In this post, I want to tell you how you can tactically set up your accounts to save and invest for financial independence while balancing other life needs.
I came to learn this myself because my wife and I don’t share the same financial independence goals, and we have different opinions on what our spending/saving ratio should be. So we set up joint and personal checking and investment accounts to balance our expenses and savings.
Yet, this structure to save money is applicable to anyone, even unmarried people. It is based on having separate accounts for discretionary and non-discretionary expenses. So I hope you’ll find it helpful!
A bit about our family
I try to invest almost all of my disposable income and live on as little as possible. I want to reach financial independence soon and live a more liberating life through minimalism. The fewer unessential things I own, the freer and richer I am, because there is nothing else that I want.
Another way to look at it is that I still spend a lot of money on investments. Instead of buying things, I buy assets (investments) that will give me happiness at a later stage of my life.
My wife on the other hand does not aspire to financial independence early on. As long as she can work and generate a good income, she does not need to retire before 65. She makes sure that her basic needs are addressed and wants to spend a larger part of her income.
She is not financially irresponsible, she won’t get in debt, nor does she buy stupid things. It is simply that she does not want to think about budgeting, personal finance, and investments. I am respectful of the way she lives her life and I don’t push her towards something she doesn’t want. To find a middle ground, I only asked her to force her savings with automated deposits, max out her employer-sponsored retirement plan, and share an investment account with me.
Besides that, I completely avoid the Financial Independence Retire Early (FIRE) conversation with her.
Maybe that’s why I started this blog. I needed somebody to talk with, my virtual friend.
Spending, saving, and investments
To address these different goals, and save and invest for financial independence, I have structured our finances in a specific way. I believe that this setup makes sense to every family with ambitious investment goals to reach financial independence while balancing life needs.
At a very high level, both of us have a checking account, and we also share a joint checking account. We also have personal and joint investment accounts. We don’t have a savings account.
Checking accounts
We use the checking accounts in our own names for discretionary spending and investments. We share a joint checking which we use for non-discretionary spending.
Non-discretionary expenses → dedicated checking account
We use a dedicated checking account for non-discretionary expenses. Non-discretionary expenses include everything that we absolutely need to pay, like basic groceries, mortgage, essential transportation, daycare, etc. These are primary needs and there is no reasonable flexibility.
We decided to have a shared joint checking account for non-discretionary expenses because these tend to be joint expenses. We also have credit cards linked solely to this account.
Non discretionary recurring expenses
Most non-discretionary expenses are predictable recurring expenses. I use an Excel spreadsheet to track them. Typically it is easy to quantify how much we spend on food, rent or mortgage, and so on. If you are looking for some tracking tools, in the USA you can use Mint or YNAB. They will give you an estimate on how much you spend on each category recurringly.
Non discretionary unexpected expenses
There are also unexpected expenses that are non-discretionary. For instance a medical bill, or repair costs. For these expenses, it is customary to have an emergency fund that covers 3-6 months of living expenses. We have built a small emergency fund in the same checking account that covers 2 months of living expenses. That gives us some wiggle room.
We could have also chosen to keep a larger emergency fund in a separate savings account. But since we already own some liquid investments, I don’t believe that a larger emergency fund is necessary. The small interest rate that we would get on our savings account isn’t worth the hassle of having another account.
Automated deposits
For the purpose of budgeting, both my wife and I set up automated deposits. They transfer a fixed part of our salaries into our joint account. These deposits cover both the recurring non-discretionary expenses, plus some extra savings that allowed us to build this small emergency fund for the unexpected expenses.
Why it is important to have a dedicated account for non discretionary expenses
If you have ambitious saving goals, I think that it is necessary to have a dedicated checking account for nondiscretionary expenses. If you have a spouse, I recommend a joint account since most non-discretionary expenses are family expenses. A dedicated account for non-discretionary expenses will make it easier to know how much of your income is needed to cover your essential lifestyle.
You can use all the extra money in your other accounts for investments or entrepreneurial activities. Once you cover the basic needs through this checking account, everything left is there for you to either invest or spend. You don’t have to worry about the basic needs.
Discretionary expenses + investments → Personal checking accounts
We pay all the discretionary expenses and investments out of one of our personal checking accounts. No matter whether personal or joint. As long as they are discretionary, they must be paid out of our personal accounts. We also have our personal credit cards that are tied to our personal accounts.
Having our own checking accounts empowers us to reach our life objectives because we know that all the money that hits our personal checking account is extra money. We can allow ourselves to spend it, invest it, or use it for entrepreneurial activities. We are now worried about losing it because we have already taken care of all the basic needs through our non-discretionary expenses account.
So if my wife decides to spend her money on the latest iPhone, she can do it without having me annoy her for the purchase. And if I decide to spend my money to buy investment assets (like shares or fund shares), then I can do it without limiting my wife.
Investment accounts
We own retirement accounts, a 529 education plan for our daughter, and brokerage taxable accounts.
Brokerage accounts are available everywhere in the world. You should be able to open an online account in your country. Try to find one with the lowest trading fees.
On the other hand, the 401(k) and IRA retirement accounts, and the 529 education plan, are only available in the United States. So if you live elsewhere you can simply ignore them.
- Retirement accounts are the vehicles that the United States allows for conventional retirement. These have some tax advantages as long as you don’t withdrawn your capital until conventional retirement age (60 year old or so). Both of us have our own 401(k) and IRA accounts to save for cover conventional retirement, around 65 years old.
- The 529 education plan is another US specific tax advantage savings plan that can cover some of the educational costs of our daughter.
- Brokerage taxable accounts are account that have no tax advantages. Every year you pay taxes on the investment profits, such as dividend, interest, or capital gai5ns.
My investments
I force all of my investments out of my accounts through automated deposits. This moves the money out of my account before I have a chance to spend it. Overall, I am investing about 65% of my take-home pay (after taxes).
- My employer subtracts my 401(k) retirement plan allocation from my salary before it even hits my personal checking account.
- The rest of my salary and other supplemental income sources are temporarily deposited into my personal checking account, just to be automatically transferred the same day to my other investment accounts. These include two personal taxable brokerage accounts, a joint investment account, and 529 account.
- My two personal brokerage accounts include my core and fun portfolio investments (yes… I have fun with a portfolio in case you are wondering).
- I share a joint investment account with my wife so she can also have investments in her name without forcing her to start her own investment account and having to manage it.
- The 529 educational plan covers future educational expenses of our daughter.
- All that is left for me is $200-300 a month, unless I need to budget for something like a vacation. In that case, I adjust my investment rate, typically by reducing my monthly deposits into my fun portfolio.
By having so little left I am not tempted to spend money on useless things. Most of it is actually spent for my daughter. As mentioned, I want to spend as little as possible.
My wife investments
My wife maxes out her own 401(k) allocation too to have her own retirement nest of eggs. She also contributes to the joint brokerage investment account and the 529 plan for our daughter’s education.
She keeps a larger portion of her salary for discretionary spending.
Benefit of separating non-discretionary and discretionary expenses
The benefit of this setup is that once the joint non-discretionary expenses are paid out through automated deposits into our joint checking account, we know that everything left for us is there for discretionary expenses and investments.
In other words, we are intentionally adopting a scarcity mindset for our joint non-discretionary expenses because we just have enough for them, and an abundance mindset in our personal accounts. We can take risks with what we have left and invest. This way we save and invest for financial independence while balancing life needs.