Today I am going to start a series of posts about managing home finance. I am a devoted fan of Dave Ramsey, so most of what I tell you is what I have learned from him and others like him such as Larry Burkett and Thomas J. Stanley. I'm just going to tell you what is working for us, and I invite you to share your own successes. Hopefully through a friendly and helpful discussion we can help everyone reach the financial goals that are specific to each of us.
Our current financial goal is to put 3-6 months of expenses into an Emergency Fund Savings Account, so we are focusing on saving money. Creating a cash flow plan (AKA a "budget") has truly helped us use our money more wisely and we have been able to find extra money every month to put towards our goal. We call it our Monthly Allocated Spending Plan, and for the sake of typing I will refer to it as our MASP from this point onward.
Google Doc of Our MASP
We started our financial renovation with a MASP from the appendix of The Total Money Makeover. It was a great start, but over the months we have been able to modify that document and now we are saving more than ever, we have money for what we need, and we rarely feel like we have to pass by something we really want. (You should know that we have modified our approach to purchasing also, but I will discuss that in a later post!)
The main thing that has helped me manage our MASP is including the recommended percentages for each spending category. I put the recommended percentage next to the category, and because I use Excel for our MASP I created a formula for each category to calculate the percentage of the amount we are actually spending. This has truly helped me to see if we have any overweight categories--for example, our utility expenses are usually high due to a couple factors, one of which is the amount we spend on TV, Internet, and Phone. Since it's so obvious that these are issues when I see the percentages, this is something we will definitely tackle when our contracts are up this summer.
This is my monthly strategy:
1. Determine as accurate a picture of our income as possible, including salary, travel reimbursement, etc.
2. In our family, we do choose to tithe, so before anything else is paid we deduct the tithe amount.
3. We put at least 10% of our net income each month into savings, so I start with that figure. As I calculate down the list I add as much to that as I find.
4. Next is housing and utilities. The mortgage does not change, but utility bills can change drastically in our area due to the crazy weather, so my plan of attack there is to always budget for the highest utility bill we have ever received (that is the second reason our percentage is high in that category). Again, our goal is to save, so not only are we prepared for the worst case scenario of energy bills, but when our bill is not as high (which is most of the time) we are able to deposit the difference into savings. I think you'll see that I use the tricking-myself-into-saving approach quite a bit!
5. Next, I check my calendar. My calendar is my all-time necessary tool for giving our money names. I look for meetings, appointments, fees that are due, the number of grocery shopping days in the month, the number of Wednesday night church dinners, the number of Sundays for our son's offering...all of those expenses are recorded at the beginning of the month so that on that last Tuesday of a five-Tuesday month we aren't struggling to find grocery money.
6. Last month I realized that I was spending money every month on certain things, but I wasn't specifically allocating money for them. I added Gardening and Newspapers to my list, and now I'm not digging through the change jar to buy fertilizer and papers!
7. For what is left of the month, I consider the other categories like entertainment and clothing. This month is Spring Break, so I have added more to our entertainment budget than usual. At the beginning of the school year I will need more money for clothing. Again, I keep all of these allotments within the suggested percentages.
8. Finally I identify any expenses that can be paid in cash, and I highlight those in yellow. I write myself a check for these, and I put the money into our envelope system to be used as needed throughout the month. I will go into detail next week on managing and really working the cash envelope system.
Budgeting is just giving money a purpose and a name, and it has truly helped us to put our funds where they need to go. I hope this helps!
9 comments:
Great post, Rachel! We are just starting out on Dave Ramsey's Baby Steps and I have to tell you - paying with cash is very liberating. So is creating a budget. I find myself being more thoughtful when I buy, rather than just filling up the cart. I look forward to more of your money management tips!
Same here! I am fired up about Dave Ramsey's steps to financial security and I'm ready to exert that "gazelle intensity" to eliminate our debt and save more money every month! As the primary spender in our household, it is really up to me to spend smart and save smarter!
I finished The Total MOney Makeover this weekend and moved on to "The Five Lessons" by Richard Paul Evans last night. I don't like his suggestion of keeping 2 low-APR credit cards...I think Dave Ramsey is right: life without credit debt IS POSSIBLE!!! FICO scores are not the end-all, be-all of financial success.
Next I plan to read "The Millinaire Next Door." It is quoted in both Dave Ramsey's book AND Evans', so I figure I should read it myself.
I am really psyched about getting our "debt snowball" rolling and eliminating credit debt and student loans. That will be awesome!
I need more help with the cash envelope system, so I'm glad you'll be tackling that next week. In the meantime, I'll be getting our MASP ready and I'll add envelopes to my shopping list for next week. Your enthusiasm and excitement are contagious, Rachel. I'm so glad you got me to read Dave Ramsey's book!
