Budgeting 101: A Simple Guide to Household Finances
I went the whole month of December without writing a blog post… the whole month…
I thought I’d write one over Thanksgiving break… and plenty over Christmas Break, but I didn’t…
and if I’m being honest, my life was so crazy and full of distracting life events in the month of November, that my body, mind, soul…whatever, just needed the rest. This year we had a two-week break from school, and honestly it was God-sent. I feel rejuvenated and ready to take on the next 6 months of school.
(Sidenote: I’ll probably take that statement back after a week spent with my high-schoolers)
New Year… 2020, every one’s making their resolutions… and did you know Brad Zomick of Goskills.com outlined the top 10 New Year’s Resolutions made every year as the following:
I mean really… no surprise here right people? I’m pretty sure they were the same last year when I wrote my post on New Year Intentions. My only question is: How can #5 Live Life to the Fullest, come exactly before #6 Save more money/spend less money.
Living life to the fullest for me lately is strolling the aisles of HomeGoods… and that certainly doesn’t fulfill the goal of spending less money… lol.
This meme though… gets me every time.
And I don’t believe in “resolutions” anymore… I believe in making “intentions”… seems like a play on words here, but it’s not… and you can read more about that on my New Year Post from last year if you’re interested:
My intentions for 2020: (I know you probably all don’t care, but studies show if you write it down and tell people about it.. you’re more likely to achieve them… so this is totally more for me than you, lol).
So many of you know I’m super passionate about a few things: home decor/decorating, coffee, long walks through homegoods, and maybe teaching (even though I like to pretend I can’t wait to retire, which I can’t… I still make sure I give 110% each day). But many of you might not know (unless you’re super close to me), that I’m very passionate about finances. I know my blog is suppose to just be about decorating… and traveling, but honestly, all that wouldn’t be possible, without having my finances straight.
Please understand writing about something like this is new territory for me. I’m no professional. I’m unsure whether anyone actually has interest in this or if I’m just a nerd who refuses to pay interest on my credit card, or what.
However, I’m so passionate about this and the idea that you can have everything (or almost everything within reason) that you want without living in debt for your entire life, that I’ve sat down in secret with more friends that I can count on both hands in the last 10 years to show them how we do it, and set up budgets for them as well. (I won’t say who they are… but maybe they can comment below if they’re still following through and living a pretty debt-free life… that would be helpful to not make this post in vain).
So a few years back we had a Halloween party and some co-workers who had never been to my house came over. A co-worker of mine walked into my home and I guess was wowed by what he saw… and I’m not saying this to brag or anything, at all, I swear. In fact, I never do anything in my home or purchase anything to be the “showy” type, I do it for me and me only (my husband too). But what came out of his mouth next made me realize that many people don’t see the hard work that goes on behind the scenes. He goes:
“ So what do you have like a ton of credit card debt?”
(Now side note: we have a great relationship in which we joke and poke fun at one another, I’m not easily offended, and I also suffer from diarrhea of the mouth sometimes too).
My response: None. In fact, I’ve never ever carried a credit card balance in my entire life. I’ve never paid interest on a credit card, and everything I’ve purchased, big or small, I always had the money for.
Now of course, part of this is because I’ve been very blessed. If I were giving an acceptance speech at an awards show, I’d def have to thank god first. I have a great job (that I worked my ass off through college to graduate early and get, and still continue to work my butt off) , I don’t have kids (which wasn’t the original plan), and no major life events that have made us fall on hard times, such as the loss of a job, major illness and medical bills, a natural disaster, etc (I’m very sorry if you fall into these categories). I’m Type-A, a total planner, and it wasn’t until the last few years that I realized sometimes life just happens and you can’t always plan. But to say it’s only because I’m blessed, would be short-changing myself for the huge amount of work both I and my husband have done behind the scenes.
and I owe it to three things in my life:
Growing up in a home that lived paycheck to paycheck.
Which is most of America, btw. There’s nothing wrong with it. But growing up I watched my father work his ass off, and of course life got in the way at times and he didn’t always have the money to cover life’s unexpectedness. He always instilled in me a hard work ethic and the motto “it’s not what you make it’s what you save”. Along this he always said to me that you never look down upon anyone who is working an honest job to make a living (this came after my brother made a comment about an older gentleman sweeping the floor in a mall when we were super little), and most times “bigger paychecks just mean bigger bills”. And I’m honestly most grateful for living up in a middle class family, who fell under this category, because I truly feel like my financial savviness came out of a desire to live a more comfortable life. I noticed two types of adults come out of these situations, ones that spend because they didn’t have it, or ones that save because they didn’t have it. (Side note: I’m also a Taurus… and they tend to be people who are money-oriented)
Hearing Suze Orman speak about the 50/30/20 plan.
Life changing (for me anyway). I started living this way at 21 and Shad and I still live this way til this day.
