How no turned into yes in three days

Today’s Wednesday guest post is written by Liz Neunsinger. Liz and I share a passion for education and getting our financial houses in order. I’m so happy that Liz is sharing her story about how she and her husband both got on the same page when it came to their finances, even if it took him a bit longer to jump on the bandwagon. Her story shows that we can all change our ways. We just need a place to start.

tugging at money

The most important thing I learned about my marriage came when we decided to get out of debt.

My husband and I married in 2010. At first, we didn’t combine our finances. Neither of us had a clue about how much debt the other brought to the marriage or how much the other made. We paid bills willy-nilly and were getting by. Savings or investments? Forget it! We were all over the place with no path and no goals.

About 8 months after the wedding, I had the opportunity to attend Financial Peace University (FPU) through my work. This was the 13 week FPU course offered in 2 days of intense study. My husband couldn’t attend with me. The first day I listened hard. Wide eyes and dreams floating in my head, this was what we were going to do!

I went home that night and spoke at 100 miles a minute for 3 hours about how great this course was and how it was going to change our lives! We needed to combine our debt, combine our finances, and get on a plan. Finally, when I took a breath, I asked what he thought. “No.” he said so matter-of-factly. My heart sank. We were not on the same page. He didn’t want to combine finances because he didn’t want me to pay for his debt. He didn’t like the budget restricting his purchase power. Bottom line, without his willingness, this plan was going to fail.

I went to the next day of FPU with a sad heart. I listened and dreamed, but it wasn’t the same as day 1. The next day went by. On the 3rd day after we talked about a budget, my husband said, “OK, let’s do it.” Immediately, I realized what happened. He needed a few days to think about and research this new plan. He needed time to ponder. I, on the other hand, was impulsive and excitable. I was ready with little thought. This nugget of information has been the pinnacle of communication in our marriage ever since on EVERYTHING! When I want something, I tell him what I want and he researches it for days. When he wants something, by the time he tells me about it he has already researched it and chosen what he wants. I’m very amenable to his request because I know it’s calculated. Then we budget for it and purchase it.

The best thing that could have happened to us is to decide to get out of debt. Not only has the budget been a monthly map to staying debt free, but the lesson I learned about how to communicate with my husband has kept us strong for 4 years. By the time we talk in depth, we’re both in a mindset to have the discussion, which leads to the best outcome.

When you talk to your spouse, how can you use your personality styles to get you both on the same page? How can you help your partner understand your side before passing judgment? What can you share with your spouse about your communication tendencies that will help them talk with you?

To follow Liz and her adventures in education and finances, check out her blog Study Paycheck.

Creating a budget

How to create a budget

Since we use a 28-day budget, we made a budget every 4 weeks. Our next budget starts on March 19th and will run through April 15. If you have never done a budget, or a 28-day budget, start your budget when you get your next pay check.

To create the budget, you’ll need a piece of paper or a spreadsheet. Either works fine. I like a spreadsheet because you can copy the worksheet so you don’t need to start from scratch and you can keep a history. It will also automatically calculate how much money is left over as you create the budget. The goal is to spend every dollar on paper before the month begins.

Should you budget for this?

When we first started budgeting, we were unsure if we should budget every month for things like clothing, our semiannual car insurance or even things like Christmas.

At first, we did. We were building up funds for lots of irregular expenses. Each month we would put away a small amount for clothing, one-sixth of the car insurance and one-twelfth of the Christmas budget, plus money for a bunch of other things, like car maintenance and car taxes. As this money was building up, it bothered me. Here was all this money sitting there in a savings account making nothing, while we were paying interest on our debt. At the time, our car taxes were about $100 a year. Car insurance was $300 every six months. The Christmas budget was $400. None of these items were going to break the bank. We could easily cash flow these things in the month the bill came due or the event happened.

I stopped putting money aside for them and used the money toward the debt. How do I decide what to budget for monthly?

If I can pay the amount in full in the month I need to, I don’t budget for it monthly.

We could pay any of our regular bills that come due without setting money aside each month. Even when we had to replace the transmission on one of the cars, we cash flowed it. My snowball took a hit that month but we were still able to pay all of our bills, put some money toward extra snowball payments and not touch the emergency fund. Replacing the transmission was an emergency and we could have used that fund, but we didn’t need to.

If a bill is so large I can’t budget for it in a single month, I budget for it monthly.

