kate: Yeah, that was in the fall of 2012.

Rob: It was then that you started using the 50, 20, 30 budget, is that right?

Kate: Right.

Rob: We’re going to talk a lot about that, but let’s back up a bit to before that. Before you moved out and before using the 50, 20, 30 budget, how did you manage your finances?

Kate: For myself, I lived in central Illinois, and my cost of living was really low so when I graduated from school I sort of just kept living like a student. I didn’t have any particular savings target but my savings were pretty high because of the low cost of living and in keeping my lifestyle the same as it had been before I had a full-time job.

Rob: So you didn’t get into the lifestyle inflation with a higher income?

Kate: No, and probably part of what helped was that I always just had an interest in personal finance. It was kind of like a hobby, so I was thinking very consciously about saving. I also knew that I wanted to move soon and I wasn’t sure how quickly I would find a good job, so I tried to get prepared for the future that way. It also just motivated me to keep expenses low and save a lot.

Rob: At that point did you have an debt at all? Credit cards, school debt, loans— anything?

Kate: I did not. I was very lucky that way.

Rob: Did you track your money? Did you know how much you spent on food, eating out and on clothes? Did you have a budget like that, or no?

Kate: I’ve been using Mint for a long time. I’m not exactly sure when I got a Mint account, but that was how I tracked stuff.

Rob: So you did know where your money was going?

Kate: Right.

Rob: And what was your savings rate?

Kate: Probably 50% if I had to guess.

Rob: Wow! Now, people would like to know, was that 50% of gross or net?

Kate: Of net.

Rob: That’s fantastic. Phenomenal! But you didn’t set out to save 50%. You just watched your spending, and that’s what it turned out to be?

Kate: Exactly.

Trevor’s Financial Story

Rob: Alright. And Trevor… Before Kate moved to DC, how did you manage your finances?

Trevor: I basically just tried to keep an eye on the balance in my checking account and made sure that it was in the black and not in the red. It was all much more fluid— you know, just a kind of running sense in my head of whether I had enough money for this or that. I would occasionally sit down and run some numbers on what I was spending on travel, eating out or whatever but it wasn’t something that I did more than a few times a year.

Most of the time I just extrapolated from those numbers and kind of knew what my set expenses were, so I kept sort of a running tally in my head of whether I was up or down— whether this or that was a good idea or whether there was some extra money around.

Rob: Now Kate didn’t have any debt. Did you have debt?

Trevor: I did have debt. I had a small amount of credit card debt and a large amount of student debt.

Rob: Okay. Again, this is before Kate moved to DC. Were you able to save money each month?

Trevor: No. I basically had no savings.

Rob: I’m curious. Were you going into more debt or were you sort of staying where you were in terms of the debt?

Trevor:  I was basically staying where I was. I was making the minimum payments on the student loans and the credit card balance was pretty small and couldn’t really go that high, so it was more or less just staying in place. But I wasn’t going further into debt.

Rob: I interviewed a guy named Andy earlier this week who founded, Student Debt Hero. I don’t know if you’ve ever heard of it, but it’s a site that helps you manage all of your student debt. And one of the things he mentioned to me—because he graduated with about $100,000 in student loans.

One of the things he mentioned to me is that he had 16 different student loans. Is that your experience in terms of just the number of student loans? What I mean is, is it hard to manage all the different interest rates and payments?

Trevor: Speaking from the experience of how I’ve learned to do it better, I realize the complexity better than I did at the time. I mean, I had about $100,000 in student debt. Maybe a little bit more. But it was more or less through one provider, so while I knew that I had eight or nine loans, they were all sort of on one screen.

I would show up to pay them all at once. But with that level of complexity, at that time I wasn’t really paying attention to what the amount was on any given loan, or what was the interest rate and all that. That was just like a blizzard of detail I wasn’t paying much attention to.

Rob: Yeah. Putting the 50, 20, 30 budget aside for a second, I graduated a long time ago in 1992. Even then, I had $55,000 in school loans, which by today’s dollars was certainly well into six figures. But I don’t think things were as complicated then as they are today in terms of student loans.

It sounds like in your case though, that you were able to log into one place and see everything at once which really must have helped.

Trevor: Yes. It was a good thing because I don’t know that I would have kept track of eight or nine different places very well.

Putting it Together

Rob: So Kate, when you moved out to DC, did you and Trevor know that you already had different financial situations and different approaches to personal finance?

Kate: Yeah, we definitely knew that was coming and that it was going to take some conversations to work out a system that would work for both of us.

