Happy Wednesday! I'm excited to share our budgeting system today, along with our actual, real-life February budget with our actual, real-life numbers. I'll be honest, I'm pretty afraid to hit publish on this post. I've been trying to figure out why I'm afraid....maybe it's that people will think what I call "living on less" is actually living like royalty (and to most people around the world, it is)...or maybe that people will think "wow, they make even less than I thought." But really, neither of these things matter, because I deeply love our life and I am proud of our decision to "live like no one else so we can live like no one else." I wholeheartedly believe it will pay off and the blessing that have come from living this way are already so rich. Our marriage is stronger, our communication is better, our faith has increased. It's truly a win-win. So why even bother sharing? I know that I often find blogs or articles that touch on these principles, but rarely does anyone actually divulge their real-life household budget and how they prioritize and spend. So if even one person benefits from this, it will have been so worth it!
Okay! Let's jump in.
First of all, we use the Dave Ramsey budgeting system. Every month (towards the end of the month, around the 25th or so) we print out these forms and sit down at our kitchen table with them, a pencil and a calculator. The whole idea is that you create a "zero-based budget," which means that if you bring in $5,000 in income in a month, you write out where ALL $5,000 will go on the budget form. At the end of the budget form, your leftover between your income and your expenses should be zero. "Expenses" includes everything though, not just bills. It includes your emergency fund savings, savings for a trip or special event, gifts, etc. You want to "spend" every dollar on paper before it ever hits your account, otherwise that money is just going to disappear. The first form we do is the Monthly Cash Flow Plan, which just lists out all our expenses for that month. How much are we going to spend on groceries, savings, clothing, etc.
After we do the Monthly Cash Flow Plan, we complete another form called the "Allocated Spending Plan." It doesn't look like that form is available on Dave's site to the public, but you could easily replicate it on your own or in a spreadsheet (a photo of our sheets for February is further down). It simply allocates your income depending on your paydays. So you write down when your paydays are throughout the month at the top of each column, how much your paycheck will be on each payday, and then go down the "expense" rows spending every dollar until there is none left. So the Monthly Cash Flow Plan lists out WHAT you're going to spend, and the Allocated Spending Plan lists out WHEN you're going to spend, based on your paydays. For instance, we might have an income of $4,000 for the month, but we don't get that lump sum on the first of the month. One payday might be $2,000 and one payday might be $200, and they come every couple weeks, so the Allocated Spending Plan becomes super important. If we run out of food on the 17th, but our payday isn't until the 19th, we don't go to the grocery store until the 19th. This is the HUGE difference between operating with "real money" (cash and/or a debit card) and operating with credit. With a credit card, you just go to the store on the 17th, knowing (or thinking) you'll get paid on the 19th and can pay off those groceries you put on your credit card. But the thing is, until that paycheck is IN your account, it's not guaranteed. I don't know how many times I've used my business credit card to buy things I thought I needed right then, but didn't have the real money for, thinking "well, so-and-so has to pay their invoice by the 15th so I'll have the money in plenty of time to pay off my credit card balance." These things are not guaranteed, people take too long to pay their invoices or send your money, and meanwhile you're still on the hook for paying the credit card company for the money you borrowed from them. We've found that we can save ourselves a world of stress and frustration by only spending according to what we actually have. However, if you do get paid your whole monthly salary in one lump sum at the beginning of the month, the Allocated Spending Plan isn't really relevant for you.
Okay, real-life numbers time! Here's our Monthly Cash Flow Plan for February. Our income this month between Matt's and I's jobs will be $4,072. That's actually not typical, as it includes Matt's last paycheck from his previous job, along with his new paychecks from his new job. Our income will be around $3,200 monthly, on average (so just shy of $40k per year). But even that is a very recent development with Matt's new job and my job with TAP (last year we brought in around $20,000.) We have been budgeting this way for over a year, and it was ROUGH for the first several months. Matt works in EMS and for awhile he was working 48 hours a week at that job, which meant that 40 hours were at one pay grade, and 8 hours were at a second pay grade. Then he also had a second job on top of that, and the second job's payday was never the same as the first one. I was nannying, which was kind of steady income, but could also change from week to week. It was so hard to budget and it felt like so much guesswork. Nowawadays, Matt has one job that gives him a paycheck every two weeks and I draw a paycheck from my part-time job working for The Archibald Project that comes at the beginning of the month. Up until now, I have never paid myself a salary from my business. I "paid" myself in the form of Starbucks, Target trips, clothes. Basically anything Matt and I's budget couldn't accommodate, became a "draw" from my business. Thanks to some great coaching from Will Ray, I have hereby stopped that habit and am paying myself a set amount each month. It's SUPER low right now as I get systems in place and work to get my business profitable, but for the first time ever, my business is paying me a salary on the 1st of each month starting in February, and I'm thrilled! Okay, numbers time. Here's our February budget:
Okay, now I want to share a bit about each category on the above sheet...