If we had to pay our house taxes in a lump sum rather than paying into escrow, that is something we would need to budget for monthly. We could not afford that payment in July (in our town house taxes are paid annually). Look at the things you pay for on a quarterly, semiannually or annual basis. Could you afford to make that payment in full out of your monthly budget and still pay all your bills and buy gas and groceries? If the answer is no, you need to put money aside monthly for it. If you could pay for it, then you don’t need to put the money aside.

Some people like creating sinking funds or funds for larger irregular bills even if they have the money to pay them out of the monthly budget. If you want to do that, that is fine. Just consider how much you are paying in interest while the money sits there. Could you knock out another debt and free up more cash because you don’t have the monthly payment anymore?

The other thing I realized is that if I put money aside for clothes, I’m going to buy clothes. If I put money aside for home repairs, I will find something home related to spend it on (not necessarily repairs either). Stay intense and get yourself out of debt. Think of that you could do without any debt!

Planning for the unexpected

I got a question from Ashley regarding planning for the unexpected:

What do you do when you have unexpected bills coming in? I have crappy medical insurance and I think I’m in the clear with paying off my bills and than wham-o I go home and look in the mail box and there’s a hundred something dollar bill from some doctor I went to 6 months ago. Do you know of anyways to get that under control?

I’m going to take a page from Dave Ramsey on this one. I’ve been following his sytem, slightly modified, for a while now. If you want a good personal finance book to get yourself started, I would highly recommend The Total Money Makeover. It’s easy to read and he explains things really well. I’ll be doing a full review of the book soon.

The first thing I would recommend you do is to save up a small emergency fund: $1,000 (or $500 if you make less than $20,000 a year). Save up this money however you can but do it fast. Sell some stuff, cut back for a month, work some overtime if you can. Just get it into the bank fast. This will help cover you in the short term in case something comes up. Remember, this money is for emergencies only! Concert tickets, clothes or vacations are not emergencies. I have my emergency fund in an ING Electric Orange Account. It has a debit card on the account, which I leave at home. If I do need to access the money in an emergency, I can use that debit card.

After you have that set up, you need to do a monthly budget (I know I used the B-word). In that budget, you should try to put aside money each month for things like medical bills. If you know you spend $500 a year on medical bills, try putting 1/12 of that away each month. It’s a lot easier to budget $42 a month for medical bills than trying to come up with $200 unexpectedly. I use this method to budget for all sorts of things: gifts, vacation, my annual trash fee, my property taxes, car repairs, etc. I would keep the money in a savings account or an account like the ING Checking account. That way you’ll earn some interest on the money. You’ll also be less likely to spend it on something else if it’s not sitting in your checking account.

Are you getting a bonus in July?

When I do our budget, I always budget for two pay periods each month. My husband gets paid every two weeks. In July, he’ll have three pay periods. We look at this extra check as a bonus. If you get paid every two weeks, you might be seeing an extra check next month as well. Here are some suggestions what to do with that money:

1. Start your emergency savings account – if you don’t have $1,000 in savings, now would be the time to fund that account or finish funding that account. This will give you a cushion so that if you do have an emergency, you won’t have to turn to your credit cards to get through it.

2. Make sure your budgets are up-to-date – we all have expenses that we have to pay for once of twice a year. For example, we pay our trash fee each year at the beginning of each year. We make sure we put away 1/12 of the cost each month. Our car taxes are due once a year as well and we budget 1/12 of the cost each month for that as well. We are also budgeting for gifts for the year, including Christmas gifts. Look at the items you pay for once or twice a year. Are you currently budgeting for these items? Now might be a good time to put some money away for those items. Say you have a large bill due in January, like a trash fee. Our trash fee is about $250 a year. In order to budget for this each month, we put aside $21 a month. By the end of July, we should have $147 saved. Consider using some of that extra paycheck to sure up these items so you’ll have the cash saved when the bill comes. This will make it less likely that you’ll have to turn to debt when these bills come due.

3. Jump start a fun savings account – Put some of the money aside for something fun. Maybe you’ve always wanted to go to Italy (ok, maybe it’s just me) but saving $5,000 seems like it will take forever. Consider using some of the money to jump start that savings account. By putting some of bonus into this account, you’ll feel like you’re making more progress and will be more apt to save for this event. If a trip is not in your future, jump start savings for a car, an appliance or other item you’ll need.