Rob: Okay, and by the way, this is fine—but just so people listening who are wondering what that slight noise is in the background… You have a cat—

Kate: Yes, we have a cat who we hoped would be asleep now…

Rob: That’s okay. That’s real life. What’s your cat’s name?

Kate: His name is Mayhem.

Rob: Perfect! That’s perfect. I love it. Alright. So when you moved out to DC, Kate, you guys knew that you had to address the personal finance part of your relationship. How did you do it? I know you ended up picking the 50, 20, 30 rule as maybe a way of budgeting your money, but how did you come to that decision?

Kate: Well, that particular budget rule of thumb… First of all, around that same time I had read Elizabeth Warren’s, All Your Worth, which Trevor had sitting around somewhere. I picked up the book and read it and thought it was a good sort of neutral anchor.

Like, if I wanted to save more and he thought that savings goal was going to be a little bit far off, this book kind of explained a starting point rather than just each of us coming at it from our own perspective. And our perspectives really were far apart at that point.

Rob: I take it you liked the book, All Your Worth?

Kate: I did. I really like the way the book is fairly specific about helping you decide what should be in which category and then walking you through different scenarios if your budget is not equaling out—like if you can’t get your needs budget down to 50% because of your commitments.

It talks about that. I think it’s a really helpful book for people trying to set a budget for the first time.

Rob: Yeah. It’s not a book I’ve read. Trevor, have you read it?

Trevor: I’ve read parts of it.

Rob: Yeah. That’s typically how I read books like that. I tend to skim through and read parts of them. You know, for those listening, if you’re not familiar with the 50, 20, 30 budget, I covered it in podcast 68 so you can check that out here. So Trevor, did you buy into this? Were you embracing the 50, 20, 30 budget as a way to maybe find some common ground?

Trevor: I did embrace it. I mean, I was initially a little skeptical, but I was also feeling a little bit pinched in terms of my finances. And it was also something that was important to us as a couple, so I was sort of casting around for good evidence, good guidance. As Kate said, this seemed to be a fairly neutral starting place so I took it with an open mind and we worked out the details for ourselves.

Rob: When you say you were skeptical, what were you skeptical about?

Trevor: It seemed like a lot of overhead. Even though 50, 20, 30 is fairly simple to remember for someone who didn’t keep a spreadsheet or manage money balances very closely, having to think about which things go in which categories and whether we are meeting targets or not seemed like a lot of thinking about money that I wasn’t necessarily interested in doing.

Starting the 50-20-30 Budget

Rob: Right, right. So how did you guys do it? You decided on the 50, 20, 30 budget, and I think the next step was you ran your numbers to see how close you were to that?

Kate: Yeah. We still keep our finances somewhat separate but also, especially now that we’re getting married, we’re marching towards common goals. I ran the numbers a few different ways and tried to work out a budget for both of us, together.

So, if you assume we had one pot of money, that one pot of money would be divided into the 50, 20, 30 way. But then I also took Trevor’s separate expenses and my separate expenses and tried to figure out how to make that also be 50, 20, 30.

Rob: I see. So you ran it together and separately?

Kate: Yes.

Rob: That’s interesting. Why did you do it that way?

Kate: Part of that psychology of money is that I knew Trevor was really pinched, and he had felt stretched and pinched for a very long time. I didn’t want him to feel that way. I didn’t want him to feel like he didn’t have any money he could spend on any wants because he was just trying to pay the bills as the paychecks came in. I wanted to create that breathing room for him and for us to kind of be on equal footing in terms of how we felt about our budget and how comfortable it was for both of us.

Rob: Kate, you had your numbers from Mint.com., so Trevor, how did you pull your numbers into this 50, 20, 30 system?

Trevor: I was duly enrolled in Mint.

Rob: Oh, okay. Good. Since you seem to be the one not quite enamored with personal finance as a whole, Trevor, what do you think of Mint?

Trevor: I think it’s really helpful. It’s nice to be able to figure out where the money is going with less effort than me sitting with my bank statement and my spreadsheet or calculator. So in the sense that it reduces the effort to being able to see a sort of ‘pie-chart’ of my spending has been a real beneficial thing. I probably don’t look at it as often as Kate looks at hers, but I’ve gotten benefit of it still.

Rob: Good. So guys, when you ran the numbers, how close were you to a 50, 20, 30 budget?

Kate: I guess mine fell in pretty naturally because I didn’t have student loan debts and minimum payments to make. Trevor’s ‘needs’ budget was a little higher than 50%, and that was squeezing the other categories, so we made that balance out by— We agreed that for some amount of time I would take on some of the fixed bills for our home. So that part contributed to my ‘needs’ budget and took away from Trevor’s. That made both of our budgets balance.

