2012 Budgeting Series

As part of the first “Baby Step” in Dave Ramsey’s Total Money Makeover“, we saved $1000 to keep as our Emergency Fund.  The point of this fund is to set it aside and forget it and NOT use it for “emergencies” like needing a new pair of shoes.  I did have a hard time setting this money aside, knowing that we had so many other bills to pay in the beginning.  However, if we had not done this and a true emergency did come up, we would have fallen right back into the credit card trap.

We wanted to keep the money in a place that was not accessible with just the swipe of a card, but we didn’t want it totally locked away either.  We chose to keep it in a savings account through Capital One 360 (formerly ING Direct).  We have to request a transfer of money to retrieve our funds, but it only takes 2-3 days.  This keeps the money at least semi-fluid.

We chose to open several sub-accounts under our main savings account:

  • Emergency Fund – Our original $1000
  • Kids Fund – Any extra birthday money my kids get
  • Car Insurance – We pay our insurance every 6 months, so I divided the total by 6 and deposit the appropriate amount in this fund each month.
  • Preschool - We figure out our yearly cost (minus summer months) and divide by 12. The monthly amount goes into this account.
  • Home - Our utilities, city bill and irrigation are not monthly, so I try to estimate what we will pay over the course of the year and divide by 12.

It is super easy to link our checking accounts with Capital One 360 and transfers take less than 30 seconds to complete.  I will be honest, the interest rate is not very high but after comparing rates at other banks or online savings accounts, there wasn’t enough difference to make it worth the switch.  We’re comfortable with this site and our main goal for these accounts is not necessarily to make money.  We just want a safe and easy place to hold our money, that may make us a few dollars in return.

Setting up a saving account with Capital One 360 is very simple and just takes a few minutes.  If you have been looking for an easy savings solution, this is definitely an option worth looking into!

I’d love to hear how you manage your savings or any other programs you’ve used and been happy with.

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Disclosure: This post may contain affiliate links. When you click on these links, you are supporting this blog. Thanks!

As part of the first “Baby Step” in Dave Ramsey’s Total Money Makeover“, we saved $1000 to keep as our Emergency Fund.  The point of this fund is to set it aside and forget it and NOT use it for “emergencies” like needing a new pair of shoes.  I did have a hard time setting this money aside, knowing that we had so many other bills to pay in the beginning.  However, if we had not done this and a true emergency did come up, we would have fallen right back into the credit card trap.

We wanted to keep the money in a place that was not accessible with just the swipe of a card, but we didn’t want it totally locked away either.  We chose to keep it in a savings account through Capital One 360 (formerly ING Direct).  We have to request a transfer of money to retrieve our funds, but it only takes 2-3 days.  This keeps the money at least semi-fluid.

We chose to open several sub-accounts under our main savings account:

  • Emergency Fund – Our original $1000
  • Kids Fund – Any extra birthday money my kids get
  • Car Insurance – We pay our insurance every 6 months, so I divided the total by 6 and deposit the appropriate amount in this fund each month.
  • Preschool - We figure out our yearly cost (minus summer months) and divide by 12. The monthly amount goes into this account.
  • Home - Our utilities, city bill and irrigation are not monthly, so I try to estimate what we will pay over the course of the year and divide by 12.

It is super easy to link our checking accounts with Capital One 360 and transfers take less than 30 seconds to complete.  I will be honest, the interest rate is not very high but after comparing rates at other banks or online savings accounts, there wasn’t enough difference to make it worth the switch.  We’re comfortable with this site and our main goal for these accounts is not necessarily to make money.  We just want a safe and easy place to hold our money, that may make us a few dollars in return.

For smaller purchases or items we are going to be purchasing in the next few months, I keep the money in our main checking account but “set it aside” in a Google Doc.  For example, we currently have savings columns for our upcoming Vegas trip and Landscaping.  We just moved into a new house and have an entire backyard to excavate, landscape and garden.

I’d love to hear how you manage your savings or any other programs you’ve used and been happy with.

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Disclosure: This post may contain affiliate links. When you click on these links, you are supporting this blog. Thanks!

The Great Budgeting Series of 2012 is coming to a close.  Thank you to all of you who suggested and were enthusiastic about this idea, it was a fun way to kick off the new year.  Not only did I enjoy writing it for you, it forced me to examine some of our own budgeting pitfalls and make some changes.

I’ve said it before and I will say it again, a budget is a living, breathing thing.  Life is constantly changing, incomes change for better or worse, babies are born, houses are bought or built, preschool happens, college happens, everything happens.  Stick with it.  It can be a hard journey, but so worth it.  It makes me think of something someone told me when we first had kids.  “Get them on a routine, but have some flexibility.  As long as they are flexible enough to bend and not break and have a routine to come back to, life will be good”.  This rings true for budgeting as well.  We are flexible, but always come back to our tried-and-true basics.