TITHING: I know I might get a lot of questions on this, but yes, we tithe. 10%, every month. That's a really big element of Dave Ramsey's Financial Peace University course and to be honest, not one I was super jazzed about in the beginning. I figured we'd tithe down the road, when we're established (read: richer.) We were thinking about houses and kids and student loans--did we really need to tithe? Couldn't we tithe like, 3%? It kind of felt like an unfair burden. But I really had a heart change during FPU class and when I took it to heart that ALL our money--ALL of it is truly God's, and when I took it to heart that we are stewards of His money and it doesn't belong to us, it suddenly didn't seem so earth-shattering to give 10% back to His church. And I'm totally not going to get on my soapbox and tell you how you should tithe, because I didn't want to tithe at all in the beginning and it was a deeply personal decision and change in my heart that I know God brought about that got me to a point of being willing. All I will say is that God has never failed to provide provision, and so far we haven't thought back about the money we've tithed and wished we'd had it. So if you're feeling stressed or pressured to tithe, pray! Pray for a heart change. Pray that you would trust the Lord's provision. The majority of our tithe just goes to our church, but we also support a friend of mine who is a missionary at $25/month, and we include that in the 10%, and we feel okay about that. So this month, we needed to tithe $400 (we use round numbers to make it easy), so we will give $375 to our church and $25 goes to my friend.
SAVING: Because we drained our emergency fund this month (January) on a major plumbing repair, we are focusing on getting it back to $1,000 in February, so we put all our extra money after all our other categories towards it.
HOUSING: Pretty straightforward. Our mortgage is $726/month, which is less than our rent was.
UTILITIES: Utilities has been a little tricky because we bought our house in October and headed straight into winter--and with a 110 year old house with gas everything our utilities have been all over the place. We had a super high gas bill in December, around $130 for our January bill, so we've been keeping our heat much lower and are hoping our gas is around $110 for February . Our water and sewer bills are combined in that $70 line that says "water." We don't pay for trash or recycling. My business pays for internet since I am the one using 98% of it working from home. My business also pays for my phone, and Matt doesn't pay for his (he's on his parents' plan.) We don't have cable, and I think our Netflix must be tied to my mom's account (my whole family shares it) because we don't pay for it.
FOOD: I have no idea if $300/month is a lot or a little for two people for the whole month. It roughly works out to $10/day for the two of us which seems pretty okay. I'm going to do another whole post on how we stretch that grocery budget, what we buy, etc. I think we eat very well and buy organic, free-range, etc. as much as possible. The $50 for "restaurants" is our date money. We just added that started January 1st. Last year we had no date money. The $50 could be for one nice dinner, or 3 small dates, or 10 McDonalds dates :)
TRANSPORTATION: Starting in February we will be paying for my gas out of our personal budget. Before February, it's been paid for by my business account, but since I work from home now, that doesn't make sense because nowadays, most the time if I'm driving somewhere, it's personal and not business related. And I'm working super hard to get my business profitable, which means cutting out unnecessary expenses. Matt does have a credit card that he uses strictly for gas. We do not use it for anything else, ever. He keeps it for the rewards, and it was our compromise when we went through FPU and cut up the rest of our cards :) We get $100 back from him using it every quarter or so, and he can only put up to $250 on it per our budget, and we pay off that $250 at the end of every month.
MEDICAL/HEALTH: I have a doctor appointment coming up in February, and I estimate my co-pay to be $50. We don't take any regular medications and we just lump vitamins in with our grocery budget since I'll usually pick anything we need up at the grocery store.