Being consistent with the budgeting plan and delaying “gratification.”
So I don’t know if you’ve made it this far. And if you’re still interested in what I have to say… but if you are, I’m going to break down what I learned from her plan, how we implemented it, and other ways we cut spending money, so we can spend it on things we truly love.
The 50/30/20 Plan:
What does it mean? It means you create a budget for your life! I lived on a budget 13 years ago, I put my husband on a budget when I met him (lol… he was a great student by the way), and we still live on a budget today. Luckily, I learned about this budget ratio and implemented it prior to buying our first home, but we’ll talk about ways you can cut down on these ratios later on.
Suze Orman (and other financial gurus) believe the following ratio is key to budgeting and helping to live a somewhat debt-free life. (Because let’s be serious, home loans and car loans just come with the “adulting” territory):
50= NEEDS:
No more than 50% of your monthly take-home salary should go towards ALL of your bills. That’s take-home, meaning after social security, health insurance, and taxes or giving up nearly half to the government (can’t wait til all these youngins’ take home their first real paycheck… then we can talk about how enticing socialism truly isn’t…. but i’ll take the politics out of this). Bills: I’m talking mortgage, car payments, car insurance, home owners insurance, security, garbage, water, heat, electricity, cable, internet… etc etc etc. (If you’re in the market for a new home, this 50% ratio is very helpful in determining just how much of a house you can afford to still live comfortably. We used this when determining what our budget was, despite being approved for a much higher mortgage by the bank. )
30= WANTS:
No more than 30% of your monthly take-home salary should go towards spending. For us that’s filling up our gas tanks, buying groceries, gym memberships, going out to dinner, and extra fun spending. We put buying groceries in this category, but many of the plans put it in the 50% category. And sometimes when I really want something more expensive (like a piece of furniture), I’ll take the leftovers from my 30% category each pay period and dump it into the next category:
20= SAVINGS:
20% of your monthly take home should be stacked away to savings. We use this for house projects, travel, life’s unexpectedness, retirement, etc. Notice I didn’t say “No More than”, because in the beginning this is how we lived. We make more money than we did 10 years ago… and our bills are also higher than they were 10 years ago. So we’ve adjusted the 30/20 part of the ratio over the years to save more.
Now again, this worked for us. I’m sure it would have to be tweaked if we had had children. I’m sure it doesn’t work for everyone, but I truly feel the concept behind it, and budgeting in general does work. And side note: it greatly helps to figure out what each partner should contribute towards bills, especially if one partner makes more money than another partner. In our household, my husband and I each contribute 50% of what we make individually to our bills, and each contribute 20% to our savings.
So where did I begin with friends who I have sat down with to help?
Write down your take home paychecks for the entire month: divide each paycheck by 50%, 30% and 20% (or whatever you change the ratios to be to fit your life) to figure out how much you should be contributing to each of the categories.
Write down your bills and the due dates for one whole month: This is important because my husband and I get paid bi-weekly, it helped us to figure out which bills are beginning of the month bills and which are due at the end of the month. I sit down to pay our bills only twice a month (each of the two Friday we get paid). Beginning of the month we are paying bills due between the 16th-30/31st of each month. End of the month paycheck we are paying bills due between the 1-15th of the next month.
Write down your outgoing extra expenses for the entire month: Gas fill-ups, trips to homegoods (or in my husbands case it was Gander Mountain before they closed), nail appointments, dinners out, lunch trips… those bacon, egg & cheeses or in my case: quick check coffees. This is so you can see where your extra money is being spent.
After you’ve done all this, set up a BUDGET, figure out where you can cut expenses, and where you can take from in order to pay off any debt you may have. For example, when I sat down with an unnamed friend of mine, as a single bachelor, he was spending over $1k a month eating out. We literally showed him how we grocery shop each week, make our meals, and bag leftovers for lunch the next day. In addition, we called the cable company together and did the whole “we’re done with cable” saga, until the retention department lowered his bill considerably each month. Another friend of mine had a ton of subscriptions: Netflix, Hulu, Cable, Magazines, Hello Fresh!, Stitch-Fix, etc. I’m not saying you can’t have these, but if you have some debt to be paid off, cutting down on these areas, can add to your bills fund to pay off your credit card or student loan debt.