In case you missed any posts in the series:

These will always be linked along the top menu under the Budgeting tab as well, for quick reference.

A few resources that have been invaluable to us:

  • Dave Ramsey’s Total Money Makeover (Amazon) - Borrow it from a friend, check it out from the library, anything.  I can almost guarantee you that you will want your own copy at some point.  The principles are basic, the ideas are easy, the work is not.  This is the single most important thing my husband and I have ever bought as a married couple.

  • Kelleigh Ratzlaff’s Cash Envelope SystemI absolutely will not guarantee these will make your budget work, but it’s infinitely more fun to pay cash for everything when you are taking it out of these adorable envelopes.  I LOVE mine, they are high quality and she will customize the tabs for you.  “Little Dudes” have their own tab in mine.

A few deals you may want to take advantage of:

  • $50 bonus for opening an ING checking accountING Direct is where we keep our extra/monthly savings and they are currently offering a $50 bonus when you open a checking account.  I did this last year and it’s totally legit.

Please leave your comments and questions.  Is there anything I didn’t address that you’ve been curious about.  I will do my best to answer your questions or direct you to a knowledgeable source.  Happy budgeting!

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Now that we have gone through how to set up a budget, what to do with your budget, how to manage your savings and the crazy mistakes our family has made along the way, I thought a fitting end to this budgeting series would be to detail how we updated our 2012 monthly budget.

I’ve said it before and I will say it again, a budget is a living, breathing thing.  Life is constantly changing, incomes change for better or worse, babies are born, houses are bought or built, preschool happens, college happens, everything happens.

I don’t think our budget has ever been the same for longer than 6 months at a time.  We generally sit down and re-evaluate every few months or so, depending on where we are at in life or what season we are in.  At the beginning of each year, we sit down and have a big financial meeting to discuss what needs to be updated and changed, what worked and what didn’t and how we are both feeling about our expenses.  We try to foresee all the things we will need to save money for in the coming year, even if they aren’t going to happen until the end of the year.  This helps avoid fun surprises.  We can’t foresee everything however, which brings me back to the constant re-evaluation part.  Budgets are not meant to be set in stone. If you try, it will make you crazy.

So for us, we started out the year going through our budget line by line.  Since I am the one that mainly handles the budget in our house, I first went through and re-evaluated everything.  When I was finished, I had my husband take a look and see if he noticed anything that could be changed or anything that was glaringly over the top (or WAY under where it needed to be).

Income

We base our budget solely on my husband’s income, we started this before I left my job back in 2008 to get ready to be on a single income.  Anything I make from the blog (or other additional sources) goes straight into savings.

He gets paid weekly and to make it easy, we budget on a 4-week month.  On the 4 months of the year that there are 5 weeks, we take that extra paycheck and send it straight into savings.  It is just easier to keep track of for us and it’s kind of like a bonus on those select months.

The first step in re-evaluating our budget was to see where our income was going to be.  It didn’t change much from last year, but we have different withholding for our Flexible Spending Account and health insurance, so we needed to account for that. This seems like a fairly logical first step, as you can’t determine what you can spend throughout the month if you don’t know how much you have.

Monthly bills

For us, a monthly bill is anything that is a recurring payment every month.  Sound simple?  This includes our cable, internet, phone, newspaper and utilities. I went through each bill for 2011 and took an average of our monthly payment.

I also include things that may not necessarily get paid every month, but happen at the same time during the year.  This includes our home expenses (water, sewer, garbage and irrigation) and car insurance (paid every 6 months).  I add up the total we will pay for the entire year and divide by 12, regardless if the bill gets paid every other month or every 6 months.

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And there have been a few.  We’re still making them, even though we know better.  Every time I try to “beat” my own system, it ends up backfiring and I just frustrate myself.  As long as we plug away with what we know works, we stay right on track.  When we try to get all fancy and think we are smarter than the budget, that’s when the train goes off the track.

Throughout the budgeting series, I have talked about all the “rules” we follow and how we pay cash for everything.  The majority of the time, we follow these rules to the letter.  However, there have been times we’ve slipped up and I want to share these with you for a few reasons.  I want you to know that they may happen to you so you can recognize them and get yourself back on track right away.  I also want you to know that we have never been perfect in this budgeting journey.  We have been tempted and sucked in by the “Buy it Now” or “Spend it Now” phenomenon.  Not very often, but it’s happened and we have regretted it.

My main point in sharing is to impress upon you that if you do make mistakes or “fall off the wagon”, do not give up.  It happens to everyone, just find a way to get yourself back on track.  I know how easy it can be to just throw in the towel when something goes wrong, but you can get yourself headed back in the right direction even after a slip-up.  DON’T GIVE UP.