4. Pay down debt – This is where most of our bonus will go.

5. Do something nice for yourself – sometimes when you are living on a budget, you don’t get to do some of the nice things for yourself that you wish you could do. Consider going on a nice dinner, seeing a movie, getting a massage or getting yourself something you’ve wanted for a while. Reward yourself for sticking to your budget, just don’t go overboard.

The most important thing is that you need to budget this money. If you just let it go into your account, the money will slip right through your fingers. Allocate every dime of the money. Take a bit for fun, take a bit to save, give a bit to charity if you’d like, pay down some debt. Enjoy July’s windfall and get yourself closer to financial security.

Last month’s budget a success

While I haven’t been talking about it, I am still attending Dave Ramsey’s FPU. I’ve decided to wait until the end of the program to do a full analysis of it. There are some weeks that have been really interesting and some that have not, therefore I want to wait until the end to give you a good impression.

There is one aspect that I want to discuss now since I think it’s worthwhile to many of my readers. The program encourages participants to create a zero-based budget each month. I think this might be the best part of the program so far. At the beginning of May, Jeff and I estimated our income for the month. Since I’m self employed, I use a low-balled figure for my income. It’s an amount that I know I can make each month without a problem. We then sat down and spent it all on paper. Food, housing, transportation, utilities, fun, personal needs, debt payments and donations were all budgeted. We spent every penny on paper.

I can’t tell you how little you worry about money when you have a plan. You don’t find yourself wondering if you are going to have enough money to pay extra on the debt or how you are going to come up with the money for that large auto repair bill in a few months because you’ve already budgeted for it. As you spend money during the month, you need to have a way to compare your actual numbers against your budget. You can use a personal finance program, like Quicken or Money. Dave Ramsey subcribers get access to Gazelle Intensity, which is what I’m currently using to do our budget. You can use Quickbooks if you have a copy of the software and download your banking information into the program. You can use a spreadsheet or paper and pencil. You just need to have some way to know where your money is going.

Last month, there were a couple things were were over budget on (silly me for forgetting to budget for medication when we are in the middle of allergy season), but there were more categories that we were under budget on.  All that extra money was rolled into planning accounts for future use. For example, I had about $60 left in my gasoline budget. That $60 is going into my savings account as part of my car replacement fund. Money I budgeted for gifts (including Christmas) will go into the savings account until Thanksgiving and then will be transferred back into checking.

I know this sounds like a lot of work. I won’t lie to you. It is a lot of work the first month you do it. I suggest you do your budget on a spreadsheet or in a program that allows you to copy your budget from month to month. If you do that, your second month should take you about 20 minutes. I just copied May’s budget, changed a few numbers and was done. The tracking should be done each week and will probably take you about 30 minutes depending on how much banking activity you have. I just download everything into QuickBooks from the bank and then review where we are compared to the budget.

I really love the idea of zero-based budgeting. Know where every penny is going before you spend it and then you don’t have to worry about it for the rest of the month. You have a date book or calendar to plan your schedule, right? Why not plan your money the same way?

New budget

Jeff and I are starting a new budget this month. Since I started teaching (here’s a shout out to the CCSU students in AC212-02 and AC212-06), I’m making some extra money plus my student loans payments resume in December. We thought now would be a good time to reexamine the budget and look at our savings goals. We’ve been really good about paying down our debt in the last few months and saving for retirement but our emergency savings and replacement savings are really terrible.

Organizing your expenses

Keeping a budget can be a pain in the… yeah, it’s not easy. But I’ve found a way to make it a lot easier. While reading Kiplingers a while back, I came across an article on organizing your expenses. The author suggested a website called Mint. Before posting about it, I wanted to check it out myself. I’m really impressed with it.

Budgeting 101 – Part II

So now that we have a handle on how much we make every month, let’s discuss expenses. There are two kinds of expenses: committed and discressionary. Your committed costs are those expenses that you pay month after month, with little variation. Committed costs include (but are not limited to) housing, debt, utilities and insurance. Discretionary costs are those you have more leeway with. Those costs include (but are not limited to) groceries, gasoline, entertainment and gifts. More people consider savings a discretionary cost, but I consider them a committed cost. Savings should be a necessary part of your budget, even if it’s only a few dollars per paycheck. We’ll discuss savings in a future post.