How We Changed Our Finances Forever (Part 1)
I know, I don't write much about money, but next to IT and cars/motorcycles, I think about money a lot. Over this past year and a half, my wife and I have learned a lot about how to manage our money effectively. In order to understand and appreciate where we are now, let me explain where we were.
My wife and I work full time jobs, we have no children, 2 small dogs (a senior pug & an adult chihuahua), and we rent a condo. Prior to budgeting, we adhered to 3 simple rules when it came to our finances.
1. Pay bills on time
I believe that this should be part of everyone's financial plan. However, I do completely understand that life happens and money is a finite resource.
2. Spend less than we make
As someone who never had any credit cards or loans until the last couple years, I've never had the option to spend more than I make. Though it's not me, I've known people who live beyond their means. It's simply unsustainable.
3. Put money into savings every month
My wife and I currently rent. While there are pros to renting, my wife and I want to buy a house. We also need another car. And I'd like to buy a new motorcycle. These things cost relatively considerable amounts of money, so we need to save.
Despite all of this, my wife and I still didn't have a budget. We obeyed our financial rules, but we still dipped into savings more often than we should have and it was taking forever to build up our savings.
If this is you, listen: You need a budget. Usually, a budget is thought of as a hindrance. "Oh, I can't go out tonight. I'm on a budget." Don't think about it this way. It's not the whole story.
The best way to think of a budget is that you're giving yourself permission to spend certain monies for certain things. For example, you might have a $1200 monthly budget for food/groceries. That simply means that you're free to spend that money on food and/or groceries.
Prior to budgeting, my wife and I tallied up the monthly cost of our worst area: Food. We like to eat out and that isn't very cost effective. We were shocked when we saw how much money we spent on food (groceries + eating out) in a single normal month.
The answer was simple. We needed to set and adhere to an actual budget. My wife started reading Dave Ramsey's Total Money Makeover and she created a spreadsheet for us to track our spending. I'm not going to lie, it was confusing to me since I had no hand in creating it and I was mostly following my wife's lead.
However, in that time, we started saving some substantial money. There were some months where we were putting 40% and even 50% of our take-home pay into savings, which was unthinkable for us before.
The biggest challenge for us has been keeping our food spending down. What we've found very helpful is to have a monthly lunch and dinner menu. My wife doesn't really eat breakfast and I practice Intermittent Fasting. For lunch, we try to make a lot of food on the weekend so we have food for lunches throughout the week. For dinners, we try to keep it varied and use the menu as a guide. The first weekend of the month, we buy as much of our food for the month as we can. That way, the rest of our shopping trips are small and only for things that may not last all month (like milk, bread, etc.)
We eventually dumped the spreadsheet and started using a web application called YNAB (or You Need A Budget), and it has been amazing. I highly encourage you to check it out. It can be a bit confusing for some people at first, but once you understand how it works, it's very simple to use and it makes budgeting much easier. At the time of this writing, I'm working on a getting-started guide for YNAB.
By simply having a budget in place, it allowed us to see and understand where our money was going. It allowed us to give every dollar a job. Not once since we started have we looked at our bank account and asked "how did we spend so much money?"
It's also changed our attitude towards how we use our money. For example, we were planning on buying our next car brand-new and financing it. However, we've come to realize how that wouldn't be a good idea for us. Instead, we're saving up to buy the same car pre-owned so that someone else has taken the big depreciation hit. I was planning on buying a new BMW M2 or Dodge Challenger 392 Scat Pack. However, instead of financing $50k+, It's much more economical to save up $15-20k and buy a pre-owned MX-5. We were planning on buying a house using an FHA loan, which requires only 3.5% down. However, putting less than 20% down makes for a larger mortgage payment. Instead, we're saving up for 20% down and looking to do a 15-year mortgage rather than a 30-year.
Learning to love budgeting was part 1. Look for part 2 soon.
If this is you, listen: You need a budget. Usually, a budget is thought of as a hindrance. "Oh, I can't go out tonight. I'm on a budget." Don't think about it this way. It's not the whole story.
The best way to think of a budget is that you're giving yourself permission to spend certain monies for certain things. For example, you might have a $1200 monthly budget for food/groceries. That simply means that you're free to spend that money on food and/or groceries.
Prior to budgeting, my wife and I tallied up the monthly cost of our worst area: Food. We like to eat out and that isn't very cost effective. We were shocked when we saw how much money we spent on food (groceries + eating out) in a single normal month.
The answer was simple. We needed to set and adhere to an actual budget. My wife started reading Dave Ramsey's Total Money Makeover and she created a spreadsheet for us to track our spending. I'm not going to lie, it was confusing to me since I had no hand in creating it and I was mostly following my wife's lead.
However, in that time, we started saving some substantial money. There were some months where we were putting 40% and even 50% of our take-home pay into savings, which was unthinkable for us before.
The biggest challenge for us has been keeping our food spending down. What we've found very helpful is to have a monthly lunch and dinner menu. My wife doesn't really eat breakfast and I practice Intermittent Fasting. For lunch, we try to make a lot of food on the weekend so we have food for lunches throughout the week. For dinners, we try to keep it varied and use the menu as a guide. The first weekend of the month, we buy as much of our food for the month as we can. That way, the rest of our shopping trips are small and only for things that may not last all month (like milk, bread, etc.)
We eventually dumped the spreadsheet and started using a web application called YNAB (or You Need A Budget), and it has been amazing. I highly encourage you to check it out. It can be a bit confusing for some people at first, but once you understand how it works, it's very simple to use and it makes budgeting much easier. At the time of this writing, I'm working on a getting-started guide for YNAB.
By simply having a budget in place, it allowed us to see and understand where our money was going. It allowed us to give every dollar a job. Not once since we started have we looked at our bank account and asked "how did we spend so much money?"
It's also changed our attitude towards how we use our money. For example, we were planning on buying our next car brand-new and financing it. However, we've come to realize how that wouldn't be a good idea for us. Instead, we're saving up to buy the same car pre-owned so that someone else has taken the big depreciation hit. I was planning on buying a new BMW M2 or Dodge Challenger 392 Scat Pack. However, instead of financing $50k+, It's much more economical to save up $15-20k and buy a pre-owned MX-5. We were planning on buying a house using an FHA loan, which requires only 3.5% down. However, putting less than 20% down makes for a larger mortgage payment. Instead, we're saving up for 20% down and looking to do a 15-year mortgage rather than a 30-year.
Learning to love budgeting was part 1. Look for part 2 soon.
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