These are just a few examples of things we have done in a not-so-Dave-Ramsey way.

Using our Emergency Fund for a Non-Emergency

Ever since we started the Total Money Makeover by Dave Ramsey, we have had an Emergency Fund of $1000 set aside in a savings account. Obviously, from the name, it is intended for emergencies only.  Not an I-need-a-new-pair-of-shoes emergency, but an actual honest-to-goodness emergency.  There have been a few times we have needed to dip into it, but the first thing we do is fill it back up with any available cash that comes our way.  The point of this fund is to avoid having to use a credit card if something truly does come up.

A few years back, I crunched some numbers and realized we were a stone’s throw away from paying off our last student loan.  We were so close, I could smell it.  About $1000 away.  Guess what I did?  I figured I’d just cash out our Emergency Fund, pay off the student loan to avoid paying that whopping 2% interest rate and we’d be able to save another quick $1000 in no time.  Guess what happened?  It took probably six months to fund that darn thing again.  Appliances started breaking, weird mechanical stuff started happening with our car, you name it.  I was so embarrassed that we used the fund, I refused to tell anyone.  Never, never again.

Going crazy with our grocery budget

Over the last six months or so, our grocery budget has been doing some crazy things.  We have been switching to a less-processed, more organic diet and have seen it in the numbers.  We have increased it a few times, but I haven’t been as diligent as I should be about keeping a close eye on it.  I have been waiting on some rebates to come in the mail, so my cash has been low and for some reason, I thought it was a good idea to pull from other funds from the month.  Ugh.

Things got convoluted, I forgot to keep track of things, I really didn’t have any control over my grocery budget and my weekly spending.  Do not do this.  One of the main reasons I blew the budget last month and am now attempting to stay within a $17/week grocery budget.  Lesson learned.  I will change my spending habits from here on out, making sure that we pull out only the amount of cash that is truly available for each week.

Using our credit card for vacation

I posted recently about why we even have a credit card at all (for gas purchases only), but last summer I didn’t plan ahead and ended up using it as my crutch.  We were taking a last minute trip to Seattle with my husband’s coworkers and I just didn’t make the time to set aside some money or pull cash out of the bank.  My husband and I decided to put the necessary expenses on our credit card and pay them off when we got home.  Bad idea.

We both have a card and did not manage our purchases at all.  We were at a Mariner’s game, which makes it nearly impossible to stay within budget if you aren’t careful.  We fell right back into the trap, how easy it is to swipe a card especially when every restaurant and kiosk takes them.  Not only did we significantly blow our entertainment budget, I then had to do the walk of shame through our receipts and credit card statement and pay off things we HAD ALREADY BOUGHT, EATEN AND USED.  Yuck.  It is much easier to plan ahead, set aside an estimated amount of money and make intentional purchases.

So there you have it, my frugal/budget-minded friends.  Although I may talk a good game and play it well most of the time, we do fail.  We do fall back into unhealthy spending habits and try to skirt the rules.  Why?  Budgeting is tough.  This really isn’t an excuse, but it is the only reason that really makes sense to me.  We always get back on track, but hopefully this will be a reminder to some of you of the possible pitfalls and temptations lying out there.

If you are willing to share, please let us know what you struggle with the most in budgeting?  Maybe others can offer insight or just maybe it will feel good to get it off your chest like me.

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One of the main components of Dave Ramsey’s Total Money Makeover (Amazon) is paying cash for everything.  While we do end up “paying cash” for everything in the end, how we get there depends on what we are paying for.

With every new year comes more and more folks trying to start their own budgeting revolution, which inevitably turns into the “Great Credit Card Debate”.  People have very strong feelings in all directions.  Some are against any kind of credit or debit card, some only use credit cards and never pay cash or there are the middle of the road folks like me.

I am a strong believer in the fact that what works FOR OUR FAMILY is to not use credit cards as a sole source of payment.  I think regardless of whether we pay the card off at the end of the month, we will overspend with a credit card.  It is so much easier to swipe a card than hand over cold hard cash.  To see an empty envelope or the food envelope with only $2 left makes the decision not to spend so much easier.  The promise of cash back or airline miles is not enough for us to take the risk.  Plus, I have a very hard time paying for things that we have already eaten or are already using.

That being said, I thought I would share how we do pay for everything.  One of the main questions I get from people who are trying to start budgeting or starting to follow Dave Ramsey’s plan is this:

“How do you pay for things without a debit or credit card?”

We don’t.

Here are some of our special circumstances:

Online Bill Pay

My husband gets paid every week, so in order for our budget to make sense to me I had to do a little adjusting.  We saved up one month’s expenses in the beginning and started from there.  We pulled out all the cash we needed to put in our envelopes for the coming month.  I had all of our additional bills (cable, cell phone, utilities) set to be due within about a week of each other at the beginning of each month.  I leave the amount needed for each bill in our checking account and had all the bills set to automatically pay out of our account.

