Tuesday, January 28, 2014
In light of some recent conversations I've had regarding money, I thought I would write about our current financial strategy. I wouldn't go as far to say that we are budgeting "gurus" or anything, but we have come a long way since we've been married. I hope the following is encouraging to at least one person out there who would like to try something different with their spending.
The first year we were married, my husband and I operated on what I like to call a "retroactive" budgeting system. I don't think this is unlike what many other people do--simply tracking the money you spend after it's already spent. This resulted in guilt-inducing money conversations every time we balanced our checkbook.
That was back when I actually balanced a checkbook. Just like Daddy taught me--down to the last freaking penny.
And sometimes we would sit there for hours and hours trying to find that last 19 cents...and looking back now, I just laugh at how much persistence I had...and how accommodating my husband was...
And then it dawned on me.
Why in heaven's name are we trying to control our spending after the money is already gone? Does that even make any sense?
And this is when we finally sat down and came up with a PRO-active strategy. It's genius, I tell you...and I can't believe it took me so long to discover what the rest of the civilized world probably already knew.
Hey...I never said I wasn't stubborn.
There have been many versions over the past six years---budget notebooks and crazy complicated spreadsheets---but I think we have finally landed on a system that works best for us...at least for right now.
Here is our method:
My husband and I sit down (usually after a salary change or another significant life change---like having a baby, for instance) and figure out exactly how much money we make every month. Using www.mint.com (a wonderful budgeting tool that links to your bank account) we enter that number in as our income. Then we make a list of all the different categories of spending we have on a regular basis.
--It's very important to understand that this looks different for everyone. It was such a relief to realize we could make our own categories based on our own unique lifestyle, and not a cookie-cutter version I found in some random money book.--
After the list is complete, we begin dividing up our monthly income into these categories--starting with the bills that are a fixed amount and working our way down to the areas that are more flexible.
When that feels pretty comfortable, we enter in our budgets on Mint. As the month goes on and money is spent out of our account, we tell Mint which category each transaction belongs to. Once it links the transaction to the budget category, the remaining money in that area is shown on a graph. It's basically an online "envelope" system.
Here are our categories:
Weekly Cash Allowance
Predetermined Online Shopping Items
Savings Goals (we currently have a long-term, mid-term, and a short-term goal)
While Mint was wonderful for our regular bills, we often forgot to check the categories in other areas before swiping our card at the store. Even though we had the Mint app on our phones for when we did remember to look, sometimes checks or credit card purchases wouldn't clear the account fast enough to update the budgets. After a few months of trying this and failing miserably, we decided that using cash for things we shopped for frequently might be a better option. Having to physically depart with cash each time we spend and then also seeing the stack of bills get smaller and smaller is finally enough for us to keep a closer eye on our spending. Because when it's gone, it's gone!
And so I give you...The Cash File!
It's not very pretty inside, but it does get the job done!
Our file is divided into seven categories:
For about two solid years, we operated on a monthly cash system where we had enough in each category to last us the entire month. We found this to be incredibly frustrating, because a month is a really long time! We frequently ended up with no money left in our grocery section about a week before the next month began. No good! It took a lot of humbling to realize that I am more like a child than I'd like to admit, and that operating on a weekly system would be much more feasible.
Now, we budget the same monthly amount, but instead of carrying it all around at once, we make weekly withdrawals from our checking for a week's worth of cash. It may seem juvenile, but it works for us! It's great to not have to try to remember how much money is left in the grocery budget, because I just look in the cash file and instantly I'm aware of the situation.
Though I do feel like we are in a pretty good place financially, we are most certainly a work in progress. Things do get awkward around Christmas or when other big expenses come up unexpectedly. Thankfully we have a decent sized emergency fund! Eventually, however, I know I'd like to figure out a plan to save for these things in advance. Again--a work in progress!
I know money is a difficult subject for many of us, but the most important thing we have learned is that it's not about how much money you have, but rather it's about how well you manage what money you do have--even if it's not very much. Even though we've had pretty meager salaries thus far, we have been able to pay off a boat-load of debt. Now, other than our student loans, we are completely debt free! And, let me tell you...I can't wait until the day when those blasted loans are paid off!
For those of you who made it all the way to the end of this post, I hope you found our story encouraging and maybe even a little helpful! :) Happy Tuesday!