INSURANCE: Per Dave Ramsey's suggestion, we did sign up for a life insurance policy for me lsat year. Matt gets life insurance included with his job for free because he works for the city (or state? I'm not sure.) We also have an identity theft policy that would pay for an assigned caseworker to deal with the entire mess if our identity were to get stolen. They mention in FPU that it takes an average of 60 hours to clean up an identity theft mess, and I do not have 60 hours to use in that way, so it's worth it for us. Our homeowner's and auto insurance is combined (I forget how much goes toward each but together it's $118) and that will come out of our personal account starting in February. I'm not sure why it's been coming out of my business account for so long but again, trying to get that business profitable means switching around where expenses are coming from. Currently I am still on my parents' health insurance, and don't pay for it monthly. I pay for any medicine and doctor co-pays (and super expensive emergency room visits, like we had last year.) I'm very grateful for my parents for this gift. Matt will start paying for health insurance (including medical, dental and vision) in March, but up until now he has also been on his parents' and not had to pay monthly.
PERSONAL: We truly don't spend much money on ourselves these days, and that's okay with me. I'll probably budget a small amount in March or April for some spring wardrobe pieces, but other than that, we mostly just have our date night money and our little bit of personal spending and that's that! The "Christmas" line is because we decided in December we'd like to have a budget of $600 for Christmas this year, and we decided to save for it throughout the year. That equals $50/month, but we skipped January because we put that towards our plumbing, so we're saving $100 in February to make up for it. We each get $20 for personal spending (down from $30 in 2014, but we're trying to save every little bit.) We normally spend $50/month on the dog's food, but he desperately needs a bath, so we're budgeting to get him one in February. We were originally planning to have a house budget of $200 or so per month in 2015 to pay for things like home improvement and decorating, but have since decided to nix that and throw it all at savings. However, we did commit to finishing our laundry room and it's half done, so we decided to still spend our "house money" in February then nix that category starting in March. And starting in February, I'm renewing my barre studio membership, which is $99 for unlimited classes.
We don't have anything budgeted for recreation or debt (since we don't have any debt) so there's nothing for those last two categories. So there you have it! We'll bring in $4,072 and we "spend" all $4,072 on paper before that first paycheck ever hits our account. We know exactly what we have to work with, so when opportunities or temptations arise, we can act accordingly. If a friend wants to go to lunch and a movie, I am free to say yes, but knowing that it will likely use my entire spending money for the whole month. Or, I could go on 4 coffee dates. I could buy the $10 book for book club, but that's half my monthly money. Or, I can get it for free at the library. I'm free to make those decisions. What I'm not free to do is go drop $200 at Anthropologie or Pottery Barn (I mean, I'm still technically free to do this) which I'm grateful for, because those are the things that cause huge rifts and fights in marriage, anyway.
I also understand that we have been VERY blessed by our parents. All the little things add up, and the fact that we've not had to pay for Matt's cell phone or health insurance for either of us for our first 18 months of marriage is huge. Having a business that foots the internet and my cell phone bill is huge. We are incredibly blessed. But I firmly believe that you can make your money work for you regardless of your circumstances. It's all about choices, and YOU make those.
Just for fun and clarity, here's our Allocated Spending Plan, that shows how we spend each of those categories based on payday. Thankfully I get my TAP paycheck on the first of the month, so we do a majority of our bills then (mortgage, groceries, etc.) But, you'll notice we don't get our spending money until the 7th. And Scout will need food on the 1st, but he can't get a bath until the 7th. And I can't renew my barre membership until the 13th.
And just to show how you can do long-term budgeting quickly, here's what we did for the rest of the year through September. I made a list of every month of the year and jotted down any special events or birthdays or things we know will require extra money for travel or gifts. Then, I took our basic monthly expenses (bills, spending, but no money towards savings) and added what I thought we'd spend on those extras to come up with the expenses for that month. Our income (ideally) is going to stay around the same through June (it spikes in April because Matt's working a special overtime gig and I have a nannying job), then increase as I hope to be paying myself a higher salary from my business, so I subtracted each month's projected expenses from the projected income and the difference is what we'll be able to save each month. Now, we have an idea of how long it will realistically take us to reach our emergency fund savings goals. This will fluctuate, because life is life, but it's nice to have and refer to.
Ooookay! There you have it. How we budget, with the real-life numbers. Was it helpful? Overwhelming? Do you have questions? Ask away in the comments and I'll do my best to answer as much as I can!