Rob: So you were able to fix your budgets both individually and together into the 50, 20, 30 budget?

Kate: Yeah, just by shifting a little bit in a few categories and with who paid for what.

Rob: Now, did it require sacrifice? Were there things that you wanted to do or things that you wanted to buy that you said, “No, I’m not going to do that because I want to keep to our budgeting goals”…

Kate: I think the best example of that is our home. At the time I first moved to DC, I moved into Trevor’s studio apartment, which is 600 square feet. It was very tight for us in 600 square feet, especially for me having come from the mid-west and being used to more space.

We stayed in that apartment for a fairly long time partly because we wanted to think through all the budget possibilities of moving elsewhere. But when we did eventually move a year or so later, we decided to move to a bigger space, but a place that allowed us to keep our monthly expenses the same rather than getting more ambitious in that category.

Rob: Okay. And Trevor, what about you? Was  following the 50, 20, 30 budget a shock to the system?

Trevor: It was more that when we ran the numbers for me and realized that my needs budget was gobbling up more than its fair share perhaps, it sort of made things make sense for why I felt pinched and what I could expect to be able to clear – as in head space – to spend on things I wanted to spend on.

We cut back a bit on travel—vacation travel  and didn’t take as many of those trips. But it was more important for me to see that the needs budget I had was above the 50, 20, 30 rule, and therefore I was justified in feeling a little squeezed and I could think about not buying certain things in a different way.

Rob: Right. The way you described that doesn’t exactly sound all that painful.

Trevor: No, it wasn’t.

Rob: Well, that’s good.

Kate: Especially once we got started. You know, I think the first few months when we were implementing this, we would check in on how it was going at first, every week or every two weeks maybe. The first few months—those were more difficult conversations. There was a little bit more tension about the whole thing, but once it became routine, I think it became a very positive thing and we no longer looked at that coming appointment with a sense of, “Oh, this is going to be difficult.” It started being fine, but it took awhile.

Financial Check-Ins

Rob: You mentioned in your email that you guys have sort of a ‘check-in’ once or twice a month to discuss finances.

Kate: Yes.

Rob: My wife and I do the same thing even now after 26 years of marriage. The one thing is though, particularly when discussing money, couples say, “Okay, we’re going to discuss it at this point once or twice a month. And we’ve got it planned so we don’t have to worry about it the other times.”

Trevor: That’s certainly the benefit of it from my perspective. As Kate said, she’s kind of into personal finance and likes thinking about these topics, while I generally find them not all that interesting. So I can say, “Okay, we have our twice-a-month square-up and I’m going to focus on it then,” and we’re going to do our thing we agreed to do. And I don’t have to think about after that.

Rob: Right, right. Well, good. It’s interesting… As I listen to both of you it’s almost as if this 50, 20, 30 budget was the ‘mediator’ if you will. It was the way for you guys to find common ground.

Kate: Exactly.

Rob: That’s an interesting approach because so much of personal finance is just numbers, but some of it is emotions and feelings and fear, hopes and all those other things that I think sometimes we forget about. But it sounds like that worked out great for you guys.

Trevor: We do still disagree about the value of spending money on certain types of expenses, but it’s also been a mediator in a sense of… Like, if I want to spend money on something that Kate is not such a big fan of, if it fits in the 50, 20, 30 rule and I’m sort of ‘in bounds’ then that plays an important part in the mediation of different values as to what we spend our money on.

Rob: That’s a great insight. Thanks for sharing that. That can be a great way to help you make decisions and the reality is money will—you know, my wife and I still have disagreements on how to spend money. Fortunately they’re not many and they’re not bad. But it’s the kind of thing that, as a couple, you’ve got to work through. So using that budget has helped you guys do that which I think is terrific.

Tackling the Student Loans

Rob: One thing you also mentioned is that you calculated how long it would take Trevor to pay off his school loans.

Kate: Yes. And that actually turned into a big project.

Rob: Well, how did you do that?

Kate: He had a large amount of student debt, so I looked at a bunch of different options that I thought might be available to him. I looked at the monthly costs as well as the interest we would pay over the life of the loan and several different scenarios; the standard 10-year repayment plan, the income-based repayment plan, what would happen if you paid this much over the minimum per month so you’re paying it faster than the 10-year standard and a couple similar to that way.

Rob: Okay. These different repayment plans are things that are available to people with student loans—the 10-year plan and the income-based plan.

