Where does it go?

A few days ago, I asked followers on the Facebook page what aspect of finances they wish they knew more about. My friend Patrick joked “how to keep the money that gets deposited into my account to remain in my account.” It was a funny response but it got me thinking about how things were before we had a budget. I remember asking myself at the end of every month: where does it all go?

Since we started doing a monthly budget, I don’t ask that question any more. I know where it all goes and it goes where I tell it to go. Before we started doing a monthly budget, the thought of putting it all down on paper seemed daunting. It would be so much work, it would be hard to manage, it would be…(fill in your own excuse here).

The first month it was a bit of work. We had to figure out what we were spending our money on. We then had to make an effort to cut back on that spending and track where our money was going.  The second month, it was easier. By the third month, it almost seemed automatic. The budget doesn’t change much for us since our income is pretty steady. Since we budget for pretty much anything that can happen around here, special occasions and other unexpected things don’t come and bite us in the butt.

Starting a budget is easier than you think. Get out a sheet of paper or open up your spreadsheet program on your computer. Write down your expected monthly income. If you are salary this is much easier. If your pay fluctuates, use the minimum amount you would expect to get paid that month. Don’t include overtime. I’ll show you how to figure that in later.

After you’ve got your income at the top, it’s time to spend it. Spend it all on paper. Start with the basics: food, shelter, utilities, transportation (gas, insurance, repairs). Next list out the minimum payments for all your debts (car loans, student loans, credit cards, personal loans, etc). After that, list out the other stuff: donations, life insurance, hair cuts, clothing, gifts, entertainment and anything else you can think of. It helps to go through a few months of bank statements to see what you spend money on.

Some items, like repairs and gifts are spots where you put a bit of money each month so when your alternator dies or the holidays come around, you’ve got some money put away.

Is there money left? If the answer is no, then you need to go back and find somewhere to trim back. You need to be at zero when you are done.

If the answer is yes, this is where things get interesting. Take out a second piece of paper. This is where you make your to-do list. First write down Emergency Fund and put $1,000. Next write down all your debts from smallest to largest, except for the mortgage. Every month that you have something extra, you put it toward that list. You’ll start to see items fall of that list rather quickly.

No debt? You should try to save up three to six months of expenses in a savings account. You never know when you or your spouse might lose your job. After that, add other things to your to-do list. Maybe it’s saving for a car or a vacation. The sky is the limit here.

If you want more information about this, check out The Total Money Makeover. Dave Ramsey is one of the best financial folks out there. It’s not get rich quick. It’s more the tortoise and the hare approach. Buying his book years ago was one of the best purchases I ever made.

Today’s photo courtesy of Salvatore Vuono and freedigitalphotos.net

When two become one

I went to a lovely wedding this weekend. During the ceremony, the priest discussed how in marriage two people come together to become one. This is a theme in most, if not all the weddings I have attended, including my own. It’s a beautiful thought really. The bride and groom, living separate lives, now join together and create one new life together.

In my years of counseling, I think a lot of people miss this message when it comes to finances. Most couples with financial problems (which quickly become marital problems) fall into one of two camps. Either they keep their financial lives completely separate or one person becomes the “financial guru” in the relationship. Generally, this person has the entire weight of both financial lives upon their shoulders but both partners still act as though they are living separate financial existences.

The hardest part of counseling people in either of these camps is convincing them that in order to end up at the same place at the end of their financial journey (usually retirement), they need to work together. There is no longer “her money” and “his debt” but “our money” and “our debt”. It’s impossible to have one spouse truly prosper financially when the other has debt of any kind. Whether or not you believe it, your financial lives will be forced to become one at some point. Hopefully that moment comes as prosperity at retirement, rather than bankruptcy later in life.

I’m a big believer in setting down goals. What kind of retirement do we want to have? How are we going to get there. When having children, will one of us stay home? Public school or private school? Do we see ourselves living here forever? Do either of us need more education to achieve our goals?

Jeff and I have these kinds of conversations all the time. It’s actually fun to sit down and ponder the future and try to figure out how we will get there together. We do our monthly budget together. We celebrate our financial successes together. We work out the setbacks together. We didn’t always do this. A few years ago, we were one of those couples where one person handled the finances. It was stressful. It caused disagreements. It caused strain between us. Once we got on the same plan and started working together, everything changed. The money stress is virtually gone. When there is money stress, we handle it together.

I’m not saying things are going to change overnight, but when you start to see your finances as one unit that you both must carry together, it will start to get better. Your marriage will become stronger and the stresses that come with money will be less.

For more information on this, I highly recommend The Total Money Makeover and Financial Peace Revisited. Both books cover how to talk to your spouse, how to have those budget meetings and how to put together a plan for the rest of your financial life.

Have you attended Dave Ramsey’s FPU?

Next week, I’m starting Dave Ramsey’s Financial Peace University at my church. It’s a 13-week financial course, two hours per week. I’m sure some of you are thinking Kristin, you’re a CPA. Why are you attending a financial course? I’ve read two of Dave’s books: The Total Money Makeover and Financial Peace Revisited. I loved both of them. Jeff and I are currently using Dave’s budget. Plus, there are always new things to learn. I’m still not sold on his cash system (paying for everything with cash, no debit cards). Maybe after the course, I’ll feel differently. I also know some of the couples that are going through the program, so this is like a 13-week support group to get us all jump started.

I am pleased to announce that we paid off our last appliance this week. We purchased all new appliances, one by one, after we moved into our house. They were all old and needed significant repairs. We purchased them all with interest free financing and paid the balances before the 0% period expired. Last night I made the last payment on the washer and dryer. We are also planning to pay off one of our student loans this month. It was a small student loan that I took out my freshman year in order to pay some expenses my other loans didn’t cover. It feels awesome to knock down our debt. I was also able to purchase 2 new computers this month (yes, I said two. That’s a blog topic for another day) with cash and without touching my savings.

I was paying a few bills last night and decided to pay the utility bills and the credit cards so I could determine if we had enough to pay off the student loan. I realized that I could not pay these bills because I had paid them last month as soon as the bills arrived and the new bills have not arrived yet. It feels so good to be that far ahead. I hope you have reached that kind of financial peace. I know we still have a long way to go, but it feels good right now. If you haven’t reached this point, consider picking up one of Dave’s books.

Have you attended FPU? What suggestions do you have for those about to start? Do you need to read Dave’s books before attending? Have you attended other financial workshops that you thought were good?