Thursday, June 18, 2009

Budget and love it.

I used to hate the word "budget." I tried a time or two to set one up for myself, using Quicken or some random made-up method. Those lasted all of like three days. The hub and I ultimately tried using separate accounts for bills (the "non-negotiables") and everyday (discretionary) spending. The idea being we'd direct deposit enough each month to cover the bills into the first account (ensuring those were always covered), and use the second for everything else - groceries, dining, shopping, and other miscellaneous spending. We had no real budget or control over our cash flow other than the separate bill and spending accounts.

I thought it was a rather brilliant plan, but soon the fine line between those two accounts ultimately disappeared. I partly blame Bank of America for this by allowing me to transfer money simply by wiggling my nose. Damn technology! So we later set up a third account - a supposed-to-be savings account - at a local bank, which would require some real "effort" to withdraw money from. Well before you know it, cash is being transferred out of the "bill" account more and more to cover over-spending in the other account. And eventually that "savings" account became life support for the spending account.

You see, the hub and I are both spenders. It's lovely when you have a happy marriage of one spender and one saver to balance each other out. But oh no... recipe for financial disaster here: two spenders. Getting the financial kinks figured out has got to be one of the biggest (if not the biggest) challenges in marriage. People always tell you the first year of marriage is really tough - and it's true. People that say it's all rainbows and butterflies are either smokin' crack or more likely, they're just not real with each other. That's not to say it's not great... but you can't sow a good crop without breaking a real sweat. While we were both big spenders, we spent money on different things. Me? Hot new Kate Spade bag. Hub? Some stupid computer equipment that takes up space. Ask him and he'd tell you: Her? Some stupid overpriced purse. Me? These awesome speakers that will allow me to shake the very foundation of our home while playing flight simulator. And that was one of our issues... we didn't understand why the other spent money on the stuff they did.

So yes, the lines got blurred and we'd just spend money as we pleased. Fortunately, it was mostly done with cash over the years. That's not to say we don't have some credit card debt in our debt snowball, but we were never really ones to whip out the plastic for everyday spending. Neh, we were sensible and saved the credit cards for the bigger "emergencies" (insert big eye roll). But even when you have good income, if you're just paying bills and spending money left and right, you don't have much to show for it. No real direction... we weren't hurting, but we weren't getting anywhere either.

But then, 2008 (one of my not-so-favorite years, if you recall) came and kicked our pretty white asses. Without boring y'all with the bitter details, we were pretty much forced into doing a complete 180 on our personal finances. The hub had a really shitty year work wise... he was in the middle of a lawsuit with his former company and he made a couple of job moves during the year. So our income took a big hit. Bad financial decisions made in the past came back to haunt us. And the ultimate turning point came when we were finally able to sell our townhouse (our first home that we had not been able to sell for 2+ years). The buyer wasn't the only one who ended up cutting a big check that day, but we were just glad to see it go. That very same month, Dave Ramsey was on tour in Atlanta and we decided to go. We were familiar with him and had once attempted to follow some elements of his program - a very wimpy attempt I might add, as it got us nowhere. But this time, he reeled us in and our lives haven't been the same since.

Now I've gone into how his program works before - it's basically a series of baby steps to financial peace. Though I need to update my numbers, you can see where the hub and I are on my sidebar. We're currently on baby step #2, the debt snowball (where you pay off all your consumer debt - everything but the house). We'll be here for a while. Our goal is to be done with this step by the end of 2010. A lot's gotta happen between now and then, but it's definitely doable. If you're not familiar with Dave, he's not some genius financial guru who's come up with some miracle method of winning with money... his methods are common sense. He often calls it "grandma's advice." But he's blessed with this uncanny ability to deliver the message in such a way that gets your blood pumping. He makes you want to drop kick your debt and change your life. That's the other thing - he's completely against debt. So part of getting on his plan is refusing to go into debt ever again. The one exception he makes is for a mortgage (one you can afford, that is). He won't personally do a mortgage, but he's OK with you getting one to purchase a home if you're otherwise debt-free, have an emergency fund and all that.

So yes, he's got such amazing wisdom and tough love when it comes to money - I could go on and on about it all, but what I really want to focus on this go-around is the budget. Learning to live on a budget is one of the biggest things I've taken away from all of this, so it's only fair that I share it with y'all. The overall purpose with Dave's whole program is having a PLAN. Having a plan is what financial peace is all about. And that's really all a budget is - a plan. I always thought of a budget as something restrictive, something only people with lower incomes needed, and basically something NOT FUN. But I gotta tell ya... the monthly budget has become my best friend. It's all about telling your money where to go instead of wondering where it went. You give every dollar - every dollar - a name before it comes in. Whether you've got $2,000 a month coming in or $20,000... you give it a name and you tell it where to go.

There are all kinds of "budgeting" tools out there... different software applications and web-based programs. Most of which will budget your inflows, minus your outflows, leaving any surplus at the bottom. But Dave uses what's called a zero-based budget. This means that every last dollar of your monthly income is allocated to some category, so that your net result (income minus expenses) is zero. If you have a big surplus after paying out your bills, that's great - but you gotta give it a name. Where is it going? On this form, you'll also notice the ordering of expenses. The first item on the list is charitable giving, followed by saving - before you ever get to your monthly bills. This reordering of how we paid out money each month has had a HUGE impact on our personal finances. It may look simple on paper, but it's a hard pill to swallow at first... especially for two people who paid bills, spent and spent, and then oh yeah if there's anything left we *might* save or give. When I said we did a total 180, I wasn't kidding.

