Alright, so far in March I’ve talked about our desire to be extravagant givers, and how we have found ways to do that on a budget. I also hope that I was able to motivate you to at least consider working out a budget, or to get your current budget into better shape.
Now I want to share a few of the budgeting principles that we have found to work for us, and give you an outline of where we are going to go the rest of March as I go in-depth into the different areas of our monthly budget. This isn’t a one-size-fits-all kind of deal, but I hope that our journey and process will inspire you and give you some practical ideas to tailor to your own situation and needs.
Step One: What do we need to pay?
First, Mike and I sat down together and wrote out all of our bills and expenses in a typical month. For fixed monthly bills we came up with the following list (we wrote the actual money amount needed for each bill next to the category):
- Child care
- Health insurance (Mike is covered through work, but Olivia and I purchase our own independently)
- Car/Home/Life Insurance
- Cell phone
- Charitable Giving (see my post about why this is a non-negotiable here)
- Student loan payment
Then we wrote out the regular monthly bills and expenses that have varying payment amounts, and we figured out about how much we would need to set aside each month to cover those bills. The number we came up with is the highest number we would ever anticipate paying for that particular bill. For instance, our highest energy bills come during the coldest months of the year when our furnace is constantly kicking on. Those months our energy bill maxes out at $50. During the summer months that number is lots lower- like around $20- because we don’t have a/c so we pretty much are only paying to turn on the lights or the oven. However, we decided to always put $50 into our monthly energy budget so that we are never caught unable to pay, and it’s really nice to have “bonus money” at the end of many months, money that we can throw at debt! Anyway, here is our list:
- Car maintenance- $20
- Toiletries- $10
- Gas- $145**
- Groceries- $115**
- Utilities (Energy)- $50
- Pediatrician Co-payments- $20
**NOTE: We’ll talk more about these two categories especially, and ways we have had to sacrifice to stay within these lines! We’ve chosen to put low numbers here now so that we learn to live simply and save more money to put toward debt.
Step 2: What are the “unnecessary” but desired expenses we have?
Next, Mike and I outlined the things that typically come up in the month, but that we don’t necessarily have to accommodate in our budget. These things were:
- Gifts– $20
- Discretionary- $25
Short list, huh? Well we currently make so little money we had to lump all of our extraneous expenses into one tiny budget. On a bigger budget, we might have separate categories for things like: eating out, hair salon visits, entertainment, and small home purchases. Surprisingly, we’ve actually done quite well with $25 a month, but it has definitely meant major sacrifice, which we will delve into in a future post.
Step 3: What is our income?
This one was pretty easy because we both get regular paychecks. We did have a little bit of a shocker last month when Mike lost hours at work and therefore took an unexpected pay decrease. But we have readjusted our budget to get back on track. In this category, we “count” on getting a paycheck roughly the size of the lowest paycheck we have gotten in the past several months. This way we are always prepared to have all of our expenses covered, even on the worst weeks income-wise, and we will usually have some “bonus income.”
Step 4: Assign expenses to paychecks.
After figuring out our paychecks we opened an excel spread sheet and for each of the four weeks in the month we wrote down our expected income for that week. Then we started assigning our bills and expenses to each paycheck, going down the line until every bill and expense was covered. The excess money then gets assigned to go straight into paying off our debt (in the future it will go straight into a savings account).
This method allows us to “tell our money where to go instead of wondering where it went” as Dave Ramsey often says. Not a single penny from our paychecks is left unassigned or unaccounted for, and therefore, not a single penny goes to waste! Here is how we assigned our categories:
Step 7: Pay cash!
Mike and I made a commitment right at the beginning of this journey to pay cash for everything. We got rid of the credit card (for reaons why, see what Dave Ramsey has to say), and we now pull cash out monthly to pay for things like gas and groceries, and we pay our bills by check or online bill pay straight out of our checking account. I’ll talk more about why this has been beneficial in coming posts.
Step 6: Plan for additional income and unexpected expenses
Let’s face it: life doesn’t like to color inside the lines. Because of this, Mike and I came up with a plan, a protocol if you will, to follow when we have additional income or unexpected expenses come up.
What do I mean by additional income? Some of the following:
- Money made by selling items
- Money accrued doing free-lance work
- Money made when there is a “bonus” fifth payday in a month, which happens a few times a year for those of us who get a weekly paycheck
- Cash-back bonuses and refunds (check out ebates.com if you are a regular online shopper!)
- Money left over in our budget at the end of the month
Hopefully we don’t have any unexpected expenses come up, because hopefully we have everything covered in our budget! But of course things happen outside of our control, like an unexpected doctor’s visit. For these things we have our trusty Emergency Fund in place, although so far we haven’t had to use it because we have been able to use our additional income to pay the few unexpected expenses we have run in to.
And just an fyi- this does not include things like being too lazy to follow my grocery budget and over-spending, or deciding to go out to eat with friends even though I already spent the discretionary budget, or freaking out because Christmas came again this year and I wasn’t good about saving money in my gift fund. A.k.a- we try to make no excuses. But again, sometimes things that really do need our attention come up (read, real emergencies) and we need to be able to pay for those things!
Anyway, our protocol is pretty simple: at the end of the month we first pay our unexpected (emergency) expenses, and then everything else goes towards debt. Not only do we make every effort to make no excuses in this area, but we are working our rears off to boost our additional income, and thereby pay off our debt within the next 18 months. We’re taking on extra jobs, selling superfluous items, and squeezing every last dime possible out of that budget so we can do it!
The only exception is when we get gift money that our family has specifically given us for something. Like, when my grandparents sent us a check for Christmas and said, “Get a babysitter and go out for a nice date.” Believe me, we gladly did!
Step 7: Repeat!
The tough work is pretty much done now that we have our budget outline, but every month Mike and I make an effort to sit down and go over things and make any necessary tweaks. At the end of each month, we ask ourselves questions like:
- Are we expecting a change in income next month?
- Are we expecting a change in expenses next month?
- Does the current inflow and outflow of cash make sense, or do we need to make changes in our week by week plan?
- How much money do we have left over and saved up to throw at the debt?
This also gives us a chance to communicate about our spending and income, something we think is very important as a married couple. It keeps us on the same page about where we are going, it gives us a chance to address concerns, and it allows us to encourage one another in this journey together. It’s definitely a marriage builder!
I’m going to spend the rest of the month going through each of the categories Mike and I have outlined in our budget and share some of the ways we have come up with to trim excess spending down and get our debt snowball rolling. I won’t rehash our gifts and missions/tithe giving since I already talked about that last week.
Here’s the plan:
I hope you join me, even if it’s just to encourage and inspire me! If you want, you can subscribe to my blog to get regular email updates sent straight to your inbox by clicking the link in the top of the side bar to the right. Also, spread the word to your friends and family who you think might enjoy this series, or post a link on Facebook. And of course, comments are always welcome, especially if you have your own tips or advice to share!
Go To: My budget Boot Camp Day 5