Financial Roadmap: Roommates
If you are feeling uncertain or overwhelmed by the prospect of talking with your roommate about money, you may wish to reach out to Employee Assistance Program for support. Talking to an unbiased listener can be helpful in sorting through emotions and developing an approach for addressing the matter. Professional counselors are available to assist you. For support on the Boulder campus, please visit the CU-Boulder Faculty and Staff Assistance Program website. For support on the Anschutz, Denver or Colorado Springs campuses, or within the System Administration building, please visit the State of Colorado Employee Assistance Program website.
- Take stock of your income.
Use this worksheet to create a summary of your income sources. Start with paychecks from employers and then move to income from other sources. Encourage your roommate to complete the document, too.
Tracking expenditures and cash flow are important steps in creating a financial plan and managing household expenses. Though it can be tedious, tracking expenditures sheds light on your spending behavior. It also provides the details that you and your roommate need to talk specifically about what each of you is doing (or can do) to achieve manage household expenses and achieve your respective financial goals.
- Gather your statements.
Obtain copies of bank statements and credit card statements for 3 months.
- Categorize your spending.
Complete a Spending Chart for the last three months. Then record the average amount spent over that time frame. Encourage your roommate to do the same.
- Review household bills.
As you take inventory of household bills, review each bill to determine if there is a way to lower its cost. For example, if you see that the electricity or water bill is high, discuss ways in which you and your roommate might lower usage (e.g. change A/C setting, take shorter showers). As you and your roommate look at your spending charts side-by-side, also make note of how much each of you is spending on groceries, household supplies, etc. In this way, you can consider the level of equality in paying for household expenses and determine if a new approach is needed in sharing expenses.
- Review household spending.
For each general spending category, add together your spending on each category to get an estimate of your monthly spending. Later you can use this as the basis for making a budget.
- Take the Life Values quiz.
Grow awareness of your financial values and habits by taking the Life Values quiz. Upon completion of the quiz, check out descriptions of each life value.
Why take the quiz?
Growing awareness of your own value system and behavior is the first step in building understanding with your roommate. Over the course of your childhood, you learned values and developed habits in regard to money. You may have learned these explicitly from family members or a class in school or implicitly by listening to conversations or watching the behaviors of family members and friends. No matter how, where, or what you learned, by this stage in life, you have developed your own set of financial values and habits. And so has your roommate.
In order to better understand one another and find successful ways to navigate financial decisions, it is important that you and your roommate explore your respective financial values and habits. After taking the quiz, encourage your roommate to do the same.
Have you reviewed your credit history lately? Has your roommate reviewed his/hers? As you begin to get your "financial house" in order, it is important to take stock of your credit history. Your credit history highlights your past or current borrowing behavior and influences your ability to borrow in the future.
- Obtain a copy of your credit report and review it for accuracy.
The Fair Credit Reporting Act (FCRA) entitles you to a free credit report annually from each reporting agency. In order to request your free report(s), visit http://www.annualcreditreport.com.
The three credit bureaus from which you can request reports are:
- Equifax (1-800-525-6285)
- Experian (1-888-397-3742)
- TransUnion (1-800-680-7289)
Here’s what to look for as you review the report:
- Late payments on accounts
Were you delinquent in making payments?
- Debt-to-credit limit ratios
What is your debt compared to available credit on revolving accounts (e.g., credit cards)?
- Collection activity
Has a delinquent payment gone to collections?
- Bankruptcies, liens or judgments
Notice if major financial challenges are listed on your credit report.
- Active accounts
Are there active accounts that you never closed? Or opened? Verify that accounts that you closed are, indeed, closed. If there are accounts open that you never opened, contact the credit reporting agency.
Review who has requested your credit file.
- Review all of your loan and credit card statements.
From your current statements, make a list of your outstanding balances, monthly payment amounts, interest rates, and estimated payoff dates for each type of debt/liability that you have.
John Lennon once said, “Life is what happens to you while you're busy making other plans.” And sometimes the unexpected happens while you’re busy living life. Setting aside some of your income for savings is a great way to prepare for the unexpected and reward yourself for your hard work. Saving money also allows you to achieve your financial goals. As you take steps to boost your financial health, it is important to review the role of savings in your plans.
- Gather your statements.
Obtain copies of bank statements from your savings accounts.
- Review individual saving behavior.
Review your saving behavior. Do you have an established habit of setting money aside in a savings account? Do you only save money on occasion or do you actively seek ways to grow your savings? How much money are you currently saving on a monthly basis? Are you saving money through direct deposit of your paycheck?