Bank Accounts: Everyone might not be on board with this one, but we have separate bank accounts for each of these categories. We have a bank account for bills, spending, and savings. This is what works for us. Every year I go down to payroll and I fill out 6 different sheets and have the money automatically moved into each of our accounts, so there’s no guess-work when we get paid. The amount of money we need for our bills is automatically deposited. The amount we save is automatically deposited, and the rest is dumped in each of our checking accounts. This works for us, since we both work. You have to figure out what works for you, especially if one spouse works and the other doesn’t. In addition, we have two separate savings accounts. We have our own personal savings accounts, and we have a joint savings account that we both contribute to. This way if I want to save and spend my money on a pottery barn chair, it’s not coming out of our joint, and if my husband wants to go and buy another atv, it’s coming out of his personal savings. Travel, home expenses and goals come out of our joint. I know it sounds like alot of accounts, but they also say a lot of marital problems come from fights over money- and this really cuts down on that. I don’t have to explain why I made 4 separate $20 transactions at HomeGoods this week, and he doesn’t have to explain why he needs all those bullets he bought at the sporting goods store. Some financial gurus claim “envelopes with cash” are best instead for budgeting. Check out David Ramsey on Instagram, he’s got great tips on his page each day. Even though I said it 20 times up there, I’ll say it again: its’ what works for us. Doesn’t mean it’ll work in your situation.
Goal setting: set some financial goals. A few years back it was my student loans that I wanted to pay off early. My loans had been set for a payoff date of 2027… so I refinanced them and paid every extra bit of money I had towards paying it off early. I paid them off a whole 10 years early, and saved myself tons of interest. Maybe it’s credit card debt you need to pay off, you’d love to redo your kitchen, buy an atv, or go on a trip to Europe. When Shad and I were planning a family, I literally started saving for maternity leave and child care. When that didn’t work out, we used part of it to travel and enjoy ourselves after a bumpy year. Maybe your kid’s got bad teeth and you’ll have to pay for braces next year. Whatever it is, if you know it ahead of time, and set a financial goal to help pay for it.
Figure out if there are any extras that can be thrown towards your goals each year. At first my goal was to help my husband pay off a little credit card debt when we first met. We figured out there were some months we got an extra paycheck because of where the pay periods fell, and we can throw our tax return towards paying off that debt as well. Maybe it’s a coaching stipend, a side hustle you have, yearly bonuses, or in our case our contract healthcare buyout (which we use towards our travel goal each year).
Spreadsheets are important for budgets: if you’re a Type-A type of person like me. I have a bills spread sheet dating back 7 years from when we first moved in our home. I sit down twice a month and as a pay my bills, I fill in the spread sheet to show it’s been paid. That way I know what bill I paid, when I paid it, and if it’s differed over the years. For example, when I argued with my cable company a few months back, I was able to tell them that I paid $70 less a month 4 years ago for the same cable… and use that as leverage to lower my bill. There’s never any guesses on whether I paid a bill or not. In fact sometimes it’s helped me to identify bills that I never received in the mail, but knew had to be paid by the blank spot on my spread sheet. My spread sheet is pretty simple (I blocked out my bills for privacy):
To me, it’s all about balance. You have to figure out where you like to spend your extra money the most- and focus on that. Maybe it’s traveling and making new experiences with your loved ones, maybe it’s on clothing and getting your hair and nails did’ (lol), maybe it’s on ammo and little gadgets at your local gun shop, maybe it’s hunting gear, or maybe you wanted to have a lot of children and it’s spending all your money on them (lol).
But it can’t be all of those unless you have the means to do so, or want to live in a ton of credit card debt.
Side note: what’s important to you doesn’t even have to be about money. I’m just focusing on that because this is a post on finances. Many new moms forgo going back to work while their children are young so they can be at home with them. This is so very important- and sometimes that means you won’t have the perfect house or your hair done every month until their older… so you may be gray but you got memories (just kidding about that last comment…sort of) .
Where I save money to spend it on areas I enjoy most:
We eat at home on most nights and bag our lunch. I give credit to this one to my parents. We always ate at home- and our big night out was once a week to a pizza shop on Thursday nights when my father got paid. I do remember when we got one of those deal cards from a fundraiser from school and you got 2 free kids meals with the purchase of one adult meal at Friendly’s… big night out during that time.. lol. Shad and I typically go out to a nice dinner about three times a month, and we try to limit eating lunch out to 1-2 times a pay period. I food shop for two weeks worth of groceries (because I hate food shopping) , and we have a budget number that I never spend above. We plan our meals and almost always take leftovers. When we were saving for our house back 7 years ago, and our friends would invite us out to dinner, many times we ate at home and met them out for drinks after instead.
I forgo monthly subscriptions with the exception of my $20 gym membership. No magazines (a friend of mine gives me hers when she’s done reading them… thanks Donna) , no monthly app purchases, no apple music (I listen to the commercials on Pandora), no sirius radio (I listen to the regular radio…although I pay for my father’s as a father’s day gift each year), no Netflix (we just use Jamie’s password… thanks Jamie), Hello Fresh… hell no ( we got too many allergies anyway. What would they send us? a box of chicken with salt and pepper?), no stitch-fix (I’m a maxinista). These things aren't important to me, so I don't subscribe to them. You have decide what’s important to you.
