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!