Thanks for doing this finance series...if we all kept our finances a secret, we'd all be secretly stressed about money all the time! I'm ready to stop worrying about money.
Great job, Rachel! I love your MASP. Ours is very similar. I have figured the percentages before but not as a formula in my spreadsheet. I'm gonna have to use that! I think it will really help me tighten down.
We have followed all of Dave Ramsey's steps and are now replenishing our emergency fund. We had to purchase a new AC (to the tune of $5,500) last summer. That's a horrible check to write. The summer before that it was a new roof (for $18,500, $5,000 of which we had to borrow). That’s even more horrible. We are within 2 months (barring other emergencies) of being back on track.
Ever since we have given up our debt (about 4 years ago) I have been MUCH happier. Sometimes I do get in a funk when I see my peers driving new cars and buying new furniture and clothes. It’s just plain old jealousy. But, in the long run I just shake it off. I don’t worry about money. (Well, not a lot.)
The only thing we do that is not really Dave Ramsey is that I use a credit card (AmEx Blue) to buy our groceries, gas and pay most of our bills with. It earns 5% back and once a year we earn $800 - $1,000 with it. I have had to learn to be very conscious of what I spend and buy. I record every purchase into our register (even those on the credit card) so that when the bill comes I can pay it off completely. We pay 0 interest, have no yearly fee, and make $$$. I <3 that! I used the envelope system for about a year and then switched over. That got me used to having to stick to my budget.
With the switch to one income on the horizon, we have decided to cancel our home phone and switch to the Magic Jack. I’ve been shopping rates on insurance and just had our auto policy reduced by 10% a year (about $150) just to stay with the company we are with. I also pay extra principle (1/12th of a payment every month) on our mortgage which saves us around $240,000 during the life of the loan and reduces our 30 year mortgage to a 17 year mortgage.
We’ve learned to plan and save for upcoming events (like babies) and you know me, I love to shop for a bargain. So far, for KOTJ’s big boy room, we have all the furniture (dresser, armoire, 2 twin beds and mattresses, a nightstand and lamps) plus the bedding for a grand total of $108! We are now saving (separately) to have our house painted. And, while we will probably only be able to afford to have it done one side at a time, we won’t be in debt! That truly is a great feeling!
Keep the great articles coming!
Ladies, amongst our little group here we have such an amazing and supportive resource--I am so happy and grateful to be sharing this time of our lives with you!
Donna, The Millionaire Next Door changed my whole perspective on wealth. I finally was able to clearly see what it is--the ability to sustain yourself without a regular income, not the ability to buy fancy cars. Now when I see people with lots of status symbols, it actually makes me a little sad for them. I sure hope they didn't go into debt just to impress me! ;)
Liz, cash and a budget ARE liberating--I used to feel guilty spending money on things we needed, but now the money has been allocated, everything else has been taken care of, and it's OK to spend the money, so there is no longer any remorse. It's great!
Bryssy, I am eager to hear how you like the Magic Jack. I'm a little reluctant to get rid of our land line because of 911, but if the Jack works that would be awesome!
You are all doing a great job and I love hearing your ideas!
I'm really curious about the magic jack, too. I'm just not sure if it will really save much or anything if we get one, since we will then have to pay top dollar for internet service. Bryssy, I'm curious what your internet provider will be when you get the MJ. Since we are practically neighbors, I should be able to get the same provider as you. I will be looking into this further!
Donna--when we made our envelope system we asked the bank for cash envelopes. They gave them to us free of charge!
Rachel, how much time do you think you spend on "budgeting" each week? I would really love to start doing some of the things you have mentioned here. They all sound like great ideas. But my main road block is time. And as we all know time is money. Ha! Suggestions on how you fit it in to an already very busy life??
Karly, we get paid monthly, so I spend about 30 minutes at the beginning of the month going through the budget and that is the end of it. I didn't include it in the document I posted, but I actually include the entire year on my spreadsheet. That way, I can go ahead and plug in numbers if I know I need them (like our son's preschool materials fee that is due in February and September) and I can see what we spent previous months. Once the spreadsheet was created it was really just a matter of putting in numbers. Hope this helps!
We've been Dave Ramsey followers for a little over 3 yrs. We currently live debt free except our house (and we have a 15 yr fixed loan). Since buying the new house we have bought new furniture, a new (huge) TV, and lots of smaller things.......and paid cash for every bit of it. We saved and saved so that we could buy what we wanted when we moved. Nothing is going on the credit card. It's very freeing, but also annoying when people think you are "spending like crazy", when it was very well thoughout and planned for spending...kwim? We bought things on sale, and planned ahead.
I could add more, but I can't think right now....hehe :) But yes we have a bi-weekly budget, and we will start back with the 3-6 months in savings once we are settled into the house. I have the envelopes from the dave ramsey website (it makes me feel official) :)
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