My car: I drive a HONDA. … I tell my kids this at school. They drive nicer cars than me… probably because they don’t pay for them. It costs $20 to fill up my car. It has 4 doors, it gets me to work, it has power windows ( I feel like the more I write I’m trying to justify this, lol) My husband and I keep our cars for a very long time. We trade off on who has the nicer car. A few years ago it was me. Now it’s him. When we’re done paying off his fancy truck, it’ll be me again. Can we afford two very nice cars? Yes. but then I wouldn’t be able to travel a lot and shop at homegoods weekly. Decide what’s important to you. Maybe it’s your car… that’s ok. But no one really cares what you drive anyway. Really. Some of the richest people drive Toyota Camry’s.
I don’t get my nails done. Like maybe twice a year. In fact last week I went to a salon to get them painted (like a regular manicure) for NYE. They wanted me to wait 40 minutes… probably because they didn’t need my $14 (lol), and I can’t sit still for 5 minutes. So I went home and painted them myself. With the $5 nail polish I’ve been using for 4 years. But I do get my hair colored (because it’s been graying since I was 25) and I did get my eyebrows microbladed (with all the money I saved from not getting my nails done). See… it’s all about balance.
What’s important to me? (Besides my family of course)
Traveling and having new experiences with family and friends, surrounding myself with pretty home decor because I love being home the most, and if it’s completely possible: living an absolute debt-free life.
I don’t put any WANTS on my credit card that I don’t have the money that month for, so that I don’t have to pay interest. This is also called “delaying gratification”. Wants in my book are: travel, dinners out, home furnishings. I accentuated WANTS in caps, because unexpected things come up in life. When I was a kid I remember the day before Thanksgiving my parents stove went. They didn't have the money and put it on a credit card. That’s not a WANT its a need. (Unless you decide to replace it with a really expense $10K Wolf stove). The concept of delaying gratification means looking at the bigger picture down the road. I wanted to go to a cool college and wear the “PENN State” sweatshirt (not sure if I could of gotten in… lol). I wanted to live in a dorm- but I also didn’t want to live in a ton of debt and I wanted to own a nice home one day. Delay the instant gratification of buying something now for your bigger goals down the road- especially if you don’t have the money.
We don’t make payments on WANTS/EXTRAS. A car is not an extra. A mortgage loan is not an extra. A new kitchen, that’s an extra. An ATV or SXS that’s an extra. We put these under “Financial Goals” and save until we can pay cash for it. Always. If we don’t have the money for an “extra” we don’t buy it. Hard times can and will hit, and no one wants to be making payments on an ATV or a pretty kitchen when you could use the money for the car you need to drive to work. All of our home projects and decor were also extras, and if you want to read about ways that helped me save for those goals check out my previous post here that I tagged below.
I never deferred on student loans. I could have put the payment off. At some points in my early 20’s when my parents fell on hard times and I had to help them out, I probably should have. I didn’t. It saved me thousands in the long run in interest. So if you don’t have to defer, DON’T. And btw… you are not a slave to Sallie Mae and Navient. There are companies out there that will consolidate your loans for an easier payoff. I used citizen bank in the last year of my payments for mine. With that being said, I feel it also needs to be said that I did make some right financial choices when it came to my education thanks to my dad. I went to community college- because he specifically said “the first two years are all the same at college anyway”. I was a commuter and didn’t live at school either because he also said “you aren’t going to pay interest on student loans just to live in a dorm at 10k a year.” And looking back I’m so happy that I started off on the right foot and graduating with only 35k in debt after undergraduate and graduate school loans. If you have a teenager making a big financial decision like this and you don’t have the means to pay for school- keep this in mind. I didn’t go to a cool four year school and live in a dorm so I could party- but I also didn’t start my life off in a ton of debt.
Lastly, write this stuff down! So you can look back and celebrate your financial successes.
Having debt stresses me out. It’s not easy. We’re a society built on buying shit we don’t need. And then buying tons of sheds to store the shit we don’t need. But it’s important to celebrate paying off loans and credit card debt. It’s important to celebrate the home you worked so hard to purchase- no matter it’s size in comparison to others. It’s important to look back on the lists and goals you’ve made to see how far you’ve come to accomplish them.
PS- I’ve gotten some great feedback from this post so far. But with that also comes negative feedback. I love reading what works for people in all areas of life- and sometimes what they write doesn’t match with my lifestyle, which is fine… I read and move on. So please don’t write to me and tell me I don’t have kids, and I have a good paying job. I know I don’t have kids, I also know a lot of people who make a ton more money than me and don’t have a savings, and I know a lot of people who make less than me and have more of a savings than I do. End of Rant.
And I don’t know if you made it this far, but if you did, I hope you found this post helpful. I hope whatever goals or wishes you have for the new year you accomplish. I also wish you a healthy and prosperous 2020. As always, thanks for stopping by, reading, sharing, and supporting me!
:) Barbra
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