Online Shopping

As I’ve mentioned before, I do quite a bit of online shopping.  I use our debit card to pay for everything I buy, but instantly pull the cash out of corresponding envelope.  For example, if I buy coffee from Amazon, I pull money out of the grocery envelope.  I keep a separate envelope in my purse for this purpose.  All the money I pull out to cover an online purchase goes into this envelope, then once a week or so I buzz through the bank drive-thru to deposit the money.

Credit Card FOR GAS PURCHASES ONLY

For quite some time, we paid for our gas purchases with cash.  Then we had two kids.  It took me about 3 times of dragging them both in the gas station to pay, accidentally paying too much and then dragging them BACK into the gas station to get my change before we decided to re-evaluate our system.    We decided to set aside a certain amount of money each month for gas purchases and use a credit card throughout the month.

We chose a higher value cash back card and use it solely for gas.  When I pay the bills at the beginning of each month, I pay off the credit card with the money we have set aside.  If there is extra, it goes into savings.  We re-evaluate our needs a few times per year.  For example, we generally need a little more during the spring and summer due to more traveling and more trips.

I do know that we could use our debit card for gas, but we just never wanted to take the chance of desperately needing gas and not knowing if there was enough in our account.  We manage our checking account pretty closely, so there is never a ton of extra.  This was a safe alternative for us, as long as we watch it closely.

We also use this credit card when we make large travel purchases (airline tickets, hotels) and instantly turn around and pay off the balance with money from our savings.

We researched several credit card options before choosing our Chase Freedom card.  They have a VERY flexible cash-back program and our online bill/payment options are really simple.

These options are what work for our family, in the stage of life that we are currently in.  This may not work for everyone, but I wanted to shed a little light on one of the main problems I have found people run into when they start this kind of budget.  I would love to hear what works for all of you, please share any tips and tricks you may have.

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As part of Dave Ramsey’s first “Baby Step”, we saved $1000 to keep as our Emergency Fund.  The point of this fund is to set it aside and forget it and NOT use it for “emergencies” like needing a new pair of shoes.  I did have a hard time setting this money aside, knowing that we had so many other bills to pay in the beginning.  However, if we had not done this and a true emergency did come up, we would have fallen right back into the credit card trap.

$1000 saved, so now what?  We wanted to keep the money in a place that was not accessible with just the swipe of a card, but we didn’t want it totally locked away either.  We chose to keep it in a savings account through ING Direct (now Capital One 360).  We have to request a transfer of money to retrieve our funds, but it only takes 2-3 days.  This keeps the money at least semi-fluid.

We chose to open several sub-accounts under our main savings account:

  • Emergency Fund – Our original $1000
  • Kids Fund – Any extra birthday money my kids get
  • Car Insurance – We pay our insurance every 6 months, so I divided the total by 6 and deposit the appropriate amount in this fund each month.
  • Preschool - We figure out our yearly cost (minus summer months) and divide by 12. The monthly amount goes into this account.

It is super easy to link our checking accounts with Capital One 360 and transfers take less than 30 seconds to complete.  I will be honest, the interest rate is not very high but after comparing rates at other banks or online savings accounts, there wasn’t enough difference to make it worth the switch.  We’re comfortable with this site and our main goal for these accounts is not necessarily to make money.  We just want a safe and easy place to hold our money, that may make us a few dollars in return.

For smaller purchases or items we are going to be purchasing in the next few months, I keep the money in our main checking account but “set it aside” in a Google Doc.  Just by writing an amount in a column titled “Furniture”, I know it’s there and won’t touch it until we officially decide to buy the kids a new bed or a new recliner (or whatever it is we have decided to save for).

We have been with Capital One 360 for so long, that I’m honestly not familiar with any other online savings options.  I’d love to hear how you manage your savings or any other programs you’ve used and been happy with.

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As most of you know, our family has been following Dave Ramsey’s Total Money Makeover since 2007.  He recommends the following “Baby Steps”:

  • Step 1: Save $1000 for your Emergency Fund
  • Step 2: Pay off your debts using the Debt Snowball (lowest $$ amount debt first)
  • Step 3: Put 3-6 months expenses in savings
  • Step 4: Invest 15% of income in Roth IRAs and pre-tax retirement
  • Step 5: College funding for children
  • Step 6: Pay off home early
  • Step 7: Build wealth and give

The last post in this series explored how we started our journey and how we eventually got to our current debt-free state.  Now what?  Funneling money into bills you already have is a no-brainer.  This post will be all about where we have decided to go next in our budgeting crusade.