We now tithe and it comes out first on our budget. We would give to our church here and there before, but not like this. We had never actually tithed. I mean 10% y'all... that's HUGE. And if you looked at our budget, even now, you'd be like what the hell? Y'all can't afford to be giving away that much! I sure would've said that this time last year. But now I say we can't afford not to... it has absolutely opened my heart to trusting God with our finances. And that's what tithing is all about. God doesn't need our money, hello. He needs our hearts. So yes, this whole new way of ordering things has changed our lives. Most simply put, the gig goes...

1. Give.
2. Save.
3. Live on the rest.

I'm telling you, it'll rock your world. When we put together our first zero-based budget, we decided to jump in head-first. We ripped off the band-aid and started giving, saving, and spending in this new way. Putting together that first budget took a LONG time. I remember saying out loud at my computer, like five times, "this is hard!" And hello, I love spreadsheets. But getting it all to balance and making sure we accounted for everything took some time. But once you get the first one done, the months that follow are pretty quick to set up. You just tweak it a bit for what you have going on in any given month. The hub and I will sit down and literally go through the calendar to see what we have coming up the next month that we need to plan for financially. It's not always perfect, and of course things pop up and you have to juggle things around a bit when they do. But I can't even put into words the peace of mind this way of budgeting brings me! Right now we're probably making the least amount of income together since we married, but I've never been more at peace. I know where everything is going... I know we have money for the things we need - because we planned well. So you get a budget put together... But how the heck do you actually stick to it?!

This is where Dave's cash envelope system comes in, which to me is the true cornerstone of the budget. It's a hard, hard thing for some people to transition to, but it is SO freeing and I believe it's the real key to making the budget work. Once again, this is something I've gabbed on about before... but this is big. Old method for spending? Separate checking account for "discretionary" expenditures... used whenever, however, and not really accounted for in any way. And as I mentioned, we often started pulling from that "bill" account to cover our expensive asses. New method? We come up with categories for monthly spending and divvy up actual CASH into envelopes for each category. Once the cash in any given envelope is gone, it's gone. In short, we use cash for all our spending. Bills are still paid electronically or by check or whatever, but everyday spending? Cash. We only use debit cards for the rare big expense like a doctor visit or vet bill. Everything else is cash, cash, cash. So what's the point?

The point is... well my favorite point is that all our spending money is already out of our account and I don't have to worry about who's spending what. That equals peace of mind. But another biggie - using cash hurts more. It's like "real" money. Think about the last time you went to the grocery and swiped your card. Do you really even pay attention to the total? Do you have any idea how much you spent as you're wheeling your cart to your car? If you were counting out bills I guarantee you could tell me exactly how much you spent. Cash is pretty and we want to hold on to it. It hurts more. Translation: we spend less when we're using cash. Need some proof? Do a little research on how much profits went up for fast food chains like McDonald's when they started accepting plastic. It's unreal.

Being on cash for the last, gosh... 9 months now has TOTALLY taught me the value of the dollar. I just spent money blindly before. I was not a huge, over-the-top spender - I mean we certainly didn't have endless funds, but I just didn't pay attention. Just as a simple example, I used to hit Starbucks 2 or 3 times a week when I'd get a craving. A quick, thoughtless swipe of the debit card and I'd get myself an afternoon pick-me-up. Well now, I seriously couldn't tell you the last time I was in a Starbucks. Still love the place, but hell if I'm parting with $4 for a damn coffee. It's like I'm looking through an entirely different set of eyes, and I love it. Yep, this big spender loves being on a budget. It's not about restriction, as I once thought. It's about freedom.

And that freedom allows us to set goals and make things happen. Like Dave always says, today we're living like no one else, so that one day we can really LIVE like no one else. I recently got a great email from a dear reader who also had the Dave bug. She was about to call in to Dave's show to make her debt-free scream. Can I even tell you how much I am looking forward to the hub and I doing this? On Fridays Dave takes callers who have dumped all their debt and has them scream, "WE'RE DEBT FREEEEEE!!!!!" I seriously tear up listening to these people and the amazing things they have done. One couple last week called in who had paid off $180,000 in debt in 3 years on an average combined income of $110,000. And they have 4 kids. Such amazing stories and so encouraging... So I wanted to share Jane's email with you and hope that it encourages you like it did me. Thanks so much, Jane, for allowing me to share your words and I hope they'll help light a fire under someone!

Hi, I've been reading your blog for some time now & I notice you too are a Dave Ramsey follower. Yah! Anyways, I'm emailing my friends & fellow Dave Ramsey peeps that would appreciate that me & the hubby have made it out of Baby Step 2 today!

I'm holding off telling anyone the total amount we paid off until we tell Dave first (it's a shitload though to be crude about it), but I just want to tell other Dave blogger fans that it really can be done!

Hope to hear of you & your husband becoming debt free soon too! AND hope to hear you announcing a baby on the way too! Happy thoughts!!

So anyway, I'm just giddy right now & wanted all my fellow Dave bloggers to keep at it!

Sincerely, Jane :)

This stuff really works, y'all. And just like Jesus, it's for everyone! If you have any questions on how we do the zero-based budget or the cash envelope system, ask away! I certainly don't have all the answers and we've got a long way to go, but we've come a long way too.


Jill said...

Such a great post. You guys inspire us. Thanks for sharing and keep it up!!

KK said...

Fantastic post!! Thanks for sharing.

Anonymous said...

Thank you, thank you, thank you for this post. My fiancee & I plan on joining the Dave Ramsey way of life in the fall when we get married and I'm happy to see that it works for so many people!