Welcome to Ask the Bills, where every two weeks Helaine Olen answers readers’ questions about their most nagging personal finance and financial etiquette dilemmas. Seeking advice on a money issue? Email firstname.lastname@example.org.
My wife and I are both bad with money. The difference is that my needs—more accurately, my wants—are few, and I don’t spend a lot on unnecessary things. My wife is a comparatively profligate spender who often buys things she doesn’t need. When we met I had no debt and no credit cards, while she had a $15,000 credit card balance. When we get a windfall, like a work bonus, it usually goes to pay down debt, usually incurred through credit card abuse—to be fair, that’s now mine as well as hers. We both pay into our 401(k)s, but like most people, we aren’t on track to rely on them solely in retirement. The privately held company where I work granted me stock options when I started working there a few years ago. I never gave them a lot of thought, though the company has kept us apprised on what it thinks the shares are worth, and the value has appreciated considerably. I am now in a position to cash them in and get a low-six-figure payout after taxes. Alternately, I could hold onto them and hope they continue to appreciate in value. To exercise them in the future, I would have to buy them. I may not have another opportunity to benefit with so little risk on my part. I have not yet told my wife about this opportunity, because she has shown an interest in the past in cashing in, and if I decide to hang on, it could cause a fight. If I had cashed in when she initially wanted to, we would have missed out on tens of thousands of dollars in appreciation. I worry about walking away from hundreds of thousands of dollars by cashing in early. Should I tell my wife about this opportunity or hope this windfall continues to grow?
Let’s review: You say you had no debt when you met your then-future wife, but she did. But you admit both of you are guilty of “credit card abuse”—I’m not judging, just taking your word on the situation—which seems to indicate you believe she led you astray, since you still say your wife is the “profligate spender” but mention nothing about your own spending habits. You then turn to your possible windfall, the stock options. But you don’t want to tell your wife about it, because it sounds like you don’t want to sell, and you think she would. Why argue? Besides, she gives bad guidance, or so you think. She wanted you to exercise the options in the past, you didn’t, and now they are worth more money. Surely she will give you bad advice again!
What a terrific way to rationalize crappy financial and marital behavior!
Do I really need to tell you that holding out financial information from your spouse is a really, really bad idea, even when he or she isn’t particularly good with money? Financial types have a phrase for this sort of stuff—financial infidelity. Instead of two-timing with another person, the unfaithfulness comes by lying about money. And make no mistake, that’s what you are doing by not telling your wife about the opportunity to exercise your stock options. What happens the next time you need to discuss a potentially contentious financial matter with your wife? What will you do then? Hold out financial information from your spouse again? Eventually, she will find something out, because that’s how life works. And rest assured, when she does, you’ll be in big trouble.
Arguments about how to handle money are all too often both a proxy for and an outgrowth of other disagreements. Instead of bickering over where you want to be in five years, too many of us scream at each other over whether we can afford to go out to dinner tonight. But it’s all the same thing in the end. What do we want? What if we disagree about our life goals? But instead of getting into the unpleasant weeds, we often go off and indulge in retail therapy and then argue over that instead of taking on the bigger, more substantive disagreements that shopping masks.
You and your wife need to work through these money issues—not to mention the other disputes you no doubt have. Sit down with a marital therapist who specializes in money issues, one who can work with the two of you to come up with a joint financial road map you can both live with. You need to agree on your long-term goals, as well as how much the two of you can spend thoughtlessly per month, maybe without even checking in with each other.
And that, of course, is how you will decide on how to handle the stock options. This decision needs to be made jointly. If not, it won’t end well. This I can guarantee. One other thing I can also promise? If you exercise these options now, without doing any of the homework I just assigned the two of you, the profit will almost certainly go toward paying down debt, just like all the other windfalls the two of you have received in the past.
I am a freelance artist, 25 years old, and constantly worried about money. My whole life, the values of saving for retirement and maintaining six months in emergency funds have been instilled in me. (I currently have $30,000 in savings.) Because of my line of work, some months I barely bring in enough to pay rent, while other months I have enough left over to pay for drinks with friends. In about four weeks, I will start paying off student loans from the MFA program I recently finished. I have about $55,000 in loans. My question: Should I use a large portion of my savings to pay a chunk of the loans so I can diminish interest accrual? Or should I keep this money in savings, or maybe even invest it?
Wait, you’re worried about savings and retirement funds, and you chose to get an MFA and work as a freelance artist? You’ve set yourself up for a life of torment, my friend. The freelance life offers a lot of wonderful benefits—you get to pursue projects you find interesting and rewarding, and you don’t need to work with jerks who set your nerves on edge. What you don’t get is stability. You won’t know what you’ll earn month to month, something that, to say the least, presents a major problem for savings and investment. One major reason for this instability: erratic income. I freelanced for more than a decade and can tell you that your business life will never be predictable. Some months you will have so much work you’ll stand in front of your paints and canvases and cry because you don’t know how you’ll do it all. (Freelancers never say no. Trust me on this.) Other months you’ll stand in front of your paints and canvases and cry because the universe seems to have forgotten your name, and no money is coming in.
I don’t say this to discourage you. In fact, I’d argue that your 20s is the ideal time to explore the freelance life and your passion project. As you get older, most of us acquire more and more in the way of responsibilities and more pressing needs for regular income. We have children, we want to buy a home, we want to save for retirement, we wouldn’t mind splurging on a vacation once in a while. So if not now, when? But if you can’t hack the erratic income when you have few responsibilities, if you’re going to spend night ups worrying about money, don’t do it. It’s not going to get better—no matter how much you earn.
But you want to know about student loans. Good God, no—don’t pay them off, not now. You have other, more pressing needs for the money, which I would say even if you weren’t freelancing. You’re just getting started out. The more money you have in the bank or socked away in an investment account, the more freedom and options you will have to pursue passion projects, to get set up in a new city if necessary, or to last out a cold spell in freelancing, or change careers entirely if that’s what you want to do. So what to do instead? If these are federal loans, look into signing up for an income-based repayment plan, which will give you the maximum flexibility. As for any private loans, see if you can get them consolidated and get a lower interest rate. But don’t mix the federal and private loans—you’ll lose certain protections if you do. All of us—freelancers or employees—need as much room to maneuver financially as we can get.