- Gather information regarding coverage and costs of health insurance plans in which you are currently participating.
If you are currently participating in a CU health plan, you can visit Employee Services' benefits website for information on the cost and coverage that you currently have. Be sure to review costs for individual coverage. Please note: As a benefits-eligible individual, you may only enroll in a plan or make changes to your plan selection during the Open Enrollment period each year. You can add dependents to your current plan if you experience a qualifying event.
- Gather names of individuals currently listed as beneficiaries on all financial accounts and life insurance policies.
Review each financial account and life insurance policy to ensure that you have designated a beneficiary for each. A beneficiary receives certain plan benefits after the owner (you) of such policy dies. By designating an individual(s) as the beneficiary of your retirement plan(s) and life insurance policy (if applicable), you are ensuring that the benefits of these plans are distributed to the person(s) of your choice. For additional assistance with estate planning, please view the Estate Planning Checklist.
- Gather the policy information for renter’s/homeowner’s, car and life insurance.
Gather and compile information on insurance policies. Review current coverage and consider the need to increase coverage and/or add your roommate to a policy. If you do not have a renter's insurance policy, gather quotes from prospective insurers.
- Review your taking stock results.
Review your pay stubs and W-4s. Consider sources of income and whether they vary (e.g. bonuses, paid overtime) or are constant (salaried wage). Consider the amount and regularity of other sources of income such as child support, rental income, and business income.
- Consider any changes to income.
As you take stock of your income, be sure to consider any changes to jobs or income (e.g. Will you be starting school? Will you be starting a part-time job? Will you be getting a promotion?) that you foresee in the near future.
- Consider taxes withheld from your paychecks.
Though it is not the most exciting way to spend your time, it is a good idea for you to review a W-4 to determine the best strategy for withholdings. Giving up a little time to sort this out now will likely enhance your financial situation at tax time.
You will want to consider whether you want to try to estimate your tax liability as close as possible and pay that amount during the year or whether you’d like to err on the side of overpayment (to get a refund) or underpayment (to keep more money from each paycheck but possibly have to write a check in April). Please note: This information is for general reference purposes only. Only a qualified tax professional can give you tax advice on your situation.
- Start thinking about your tax-filing status.
If you are wondering about your tax filing status, here are a few facts about filing status to consider:
According to the Internal Revenue Service (IRS):
- "Single" filing status generally applies to anyone who is unmarried, divorced or legally separated.
- "Head-of-Household" applies to taxpayers who are unmarried. In order to qualify as "Head-of-Household," you must have paid for more than half the cost of maintaining a home for you and a qualifying person.
Your filing status determines the standard deduction amount and schedule of tax rates that are used when calculating your federal income taxes. Select the filing status that best fits your situation. Please note: This information is for general reference purposes only. Only a qualified tax professional can give you tax advice on your situation.
- Discuss current spending.
Discuss current spending with your roommate. Review individual and household spending habits. Look for ways to trim expenses and save money. Discuss which bills will be shared or eliminated.
- Discuss who will be responsible for bills.
Determine how spending and household expenses will be shared. Consider if expenses will be divided evenly.
- Discuss how bills will be paid.
Consider whether one of you will be responsible for paying households bills directly (and the other gives the payer an agreed upon amount of money towards bills) or if each of you will manage certain bills. It is important to decide who will establish accounts for utilities (e.g., electricity) and services (e.g., cable television, internet access). If accounts are in one individual's name, be sure to discuss how expenses will be shared and paid. Be sure to also consider how the rent or mortgage will be paid. Will one of you write a check to the landlord/lender? If so, be sure to establish an agreement upon the manner and timing by which the other party pays his/her share of the rent.
- Discuss timeliness of bill payments.
Consider how you and your roommate will ensure timeliness of bill payments. Establish agreements for how and when bills will be paid. Discuss consequences for not honoring the agreement. Consider how you and your roommate will address the matter of one of you not paying a bill on time or providing timely payment of share of expenses.
- Discuss spending on household items.
Discuss how you and your roommate will share expenses for common good such as cleaning supplies. In addition, be sure to discuss whether you will buy groceries individually or together. Establish an agreement upon the approach to these items soon after moving in together. In this way, each of you is aware of the expectations and can tailor your behavior accordingly.
- Consider putting your agreements in writing.
You and your roommate may find it a great idea to articulate your agreements in writing. In this way, each of you remembers what was agreed upon and has something to refer to when questions arise. In this way, you can minimize the chance of resentment or an awkward “you owe me money” conversation.