Trevor: I’ve just accepted the generic story of when, you know, when you sign your loan papers they tell you that you’re more or less expected to pay it off in this amount of time and that’s the deal. I didn’t really think about multiple scenarios.

Rob: So in this sense Kate was very helpful to you?

Trevor: Yeah. I mean, it took her pointing out that maybe there was some information hidden in that sort of standard plan that I could think differently about the amount of interest I would pay over time and stuff. And because I just wouldn’t have devoted the time and energy in figuring that out. It was really helpful to have someone say, “Have you looked at those in detail?”

Rob: Right. Were there any tools you guys used to do these calculations? Was it just an Excel spreadsheet or did you actually go about calculating these various payoff scenarios?

Kate: For me, I mainly just did it long-hand with pen and paper and a calculator.

Rob: All right.

Kate: There are probably great tools out there to do it, but I was just determined to sit down and take a crack at it long-hand by myself for some reason.

Rob: Yeah, okay. The only tool I know of, as I mentioned, is Student Loan Hero. It’ll do that, apparently. I don’t know if that’s maybe something you might check out, but in any event you guys concluded—First of all, what payment plan did you end up choosing?

Trevor: I guess is sort of an accelerated plan. I’m paying a certain amount over the minimum every month that Kate and I have agreed on. This  is the targeted amount over the minimum I’ll pay, and we figured out that worked out to paying it off in about five years.

Rob: Okay.

Kate: And I guess that was a scenario that was also sort of a rift on the 50, 20, 30 rule so we said, “Let’s take Trevor’s 20% savings and put that entirely into his extra payments above the minimum.” And that’s how we came up with an amount per month. Then we kind of combined that with the debt snowball idea where even when the minimums start to go down, we still keep paying that same dollar amount.

Rob: Right. Which is so important because it really does accelerate getting out of debt. Did this all occur in 2012, these calculations?

Kate: Yes.

Rob: All right. I think what you told me was, as of now Trevor, you’ve paid off about $25,000— about a quarter of your school loans?

Trevor: Yeah, that’s right.

Rob: And you actually think you’re going to be debt-free quicker than the total five years you originally estimated?

Trevor: I think it’s still pretty close to that five years. I mean, a few months either way.

Rob: Okay. You’re on track and you haven’t gone into any more debt?

Trevor: No.

Rob: Does it feel good?

Trevor: It does feel good.

Rob: You’re pretty reserved about it Trevor, but I guess— what are you going to do?

Trevor: Well, it does feel good. I mean, I don’t get up and do cartwheels about it—

Rob: Yeah.

Kate: I get up and do cartwheels about it!

Rob: It sounds like you do Kate. That’s alright Trevor. Kate will do the cartwheels.

Trevor: Yeah.

Rob: Okay, well good. As part of this email you sent me Kate, you actually had a question and I didn’t answer it, did I?

Kate: Not exactly.

Setting a Savings Goal

Rob: Why don’t you tell everybody what your question was?

Kate: I feel like we’ve been doing this 50, 20, 30 budget rule for almost two years now and our savings rate has sort of naturally floated up a little bit. And it’s also fairly comfortable. I feel like if we wanted to, we could maybe save a little bit more.

So, the question I posed to you was, “How do we set the new baseline? How do we measure what is our savings rate? Is the savings rate a percentage of gross pay? Or is it a percentage of net pay?” Also, a category that we’re not quite sure how to handle is saving contributions from our employers that kind of happen in the background regardless of our personal savings effort. Do we count that in the savings rate, or not?

Rob: Right. And I think part of too was do you count dividends and interest that you’re earning that you reinvest. Should that go towards whatever savings goal you have. So, I want to hear how you guys answered that question—First of all, have you answered it?

Kate: I don’t think so. Not yet. I still think that eventually we’ll want to set a new target number that’s more ambitious than 20% savings. I think for now we’re still just kind of thinking that 20% is floor of the month and above that is awesome, but we haven’t formally set a new goal yet.

Rob: So my email back to Kate for those listening was, “Yeah, you can try to decide whether your employer contributions to your 401k should count towards your savings or dividends and interest. But in some ways it’s really kind of avoiding the question. The real question is, what do you want to save?” Whether you count that or not.

The funny thing is, Kate and Trevor, I asked my wife this question. I said, “So, if you’re following this budget and you want to save 20%, should you count your employer contributions to your 401k?” She looked at me and said, “No, of course not!” I laughed and asked, “Why is that?” She said, “You just wouldn’t! It’s just not what you do.” So there you go. There’s my wife’s— there’s Mrs. Dough’s answer. That’s what I call her sometimes.

