Supplementing Income with Investments
My wife and I recently got married, and while we have not fully joined bank accounts yet, we are onboard with completely sharing a budget and YNAB is working well for both of us.
My wife was a professional who built up considerable savings that are now split between cash and investments. She is now in school so has no income (but can pay for school with savings and therefore no debt or future outlook of debt). I have a steady income. Currently, we both have more than enough in savings/investments (high networth for our age) but we live in a high cost area. That said, we plan and are comfortable with supplementing my income with some of her savings incrementally. We plan to first "drain" her cash balances in savings/checkings accounts, and then take some money out of investments. Even though we are not worried about debt, we are concerned about overspending or simply not "stewarding" our money well, and are therefore working out how much we really need to spend per month (mandatory spending in high cost area + enjoying life a little - travel, eating out, hobbies, etc.).
1. YNAB Specific - when it does come time to pull from savings/investments, would it be recommended to do it in one lump sum and then budget out multiple months into the future or would it be recommended to steadily pull out and "pay" ourselves each month?
2. General- does anyone have suggestions on this situation or good resources to turn to? Mainly, we have some vague future goals (goals that give us some idea of what we want our account balances to be in a couple years when my wife is complete with school and re-entering the workforce) but not sure how to really solidify those which would help with budgeting now.
Spring Green Viper said:
2. General- does anyone have suggestions on this situation or good resources to turn to?
In your situation I would recommend sitting down with a financial planner. If you have one already, see what they say. And then ask a second one. You have different options available. For example, in Ontario Canada student loans don't accrue any interest until 6 months after graduation. So in effect, a 0% loan for a couple of years. We have the money to pay for it now but that money is better served elsewhere. And that person can help with what to pull from when as there are tax implications as well as general financial ones.
As for budget, I would do a "scorched earth" budget with only the absolute bare minimums and only needs to see what is the minimum you need income wise. You may find no supplementing is required depending on your life choices.
Great! For number one- I'd say leave the dollars in the investment vehicle as long as possible and only take out what you need. If you take it out all at once it won't be making any more money for you.
For number two- sounds like you live in a much higher cost area than I do, so I don't envy you looking at dipping into savings just to continue paying living expenses. I'm sure you already know this, but as much as you can do to bring down monthly expenses to fit in your income, you'll thank yourself down the road, especially if you can leave those dollars in investments that will grow.
I find the previous answers to be geared towards preserving savings although they have some good points (in particular tax implications). Which is great, but savings are saved so that they can be used at some point for whatever purpose one decides to do so. And supplementing one's income during school is as good a reason as a model renovation or a downpayment. So instead of telling you to do everything you can not to dip into your savings, here is what I would do in your case.
1. Decide how much per month you are ready to use from your savings.
2. Pull this amount every month and add to your budget. Budget as you like.
This is an extreme case of irregular income. You got your income for X years in one go and release a monthly amount every month. It's easier to release a monthly amount as it is easier to track how much you take out this way and allows you to use your budget to save for infrequent expenses.
What does this look like in YNAB:
Put all your accounts and your partner's accounts checking and savings as budget accounts. Your wife's account will create a huge To Be Budgeted (TBB). Create a category: "Deferred Income" (or whatever you like). Budget the total balance from your wife's accounts to this category. Put a note with the amount you intend to draw out each month.
When you budget for a month, put a negative budget (in the Budgeted column) for the amount you have in your notes so it adds to TBB, and then budget the money.
Do not transfer money at the bank! Only transfer money if the account you use to pay from is getting low. So that the money stays in savings for as long as possible but it is budgeted towards your expenses.
Note: I'm almost in the same case, I use my savings to pay my mortgage while we have high costs of childcare. The catch is 99% of the mortgage payment goes towards principal so we transfer easy-to-access savings to hard-to-access equity. We also receive our income fortnightly and hence have months with 3 checks. I put those extra checks in a holding category (deferred income) and negative budget a constant amount every month.
Agree with others suggesting pulling from investments as you go. However, if for some reason it makes sense to pull more than a month's worth of funds from investments at once, you can put the extra into a category and then move funds from that category into where they'll be used each month instead of trying to budget many months in advance. You could also move then from the holding category into "to be budgeted" each month as a way of "paying" yourself from the category.