3 Tips To Start Planning A Budget

Happy Monday Foxy Friends! If you are coming from The Blended Blog, thank you for stopping by! It's another Monday, which means another Nuggets for the New Year. This time we're talking about Budgets.

I've talked about how we budget here and here. But in case you're in a hurry I'll give you a summary. 6.5 years ago Mr. and I decided to take the Dave Ramsey approach to finances, and let me tell you it's changed our life! I wrote about it in depth here, but to sum it up, to get yourself out of debt there are 7 steps: $1000 emergency fund, pay off debt using snowball method, 3-6 months of savings, college savings for kids, pay off home early, build wealth and give. Now that we have that out of the way I'm going to share 3 tips to budget planning.

| ONE |

 

 Don't pay for anything unless you saved for it. Now and days we're all about instant gratification. But that's almost always short term. If you want a new couch, save for it, don't use those 0% finance deals. It's not worth it, it will mean even more when you can pay for it in cash. You know you'll need to buy a new car in X amount of years, save for it each month so when the time comes you'll be able to pay for it in cash. Decide how much you want to spend on a car, when you need to buy the car, divide and that is how much you'll need to save each month. Instead of paying each month towards a car payment, buy a cheap used car and then save what you were paying for a newer car. Point being however you do it, save for what you want. In the end it will mean more when you can buy it in cash and won't have to pay for it for the next 5 years.

Bottom Line: Save for what you want, don't finance, in the end it's more gratifying knowing that it's paid in full then having a monthly statement.

| TWO |

Use a cash system. Decide how much money you want to spend on specific things, such as clothes, entertainment and food. Then take that amount of cash out and spend only cash. It's much harder to spend cash than it is to use a credit card. I know when we did the cash system for food, we would almost always decide to go home for lunch on the weekend, then spend the money, so we could save it for a more special outing. Eventually you will learn how to spend way less on random things when you're actually giving someone your cold hard earned cash. Trust me, it works. Just do it for a few months and see what happens.

Bottom Line: Spending real money instead of using credit cards will make you spend less

| THREE |

  

Just like in tip #1, you always want to save for things that might happen in the future. For example your car will always need maintenance. Every year you always have car registration and insurance. You know what those numbers are, divide by 12 and that's how much you need to save. Your car is also going to need regular maintenance, i.e. oil changes, new tires, you want to save for that as well. So when it does happen, you're not left scratching your head, wondering where the money is going to come from. You just tap into that maintenance bucket and bam no worries.

Another big one is house maintenance. A good rule of thumb is to save $1 per square foot of house that you own per year. I.E. If you're house is 2000 square feet, you should be saving $2000 a year for house maintenance. We've been in our house for 7 years now and we find this to be true. If we don't use it all that year, then it rolls over to the next year and can go towards a new roof, re-piping your house, leaks, etc., down the line. It's nice when you get a slab leak and need to re-pipe the whole house, that you have savings for this exact thing and don't have to wonder where you're going to get the money, especially during maternity leave and have a 4 week old, true story.

Bottom Line: Save for the future, know that you will have future expenses and save for that.

 Let me know in the comments below if you want some more tips and tricks or any other advice!

 Now hop on over to Deena's blog to see what she does for budgeting!

Linking up here



Marriage is a Lifetime - Lesson 8, Part 2

Back in April (wow, how has it been that long?) anyway.... back in April I introduced you to Dave. And his 7 steps to financial peace. I'll wait for you to go read it...okay now that you're back let's move on to how we incorporated it into our lives.

 

I think the financial part is HUGE in a marriage, it can tear a lot of marriages apart, this is something that needs/should be done with both partners. It shouldn't be on one person to figure everything out, it should be an on going conversation, daily/weekly/monthly, whatever you chose, just start talking!

If this seems overwhelming I'll break it down for you. Since I'm an engineer, I'll talk in outline format...cause I like the way they look.

*sidenote: We rarely use our credit cards, we use our debit card, so we can see everything that we spend in the month that we spend it, credit cards are a month to a month and half behind when it actually, so it's harder to keep track of spending for that month. If we do end up using a credit card for a big purchase, we do count it in the month that we ACTUALLY spent the money, not when the credit card bill came in.

Okay back to my list:

1)      Get at least 2 months worth of data of exactly how you are spending your money each month (it will surprise you, we didn’t think we were spending that much on food, but turns we were spending a TON on food)

a)      Don't leave anything out (count those quick stops to 7-11 for snack food, coffee, postage stamps, etc, we were able to do this right away since we don't ever use cash and ALWAYS use our debit card

i)        If you can't get the exact details but want to start right away with budgeting, try your best guess using the data you do have, your budget is constantly changing each month, so monthly adjustments will have to be made.

2)      Figure out how much money you are bringing in a month

a)      If this varies, use the worst case scenario, that way if you get more, it’s just an added bonus and can go to whatever you want.

