Tuesday, May 22, 2012
I've gotten a couple questions regarding our budgeting process since we've paid of some major debt. Here's what has worked for us.
1. Write it down.
We are not perfect with tracking this but we have our budget spelled out to the dollar using this document. Ideally I would be then adding everything to the sheet instead of keeping vague running totals in my head. Knowing the parameters though of what we have left after fixed payments works of us. I am not so strict though that I go through my Target receipts to separate out personal supplies and groceries.
2. Get friendly with the bank.
Twice a month money is automatically taken out of our checking account (where paychecks are deposited) and distributed to our other three accounts. The most goes into our money market account which we use as our future house down payment savings and grad school tuition payments. We never pull money out of this account.
Next is our emergency fund. We use this for things like car repairs, medical expenses or other unexpected bills. It makes it easier to pay them knowing "that's what the emergency fund is for."
Last is our travel fund. If we had all our money together, we'd never spend it on travel because it'd take away from our house down payment or set us back in other savings. But travel is something we've determined is a priority for our family so we have our fund. It gets about $200/month which really does add up fast. Knowing it's designated for travel makes it easier to use. Dave Ramsey would tell me I shouldn't travel while we still have student loan debt. I would tell him to zip it.
3. Be ready to sacrifice.
Initially budgeting was hard. It was all this money we were putting off limits. But now that we've been doing it almost three years, I forget we even have that money. Because we made the sacrifice initially, it was easier to just take the money we used to pay off our second mortgage and put it toward the highest interest student loan. We didn't allow ourselves to experience a month with a couple thousand extra dollars.
We still go out to eat, but we budgeted for that. I still can buy a new dress, but it's budgeted. We no longer spend in excess on clothes we don't need or updates on our stuff that really could wait. We don't have extra luxuries like cable or gym memberships but I can honestly say our marriage has benefited.
4. Snowball effect
It works. You pay off one bill, transfer that money to another bill and so on. Because we are comfortable with the level we're living at, as we have made more money it goes toward debt. It also allowed us to start a college fund for Henry and set up two life insurance funds as soon as we became parents without any real extra sacrifice in our monthly budget.
Sometimes I get really jealous when other people are buying huge houses at our age, buying new cars or going to concerts every weekend. (that's a lie, I hate concerts) But, if Dave Ramsey taught me anything it's "Live like no one else so later you can live like no one else." There will be a day in the not too distant future, where we will be living debt free. But we'll know how to live within our means and maintain a budget no matter what our bottom line.