We wrote the last check to pay off our last bill around the middle of December.  We honestly thought it would be this amazing moment that kicked off the next budgeting chapter of our lives.  Instead, we floundered.  We were indecisive.  We had a lot of non-action.  Granted, it was the holidays and there were a lot of other things going on, but we pretty much just avoided the subject.

Thank goodness for our financial advisor.  She called to talk to me over the holidays and see how we were doing.  That was all the kickstart I needed, we scheduled an appointment with her in January to sit down and hash out our options.  She talked to us about our retirement, additional life insurance, what we wanted to save up for next.  Even for my husband and I, who have been budgeting for several years now, having a 3rd party to discuss things with in a non-emotional state, made a world of difference.

Our Tentative 2-Year Plan

1. Mortgage Installment Loan – This is a small loan in addition to our regular mortgage, which honestly should have been included in our Debt Snowball.  (More on mistakes we’ve made in another post)  We are paying an outrageously high interest rate and the loan size is totally manageable, so this goes first.

2. Increase Retirement Contributions – My husband’s company will match up to a certain amount of his retirement contributions.  To max this out, we would have to put in a huge amount of money that isn’t really feasible for us right now, so we are going to increase our contributions to 1% after paying off our installment loan.

3. Pay Cash for a New Truck – My husband’s truck has been a work horse, but is starting to show signs of age.  We just put a decent amount of money in to get a few things fixed and get it tuned up, but it will need to be replaced over the next few years.  This may not make sense for some to wait on something else to save up for a truck, but it’s a good logical next step for us.

4. Add Additional Life Insurance – This one is hard for us to wait on, but we went back and forth and back and forth on what to do first.  There are so many choices at this stage about how best to dole out our money, what should we wait on, what do we need to do now to secure the future?  We have some life insurance right now, but are planning on adding to our current policies.  We both know that it gets more expensive the older we get, so we are hammering out our plan as quickly as possible.

5. Put 3-6 Months Expenses into Savings – While I know this is going to feel hard, as there are definitely other things we could use this money for, it will also come with peace of mind which is pretty priceless.  Our next big step is going to be selling our current home and buying a new one, so knowing this extra savings is there will help.

6. Increase Retirement Contributions – At this point, we should have our money working for us pretty well, so we will increase our retirement contribution another 1-2%.

As I mentioned before, our next step is going to be saving for a new house.  While we are doing this, we hope to put some money into our current home for some cosmetic upgrades to get it ready to sell.  While we would love to move right now, it just makes the most financial sense for us to stay in a home that works and is totally functional while we put our money to work in other places.

Just having a plan written down and agreed upon by both my husband and I is an amazing feeling.  We have been talking over the last few years about what we’d like to do first after we paid off our debt, but as I can’t remember anything, we’d have to have the same conversation every few months.  Then I would forget again.  Then someone would be itching for a new truck sooner rather than later.  Then we’d have to have the conversation again.  This led to more than a few disagreements, as our plans seemed to change with our emotional state.  Having everything planned out on paper means no more fruitless discussion.

Please ask questions.  This is a HUGE topic.  I can only touch on so much in one post without getting overwhelming, especially since everyone’s situation is so different.

I would love to hear where you are at in your budgeting journey.  Did you (or do you) have your plans in place for after you pay off your debts?  It’s interesting to me that this was such a big hurdle for us, you’d think paying off our mountain of debt would have been the hardest step.

The next post in this series will be all about how we manage our savings. 

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Now that we have discussed gathering your information for your written budget and gone through how our family manages our budget, I thought I would share the path we took to start paying down our debt.

As most of you know, our family has been following Dave Ramsey’s Total Money Makeover (Amazon) since 2007.  He recommends the following “Baby Steps”:

  • Step 1: Save $1000 for your Emergency Fund
  • Step 2: Pay off your debts using the Debt Snowball (lowest $$ amount debt first)
  • Step 3: Put 3-6 months expenses in savings
  • Step 4: Invest 15% of income in Roth IRAs and pre-tax retirement
  • Step 5: College funding for children
  • Step 6: Pay off home early
  • Step 7: Build wealth and give

My husband and I, in the beginning, decided to follow these steps to the letter.

Baby Step 1: Save $1000 for your Emergency Fund

Once we got our budget written out, we did everything we could to get that $1000 saved up.  I struggled with the idea of putting $1000 straight into savings, especially now that we realized how much debt we actually had.  I struggled with it for a long time, always wanting to pull the money out and use it.

Looking back, this is probably the step I am most grateful for.  There are definitely times when we have had things come up.  If we didn’t have the Emergency Fund, we would have fallen right back in to the credit card trap.  It’s not a huge amount of money, but enough for a little peace and security while we carried out the rest of the journey.