3)      Take out the necessities to live

a)      Mortgage/rent

b)      Food

i)        When we first started this we went from spending about $1200 a month (for just the two of us) to spending about $650 a month, huge difference right? That’s $550 to use for debt people!

(1)   We decided that we wanted to try to spend less, so we took the money out in cash each month, it really helped us to understand how much money we were spending on food. We would be out and about and think let’s go out to eat, and then realize we only have $200 left of food money, let’s just eat those left overs we have at home. It really makes you see how much money you waste on food, and how we do a lot of things out of convenience.

c)      Utilities – Power, Water, Gas

d)     Transportation

i)         Car payment

ii)       Car Insurance

e)      Debt payments

i)        Refer back to debt snowball for this (click here for Dave’s Debt Snowball Tool - looks like you have to pay for it, but you can try it for 7 days, then you can see how you can adapt their system to work for you in excel); figure out exactly how much extra you have to do this…the quicker you pay this off, the quicker you’ll have the freedom to spend your money how you want, when you want! I know easier said than done. 

4)      Decide what you absolutely need to start saving for. This might vary depending on how much debt you have to pay off. For example, if you would rather just throw everything into paying this off as quickly as possible, that is totally fine, you can do this part after you pay off all your debt. If you just want to save for some of the things, like House Insurance, Property Tax, Car Repairs, House Repairs…even if it’s a small amount a month, it adds up and when those things happen, you can rest assured that you don’t need to panic and you can just take it out of that “fund”

a)      Here are a few suggestions, that Dave gives and that we do as well.

i)           Charitable Gifts

ii)         Property Tax

iii)       House Repairs

iv)       House Insurance

v)         Car Replacement

vi)       Car Repairs/Tags/Maintenance

vii)     Clothes

viii)   Medical Bills

ix)       Life Insurance

x)         Furniture/Home Décor

xi)       Gifts (including Christmas)

xii)     Vacation

xiii)   Entertainment

b)      Here are a few that we save for that we think are important to us

i)           Sarah Camera Fund (I’m constantly saving for new equipment)

ii)         Music for Mr. (I told you he writes music as a hobby right?)

iii)       Gym

iv)       Preschool

5)      Now that you have the categories you need to save for, decide how much you want to save per year and divide that by 12, so you have your monthly save for each category.

6)      Find some way to keep track of your budget. Dave has a tool you can use here, I’ve never used it, but it’s a start! If you find you don’t like it, you can figure out what you DO like. We use a very extensive Excel spread sheet, but I hear that there are some great Apps out there to use. I like to use Excel, easy to see everything at once on a computer, and not a tiny mobile device. *sorry I can’t suggest one, if anyone has a good one, leave it in the comments, others might benefit.

a)      Make sure that you distribute how much your projected income is for the month at the  begining of the month, that way you have something to work towards. Meet weekly to check in with each other and make sure that your spreadsheet is still working for you, if something came up and you need to move funds around, do at the meeting.

7)      It seems hard now, but really, after almost doing this for 4 years, Mr. and my time commitment went from about 10 hours a month to maybe 1-2 hours a month, if that. It really does pay off to know exactly where your money is going and how it can work for you!

Here is an example of a budget that you could do in Excel, the numbers are purely made up. *There is one more thing that you can't see, I made sure that the Budgeted Amount, equals how much the Total Income is.

As you can see, everything is accounted for. The "Blow Money" category is for those things that you don't plan for and don't fit into a category. Some of the numbers might seem random, like the Personal Care, which is a very extra item, but I copied the excel sheet we did for my parents and some of the numbers I didn't change, like the personal care and the gym.

Of course there is work behind any budget you do, you have to enter the actual numbers into this spreadsheet, just like any budgeting type app you would do. Since we use debit card for pretty much EVERYTHING, I just download our statement into Excel, and use that for helping me enter all of my data into this excel sheet.

Always remember:

You are controlling your money to work for you, not the other way around

If you want to buy an extra pair of shoes, that's great, but the money has to come from somewhere, so maybe the personal care number is a little less. We try not to take money from categories that we will need in the future, like the car replacement fund, or the house insurance, etc.

Was this helpful? I know it's a lot of information at once, but hopefully this gets you started. Just go step by step, do one step each evening, and in the course of a week, you'll have it done!

Linking up with Faith, Sarah and Heather for Mommy Moments

Marriage is a Lifetime - Lesson 7, Part 1

It's been a while since I did one of these. But I thought today would be a good day to do another one. In case you're new here, I've been doing a marriage series about what makes our marriage work. You can find other posts here.