Trevor: I like clarity.

Rob: Yeah, she’s very black and white, “I hope you don’t count it… Next…” So there you have it. And you guys, you’re still at 20% in terms of your savings rate?

Kate: We’re at 20%. Or maybe 30%. Again, depending on how your run it. So if we did count these employer matches, you know, extra money coming in that way, it’s more like 40%. Maybe even a bit higher.

Rob: Kate, if it were totally up to you, what would the savings rate be?

Kate: If it were totally up to me, I would shoot for 50% net pay out of our paychecks and then, the retirement stuff that comes in with the extra.

Rob: And Trevor, where would you put it?

Trevor: Well, sometimes I joke that Kate convinced me of the 50, 20, 30 rule too well. And I would say that this is the kind of mediating rule we’ve agreed on so let’s just stick with the plan.

Rob: Yeah. But you know what Kate would probably say to that, Trevor, is that it is the 50, 20, 30 rule. It’s just that you’re changing what the 50 is. You thought that was needs. Now that’s going to be your savings.

You know, I appreciate you both sharing your story. It’s real life, how you guys work these things out. It sounds like the 50, 20, 30 rule has been just terrific for you guys. And it sounds like, regardless of what you end up with in terms of your savings rate, you plan to stick with some form of that budgeting rule at least for the foreseeable future?

Kate: Yes, definitely. It has just been a great foundation for us. It helped us get started. I don’t think we ever really had any doubts that we would be able to resolve our differences and prospective about money but it’s nice to have some agreements and ease in our lives on the subject.

Investing Basics

Rob: Yes. That’s great. I appreciate your time today, but before I let you go, one question… Beyond the 50, 20, 30 budget, you mentioned you guys had retirement accounts at work. Do you invest at all outside retirement accounts yet?

Kate: I do a little bit per month but not a lot yet.

Rob: Okay. Do you guys talk about how you invest your money whether it’s in the retirement accounts or the extra you invest, Kate? You know, how you pick mutual funds— Do you guys talk about that asset allocation and all those fun things?

Trevor: We really don’t and I think it’s partly a combination on how I’m still focused on paying off the student loans so I’m not making additional retirement investing contributions. So, it’s sort of a future topic for me. And since it’s in the future I’m not really… I trust Kate— that she’s doing the stuff she’s doing good things with stuff she’s doing, and when I get around to doing it for my money, then we can have another conversation about it.

Rob: Now Trevor, your employer does put some money in your retirement account, right?

Trevor: Yes.

Rob: So how do you invest that?

Trevor: Well, I guess I did a good job of picking the plan when I got my job…

Kate: They enrolled him in plan, and I looked at it and said it looked like a good plan. You don’t have to change if you don’t want to.

Rob: There you go! Auto-enrollment is a terrific thing.

Trevor: I felt better after Kate said it was a pretty good plan and I didn’t have to change it.

Rob: Okay. And Kate, how do you invest your money? Do you pick mutual funds? Do you— how do you figure that out?

Kate: I do and I try to stick to the low-cost index funds. I really enjoyed your two-part podcast about asset allocation and how to go about rebalancing if you find your asset allocation is off a little bit.

Rob: Yeah.

Kate: I think I have some principals down, so we’re in good shape that way. And, that’s also something, you know, division of labor, because I find that a little bit more interesting. I read a lot more about it. And I sort of do it and tell Trevor the outlines of it, and he’s willing to trust me with the details.

Rob: It sounds like a perfect fit, you two. So Kate, how did you learn all this stuff? Are you self-taught? Did your parents teach you this? Did you take personal finance in school? How did you learn about investing?

Kate: My parents are a very good example. I assume they do a lot of similar things with their lifestyle from what I know about their financial situation. I’m self-taught in a sense that I like to read a lot and I follow a lot of blogs.

You know, there’s a lot of information out there for people so it’s kind of endless how much you can learn about it. And even if you think you’ve heard it all, there’s always a little bit more, or a new question comes up because of something changing in your life. So I think it really is a life-long hobby.

Rob: Right. That’s how I view it too. That’s great. Well, I wish you two the best of luck. Good luck in August and thank you so much for being on the show.

Trevor: Thank you. This was fun.

Kate: Thank you. Take care.

Rob: Take care. Bye.

And finally, here’s a picture of Kate and Trevor’s cat, Mayhem, who chimed in during the interview–

Mayhem

Published or Updated: June 19, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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