Baby Step 2: Pay off our debt using the Debt Snowball

This is a pretty basic theory.  Write down all the debt you have, from smallest to largest.  Tackle the smallest debt first.  This one seems to cause a lot of controversy, due to the fact that he doesn’t recommend paying off the debt with the highest interest rate first.  I can 100% understand why people feel like this is bad advice, however, we still chose to pay off our smallest debt.

We needed a “quick win”.  We needed to physically cross a debt off our list and see our journey progressing.  If we had tackled a larger debt first, it may have felt like spitting into the wind.  Similar to a weight loss goal, do you think you would stick with it more if you started with a 5 pound weight loss goal rather than 100 pounds?  Some people definitely have the willpower to do it in a way that makes more financial sense for them, but make the choice for your family that will keep you motivated.

We finally paid off the last of our debts in December of 2011.  Almost 4 years on the nose from when we started.  For the most part, every extra penny we could squeak out of our budget went to whichever bill we were paying off at the time.  We would pay the minimum payments on our other bills while trying to hammer out our “bill of choice”.   We definitely took trips down Distraction Lane, what with having two babies and all.  A trip to Vegas here, a very necessary upgrade in cars there.  We were not a beans and rice type budgeting family, we did choose to spend a little money frivolously now and then.

Here’s where we chose to do things a little differently.  We chose to start funding our children’s college education funds last March.  The program we wanted to get involved in was changing its terms and conditions for 2011 and we significantly benefited from getting in before the change.  This definitely bumped us back a little as far as paying off our debts, but we felt that the return in our investment would be worth it.

I honestly felt like it was easier to pay off our bills than decide where we wanted to go next.  When you have something specific to pay off, it’s easy to decide where your money will go.  After that, it feels like there are 275 different things that need/want your money.  Retirement, extra life insurance, more college funding.  What’s a frugal family to do?  The next post in this series will be all about where we have decided to go next in our journey, including our decisions for our retirement, saving for large purchases and what in the world to do with our house.

Please ask questions.  This is a HUGE topic.  I can only touch on so much in one post without getting overwhelming, especially since everyone’s situation is so different.

What is your biggest challenge in budgeting?  What has been your greatest success?

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The next logical step in your budgeting journey after gathering your information is to start actually writing your budget.  There are approximately 972,345 different ways to write a budget, which understandably can make it seem a little daunting.  My husband and I kept it very basic, followed the guidelines in Dave Ramsey’s Total Money Makeover (Amazon) and just dove right in.

Despite the two college degrees in Telecommunications between us, we chose to start out with a handwritten budget.  Please don’t let your lack of computer skills or your lack of budgeting skills stop you, find what works for you and just do it.  Most of us still remember how to use a pencil, right?

We have what is called a “Zero-Based Budget”, which means that absolutely every penny of our monthly income is accounted for.  This includes fixed expenses, monthly cash funds, savings, everything.

To write a “Zero-Based Budget”, sit down and write down absolutely everything you can think of that you pay for throughout the year.  Think about your fixed monthly expenses like mortgage, rent, utilities, daycare and interest-carrying bills.  Don’t forget about bills you may not pay every month, like car insurance, property taxes, homeowner’s insurance, irrigation.  Don’t let these surprise you 3 months down the road.

Subtract your fixed expenses from your monthly income.  This is what you have left over for your non-fixed expenses, like groceries, gas, medical co-pays, car and household repairs.

Our Fixed Expenses

Mortgage
Cable/Internet
Cell Phone
Utilities
Irrigation (paid yearly, divided by 12 months)
City (sewer, water, garbage)
Car insurance (paid every 6 months)
Preschool
College Savings Plan
Life Insurance
Retirement Savings

Our Non-Fixed Expenses

Christmas (estimated needed $$ amount, divided by 12)
My Personal Cash
My Husband’s Personal Cash
Grocery
Baby (swim lessons, hair cuts, miscellaneous)
Pets (food, cat litter, routine vet trips)
Medical (co-pays, prescriptions)
Entertainment (eating out, movies)
Car (small repairs, tabs, oil changes)
Home (repairs, landscape)
Gas
Clothes
Gifts (birthdays, anniversaries)
Birthday ($10/month for our boy’s parties)

Every cent that is left over goes into a savings account.  Depending on where we are at in our lives, this could be a generic savings account or going towards a specific large purchase, like a vacation or a new washing machine.

We did not start our budget with all of these funds. Some have been added, some have been changed, increased, decreased, cut and then brought back.  Depending on our stage of life, our budget may look different month to month.  Your budget will most likely never stay the same for a very long period of time.

One thing to note about a few of these categories: Our mortgage, retirement savings and money we have going into a pre-tax Health Spending Account automatically come out of our paycheck before we see it, which is a huge blessing.  For several years now, we have based our income on whatever we get AFTER that money comes out.  We don’t even miss it.  We don’t see it, so we don’t miss it.