- Consider opening an individual savings account.
If you do not have a savings account, consider opening an individual account.
- Consider including your savings account in direct deposit of your paycheck.
Review your monthly budget to determine how much money you will deposit into savings accounts each month. Consider adding the savings account to the direct deposit of your paycheck. In this way, saving becomes an automatic part of your financial behavior.
- Consider saving for an emergency.
Developing an emergency savings fund is an important component of building a solid financial foundation. Having money set aside for emergencies will allow you to navigate unexpected situations such as vehicle repairs or pet health care with greater peace of mind and minimal impact on other areas (e.g., credit cards, retirement accounts) of your financial foundation.
It is important that you consider how much money you will set aside for emergency savings. This decision is unique to every individual. However, in the event of a lost job or layoff, it is a good idea to save sufficient money to live without that income for 3-6 months.
For guidance in determining how much money you will need to set aside for an emergency fund, review the Emergency Fund Worksheet at smartaboutmoney.org.
- Consider opening a savings account dedicated solely to emergency savings.
- Consider where and how you will safeguard sensitive financial documents and account information.
Staying organized and maintaining the security of sensitive financial information minimizes the threat of identity theft. Further, storing important documents in a secure, single location ensures that all important information will be intact and accessible should an emergency arise.
- Consider the individuals currently listed as beneficiaries on all financial accounts and life insurance policies.
Consider whether the names of beneficiaries on accounts and policies need to be changed or updated. As you decide beneficiaries, please note that in some cases there are tax implications for the beneficiary. Check with your financial provider or plan administrator for details.
- Consider (and discuss as applicable) current coverage for renter’s/homeowner’s, car, and life insurance.
Consider the current coverage for each insurance policy. Be sure to review the amount covered by your renter’s insurance policy. If you do not have renter’s insurance, be sure to consider purchasing it. If your roommate drives your car on occasion, you should consider adding him/her as an approved driver on your auto insurance policy. In addition, your review of insurance coverage is an ideal time to consider whether life insurance is appropriate for you.
- Consider who will make decisions on your behalf in the event of a medical emergency.
In the event that you cannot make financial or medical decisions due to an incapacitating illness or medical emergency, you will be at the mercy of the court to appoint a guardian to oversee your financial and medical matters unless you have designated someone as a living power of attorney. A living power attorney safeguards you against the aforementioned risk by allowing you to select and authorize someone to act on your behalf for financial and medical matters in the event that you are incapacitated. You will want to consider securing a durable power of attorney in order to protect yourselves in such circumstances. For assistance with estate planning, please view the Estate Planning Checklist.
- Determine if changes need to be made to your W-4s.
Pull out the copies of your current W-4s you obtained from your employers (you did this in the Taking Stock section). Then print blank W-4s to work through at home.
Follow the instructions to complete a “practice” W-4.
- You can claim one allowance for yourself. If you have children, you can add one allowance for each dependent. If your income is less than a certain threshold and you are eligible for a Child Tax Credit, you may take additional allowances for dependents.
- If you plan to itemize or claim adjustments to your income, be sure to follow the guidance on the “Deductions and Adjustments Worksheet” on page 2 of the W-4.
For additional support in determining the number of withholding allowances, check out the Withholding Calculator offered by the Internal Revenue Service (IRS).Please note:This information is for general reference purposes only. Only a qualified tax professional can give you tax advice on your situation.
- Contact your employer to update your W-4.
Contact your employer directly for instructions on how to update your W-4 form.
Now that you have reviewed your income and spending, you are ready to develop a financial plan. As you do, remember that, no matter which way you look at it, you WILL spend money. It is not realistic to develop a financial plan that does not account for this truth. For developing and executing a successful financial plan is an important, ongoing exercise that does not address IF you will spend, but rather ON WHAT and WHEN you and your partner spend money.
- Eliminate or share bills.
Share or eliminate bills wherever possible. Look for ways to trim expenses and save money.
- Write spending goals.
It is important to write down your financial goals. Get a pen and some paper and be sure to make your goals SMART!
What are SMART goals?They are:
- Specific: I will pay off my credit card in two months by paying X dollars this month and Y dollars next month.
- Measurable: I will pay an additional $50/payment on my student loan bill for the next 6 months.
- Attainable/Achievable: I will save $10/week. (I will forego two coffees/week at Starbucks and instead place $10 in my savings jar.)
- Realistic: I will work on paying off my auto loan ahead of schedule by including an additional $50 on my monthly payment.