Today I'm going to talk about the hush, hush topic of finances. I think one of the best things that happened to us can be summed up in two words: DAVE RAMSEY. Seriously, have you heard of the guy? He has his own radio show, and the thing about Dave (yep we're on a first name basis) is his story and how he can really relate to everyone. He was he was a millionaire, yep millionaire by the age of 26, but lost all of it. While he and his wife crawled back from the depths of despair and rock bottom they discovered a system that worked for them and then committed themselves to helping others.

Back when I was about 7 months pregnant with Baby Fox, Mr. comes to me and says, hey do you want to take a financial class? I said sure, thinking a one day class, nope it turned out to a an actual class that lasted 13 weeks! He got me with the technicality of what a class is, but I think it was one of the best things we've ever done together.

Backing up a bit, from the time we got married, we saved, saved, saved, everything that we didn't spend went into savings. Savings for what you ask? A house of course. We lived in a condo Mr. bought when he was 22. From the time we got married, we saved, we saved everything. Don't get me wrong, we were young professionals with no real responsibilities other then ourselves, we spent a great deal, but we were also able to save a lot too.

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The problem:

The problem with save everything is that we didn't really do anything. For example I would want some new furniture or drapes for the condo, and we couldn't buy anything too expensive because we were in the process of saving. Okay, not a big deal, I could handle that, but then we bought the house.

And we had no furniture, we went from a small condo to a relatively large house, we had enough furniture for maybe 2 rooms. We were always in save mode, but why, we had our house now...now what were we saving for?

We would get in little arguments about me wanting to spend some of our savings and him wanting to keep saving. Enter Dave Ramsey, seriously I don't want to be bold and say it saved our marriage, but he certainly helped to alleviate a lot of potential fights in our future.

The Solution 
Part 1 - Financial Peace University

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Meet Dave, he calls his class Financial Peace University. He breaks it down into 7 "Baby Steps". There is a ton of stuff out on the web on this in depth, I don't know of any personally so I would feel uncomfortable suggesting one, but they're out there and there are a lot of them. Back to the baby Steps. For now I'm going to break them down:

Step 1: Emergency Fund - $1000

This is the first and most important step to do. Save $1000, you read that correctly, $1000. This will give you some breathing room, your car breaks down and it's $800? Look there, you have $1000 in your emergency fund, you can now get your car fixed and not have your budget go down the toilet because of the huge hit.

Step 2: Pay off all debt using debt snowball

Put all of your debt in front of you, what is the smallest? What is the largest? Put them in order of smallest to largest, and that's how you're going to pay them off.  If two of them have the same amount, do the one with the higher interest rate. Dave's philosophy is to have small wins to keep you pumped and on track. So even if that $20,000 credit card has a higher interest rate then your $500 credit card, pay off the $500 one and check that off the list of one less thing you're in debt for.

Snowballing: What is it?

I'll use an example, because that's just easier. Say you have 3 credit cards and this is how they break down as follows:

Credit Card #1 (CC#1): $500 @ $50/min. monthly payment
Credit Card #2 (CC#2): $1,500 @ $100/min. monthly payment
Credit Card #3 (CC#3): $5,000 @ $200/min. montly payment

So you've done your budget and you see that you have $50 extra in your budget to put towards your credit card debt. So this is what you're going to do. Pay the minimum on CC#2 and CC#3, then put that extra $50 towards CC#1, so you'll be paying $100 towards CC#1. In roughly 5-6 months you'll have paid off the debt on CC#1, yay win, one less thing in debt, then you'll take that $100 and "snowball" it towards CC#2, so now you'll pay $200 for CC#2, pay that off in another 6-7 months, then "snowball" the $200 towards CC#3, so you'll be paying $400 towards CC#3, pay that off in a year or so. So in two years with just $50 extra dollars you'll have paid off your debt.

Step 3: 3-6 months of savings

After you've paid off your debt start saving for 3-6 months of living expenses. Decide how much you need to live each month, and then save that for however many months you think it will take you to find a new job or get back on your feet. Save it, just having it gives you peace of mind, knowing that you have that in case something happens and someone loses a job or can't work.

Step 4: Invest 15% of pre-tax money to Roth IRA or pre-tax retirement

This is self explanatory right?

Step 5: College fund for kids

You're debt free, saving towards retirement, now lets take care of the kids and their education. Unless you have smarty pants and they're going to get a scholarship.

Step 6:  Pay off home early

Pay off your house. I mean just think, you enter retirement (hopefully well before that), with no mortgage, how much more financial peace do you need than that?

Step 7: Build wealth and give!

Now you can afford to put away money for future generations, give money to all of those causes you've been wanting to help but couldn't because of other financial obligations. You now have all the power to do what you want.

I think that's enough info for one session don't you? Next time I'll talk about how we incorporated into our lives.

Until then, do you have a budget?

If you don't, start keeping track of what you spend, every single dollar coming in and going out, for the next month or two, having real data is the best way to start budgeting.