If we are in a particularly tight financial time of our lives, the first things in the budget to go are the clothing fund, gifts, birthday.  Entertainment is cut way back, as are our personal funds.  If things got really strained, we would put the hammer down and cancel our cell phones, cancel cable, probably cancel swimming lessons (which would make me sad).  The point is, if we are totally honest with ourselves, there are several places in our budget that can be trimmed if need be.  They may not be fun changes, but when you are bent on getting out of debt, sometimes things just have to give.

The Cash Envelope System

For 99.9% of our non-fixed expenses, we pay cash.  We pull out the needed dollar amount at the beginning of the month and divvy it up.  When the envelope is empty, the money is gone.  We do our absolute best not to borrow from another fund or “borrow” from our account.  If it’s been particularly hard for a few months in a row to keep money in a certain envelope, we re-evaluate the amount going in.  We are significantly more intentional about our purchases when we have to hand over cash rather than swipe a card.

We use this entirely functional accordion folder from Staples, which you can find at just about any office supply store.  You can even find small starter folders in the Dollar Spot at Target sometimes.  If you think it would be fabulous to start your budgeting journey with the most amazing cash envelopes ever designed, you should check out Kelleigh Ratzlaff Designs

Please ask questions.  This is a HUGE topic and at times, I struggled pulling in the reins on this post.  There were so many different ways I could have spun this topic.  What is your biggest challenge in budgeting?  What has been your greatest success?

In case you missed it:

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I shared our family’s journey to becoming debt free a few days ago as an official kick-off to this budgeting series.  Now I’d like to rewind and start with the basics of getting started.

There are two solid truths I have learned about budgeting:

  1. It’s hard.
  2. Your 1st (and probably your 10th) budget won’t work.

1. If you been living without a budget and are now starting to live within one, you will have a very steep learning curve.  Telling yourself (or your spouse) that you can’t purchase something you would have bought in the past stings.  We have found that the overall sense of peace we get from knowing where our money is going eventually far outweighs the feeling of sacrifice.

2. If you have never written a budget and never tried to live on one, please don’t expect that your 1st budget will be the one that will last you for the rest of your life.  I have heard too many people say that they tried it once, failed miserably and gave up.  Write a budget.  Scrap it.  Write another one.  Make some changes.  Possibly scrap that one.  Write it again.  We are still rewriting our budget, based on where we are at financially or what’s going on in our life.  Give it life and let it breathe.

But how do I get started?

First off, if you are spending more than you are bringing in, something needs to give.  Sit down and write out all your expenses, starting with fixed (utilities, mortgage, car payment, daycare, interest-carrying bills).  These need to be paid first.  Follow this up with other important items on your list that you can’t live without, like groceries and gas.  The other “stuff” may have to wait for now.

Where is your money going?

If you don’t know where your money is going, track your daily expenses for a few weeks or a month.  Find out what you are spending your money on.  If you are disciplined, you could keep a money journal to track everything.  If you’re like me and forget just about everything, Mint.com does a fantastic job of tracking your expenses through your debit or credit card and can give you a great summary of where your money is disappearing to every month.

Writing your budget

Figure out where you are going to keep your budget.  If you are an Excel fanatic, start there.  If you are like me and couldn’t create a formula to save your life, keep your budget in a basic Google Doc Spreadsheet.  When we first started, our budget was hand-written.  It took me about 2 years to finally give in and put it on the computer.  It did really help me in the beginning to see it all laid out in front of me, to be able to physically cross off and highlight items made me feel very in control.  Use Mint.com.  It is a fantastic tool to not only track your spending, but help you start and create a budget.

Once you have a good idea of what you are spending over the course of a month, you can start to write your budget.  Again, start with your fixed expenses.  What must be paid to avoid late fees (or to keep your power on) every month?  What is a necessary expense in your house?  The most important thing to remember is that your basic needs must be met first.

Stay tuned for our experience with a “Zero-Based Budget”.  I’ll share the different funds we contribute to each month and how we keep everything organized.  It’s possible there might be a giveaway of the most amazingly fabulous cash envelopes ever made.

Update: Please feel free to check out my entire 2012 Budgeting Series.

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Creating and sticking to a budget: Our Story

by Melody on January 18, 2012

Recently I asked on the Facebook wall if anyone was interested in a budgeting series, and if so, what were your biggest challenges and what kind of information were you looking for.  I was truly amazed by your response and it seems like so many of you are either looking for a place to start or just need some help figuring things out.  I am by no means an expert, I only have our amazing personal experience, what has worked and definitely hasn’t worked along the way.

Even though I’m not an expert, I figure we can all benefit from exploring the world of budgeting a little more in-depth.  I can tell you, with 100% certainty, that budgeting has saved our lives, saved our marriage and made my husband and I far better people along the way.