- Time-Bound and Trackable: We will save $2,000 for a vacation by saving $200/month for the next 10 months.
Short-Term Goals: Achievable in fewer than 3 months
Medium-Term Goals: Achievable from 3 months to 3 years.
Long-Term Goals: Require 3 or more years to achieve.
If you need a little boost with outlining your goals, be sure to check out the Ten Basic Steps Worksheet from smartaboutmoney.org.
- Make a new budget.
Implementing a budget is an integral part of managing spending decisions and behavior. Determine how much of your income will be allocated to household expenses, saving, investing for retirement, entertainment and “extras” (e.g., a treat from a coffee shop). In order to advance your spending goals, be sure to find and “plug” the leaks in your spending pipeline. Use the Plug Spending Leaks Worksheet from smartaboutmoney.org to guide your review of potential “leaks” in your spending.
Monitoring where your money goes is an excellent way to determine how you are spending your money and whether or not these expenditures support your financial goals. Use the Spending Diary and the Tracking Your Expenses worksheets to guide you as you track your spending.
- Pay off credit accounts and close them (if applicable).
- Write SMART goals to manage existing debt.
- Open an individual savings account (if applicable).
Select the financial institution with which you would like to bank. Go to the financial institution with personal identification and a check or cash to make the initial deposit.
- Add your savings account(s) to the list of accounts for direct deposit of your paycheck.
Determine how much of your paycheck will be allocated to your savings account(s). CU employees can update direct deposit information by visiting the “Payroll and Compensation” section in the employee portal.
- Establish an emergency savings fund.
Allocate a certain amount of your income to emergency savings. The key to growing your emergency savings funds is to start saving now. If the targeted savings amount seems daunting, focus on starting small. It is important to remember that the emphasis in not on saving large sums of money on a regular basis, but rather that you develop the habit of setting aside a manageable percentage of your income on a regular basis.
- Open a savings account dedicated solely to emergency savings (if applicable).
- Store sensitive financial documents and account information in a safe place.
Store documents in a fire resistance, locked security box at home. You can also consider storing items such as valuable jewelry, property deeds, birth certificates, foreign currency, stock or bond certificates, collectibles, and family heirlooms in a bank safe-deposit box. It is important to note that cash kept in a safe-deposit box is not insured under the Federal Deposit Insurance Corporation. Thus, if you use a safe-deposit box, be sure to limit its use to storage of valuable possessions and documents. In addition, please note that a power of authority loses authority to act upon your behalf upon your death. Should you die, the only individuals who can access the safe-deposit box are those listed on the signature card for the box rental at the bank. Be sure to keep this in mind should you decide to use a safe-deposit box. In addition, given the limited access to a safe-deposit box, you may wish to store your will at home.
- Protect your identity.
Be on the lookout for financial scams and protect your identity by regularly reviewing your credit report. Visit www.annualcreditreport.com to request a free report. If you find unauthorized charges on your credit report, contact each credit reporting agency.
The three credit bureaus are:
- Equifax (1-800-525-6285)
- Experian (1-888-397-3742)
- TransUnion (1-800-680-7289)
Inform each agency that you believe that you are a victim of identity theft and ask the agency to put a fraud alert on your file. In addition, request that the credit reporting companies not include the disputed information on your credit report. In addition, create an identity theft affidavit at the Federal Trade Commission (FTC)'s website.
The fraud alert stays active on your credit report for 90 days. If necessary, you can renew the alert after 90 days. In addition to placing the filing the fraud alert, be sure to maintain copies of communication (letters or emails) sent or received regarding the matter. Record dates that you make telephone calls and keep clear, updated records regarding actions taken to resolve the matter.
Upon completion of the FTC identity theft affidavit, file a police report. In turn, you may use these documents to restore your credit by stopping a business from collecting debts that resulted from identity theft and requesting the removal of fraudulent information from your credit report.
- Update beneficiaries as applicable.
For the 401(a) PlanContact TIAA directly. You can access the TIAA website at www.tiaa.org/cu to manage your account, or you can call a representative at 1-800-842-2252.
For the 403(b) PlanContact TIAA directly. You can access the TIAA website at www.tiaa.org/cu to manage your account, or you can call a representative at 1-800-842-2252.
For the 401k and 457 plans sponsored by the Public Employees' Retirement Association (PERA):Contact PERA.
- Update current coverage for renter’s/homeowner's, car and life insurance.
Contact insurance carriers to update coverage.
Create an estate plan.
For guidance on estate planning, please view the Estate Planning Checklist.