I’m still trying to hash out how I would like this series to go, it’s kind of taken on a life of its own in my head.  After giving it a lot of thought, I figured there is no better way to launch this series than to share our story with you.

After several years of butting heads about our money philosophies, attempting to just ignore our bills and having conversations like this:

Me: “I want to have kids”
My husband: “I want to be financially secure”
Me: “What does that mean?”
My husband: “I don’t know, but I want whatever it is”

A friend of mine let me borrow her copy of Dave Ramsey’s Total Money Makeover (Amazon).  I devoured it and then made my husband read it.  It shocked me how basic the ideas were.  What shocked me even more was that we hadn’t been able to put together these ideas ourselves.  Dave Ramsey took the emotions out of the budget, which was something my husband and I couldn’t do.

We got to work.

I always felt like we had a “reasonable” amount of debt, although I’m now pretty sure that such a thing does not exist.  We wrote down each and every debt we had and added it all up.  Have you done this?  It was a little shocking.  A little here, a little there doesn’t seem so bad until you lay it all out in front of you.  To actually say out loud that we had over $35,000 in debt broke my heart a little.

Now we really got to work.

We wrote a budget. We rewrote our budget.  We argued a little about our budget.  We scrapped our budget and wrote it again.  We wrote down each individual debt in the order we wanted to pay it off and plastered it on the fridge.  We somehow muscled up an extra $1000 to put into savings for our “Emergency Fund”.  I hated the idea of not putting that $1000 towards our debt, but grudgingly admitted that I liked the security.

We VERY slowly started paying off our debts, one by one.  We took 10 steps forward, then 30 steps back.  We fell off the wagon a few times.  We reread the book to get motivated again.  We got pregnant.  We had Little Dude #1 and went down to one income.  We rewrote our budget.  We got pregnant.  We had Little Dude #2.  We rewrote our budget.  Our plans got derailed a little, we had to borrow money from my parents.  We paid off my parents and were amazingly staring at the idea of being debt-free.

In just under 5 years, we have paid off over $45,000 in debt.  The majority of that time was with only one income.  My husband doesn’t play for the Yankees or anything and I’m not a high profile fashion model.  We are average people on an average income. We are also people who only very occasionally argue about money.  We make it work for us instead of the other way around.  We literally have financial peace.

I’d like to address each aspect of our journey in a separate post, down to the basics of getting started.  Again, we are not experts in this field.  We just have a lot of blood, sweat, tears and TIME into this business of budgeting.  Where are you at in your budgeting journey?  What kind of information or help are you looking for?

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It’s so hard.
To say goodbye.

Wait.  No.  No, it’s not.

Let me back up and paint you a picture.

My kids are both down for their afternoon nap.  I’m getting ready to sit down and blog for an hour or so.  First, I’d like to start a load of laundry.  I like to call it multi-tasking, when I’m working and so is my washing machine.  Clothes and soap in, washer on, feeling productive.  Getting ready to sit down.  Thud.  Thud.

Back to the laundry room.  Push with all my might on the lid to restart.  Back to the couch.  Thud.  Back to the laundry room.  Restart.  Back to. Thud.  Thud.  Thud.  Thud.  I give up the vicious cycle, grab my computer and blog from the laundry room, restarting the washer every minute or so until the load is complete.  Repeat this scenario for about 6-7 months.

The washing machine we wanted to buy was inexpensive, around $380.  We’re going to sell it with our house in a few years so we didn’t want to invest a ton of money.

Why didn’t we just buy it?

BECAUSE WE STILL OWED MONEY ON MY CAR.

Debt and I don’t get along very well.  I knew I could suck it up and deal with the darn washing machine for a few months, so we could use every extra penny to pay off our very last debt.

Welcome to December.  We wrote the final check to pay off our last debt and it was GOOD.  It was liberating and it was good.  Let’s buy a washing machine!  Except it’s not on sale.

So we waited.

We knew we were going to buy it at Lowe’s, so while we were waiting, I ordered discounted Lowe’s gift cards through Plastic Jungle.  First I shopped through Ebates for 1% cash back.  Martin Luther King Day weekend is apparently a good time to buy appliances.  Ordered online, went through Ebates again for an additional 2.5% cash back and was able to have it delivered free the next day.  I also found a 10% off promo code on Retailmenot, taking off an additional $30.

Retail price: $379
Sale price: $329
Our price after sale & discount, cash back and discounted gift cards: $270

There has almost never been a better $270 spent in this house.  Did you know that it is possible to complete a load in the washing machine in less than 48 hours?  Did you know that you can throw a load in before you leave to run errands and it will be done when you get back?  You did know this?  Now I do too.

Dear Dave Ramsey: I EARNED this washing machine.  And we EARNED the right to be debt free.

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