Our Finances

Update 3/1/2007 - We are on step 2, our snowball is rolling and getting bigger every time we pay another debt off. We are adding an average of $2,177.86 to our net worth every month!

Tamara and I started treating our finances seriously in January 2006 when we ran into some sore spots with money. It was enough to wake us up, especially after we did our first income statement for January 2006 and found out we were spending more than we had coming in. We hadn't missed any payments (yet) but could see it coming if we continued our stupidity. We spent the first few months of 2006 devising a better way to handle our finances. It feels great to be handling our money with competence, it has really given us a sense of security and optimism. Here's how we do it.

Monthly Budget
Family Monthly Planning Meeting (FMPM)
What About Personal Spending?
Debt Elimination And A Long-Term Plan

Monthly Budget   (Back to top)
We put our income and expenses down on paper, on purpose. It's as simple as that. We started telling our money what to do instead of letting it control us. At first it was tough. It really didn't work very well at first, but I had read some books by Dave Ramsey and he said it wouldn't really work until after 2-3 months. He was right. At first it took us hours to talk about things and figure them out. I did the budgets in Excel and it was a manual process. Now it takes about 15 minutes for us to plan our month.

We use a zero balance budget, which means that income = expenses. It forces us to give every dollar a job to do, even the money we have left over. So, one of our expense categories is "Savings". Here's the basic format:

Budget Example

Type	Amount
Income
Josh Net	$xxxx.xx
Tamara Net	$xxxx.xx
Income Total	$xxxx.xx
Expenses
Mortgage	-$xxx.xx
Electric	-$xxx.xx
Jimmy Payment	-$xxx.xx
Tamara Spending	-$xxx.xx
Josh Spending	-$xxx.xx
Propane	-$xxx.xx
Gas (Auto)	-$xxx.xx
Savings	-$xxx.xx
Expenses Total	-$xxx.xx
Total	$(Income - Expenses)

I created a Microsoft Access database with some forms and reports to do our budget with. I programmed an import function into it so that we can download a text file from our bank whenever we want, and the program sorts the transactions into the proper budget categories based on keywords in the description. When a transaction doesn't fit an existing keyword, it pops up and prompts me to put it in a category. This automation has really made the budget work for us, I don't think we would have stuck with it if it were just on paper and it took a long time to set it up and update it. I'm thinking about re-writing it as a .NET application to make it more flexible and easy to use.

Family Monthly Planning Meeting (FMPM)   (Back to top)
Each month Tamara and I sit down for about 15-30 minutes to plan our month financially. We use a spreadsheet I created to plan our food shopping for the entire month. We also take last month's budget and review it, copy/paste it over to this month, and start modifying it. We think about what is going to happen this month that we will need to pay for, etc. This process has helped not only our finances, it has improved our communication overall.

What About Personal Spending?   (Back to top)
One thing we struggled with in the beginning was how to not feel deprived because of all this budgeting stuff. We came up with the idea to budget for a "Josh's Spending" and "Tamara's Spending" amount so we still have our own personal money to spend on a cup of coffee or whatever we happen to want. Mazaryk also has his own spending account, which is basically for Tamara to use if she wants to buy him something to eat when they are out around town, etc.

Debt Elimination And A Long-Term Plan   (Back to top)

The thing that got us in trouble in the first place was debt. We HATE debt now, with a passion. We could have continued living comfortably with our new budget and not really cut back much, but we decided enough was enough. We're getting these monkey's off our backs.

There are many strategies touted for getting out of debt. We chose to follow the plan Dave Ramsey puts forth, the baby steps (Click here to download). We decided to stop contributing to my 401K or college funds. Controversial, and it took us awhile to decide that was the right thing to do. Instead we are going to use that money to get our mess cleaned up. We'll hit steps 4 and 5 simultaneously in just a few years and will have enough cash to max out retirement and college savings.

1. Build up a mini $1,000 emergency fund
2. List all debts smallest to largest (except the mortgage). Pay minimum payments on all but the smallest one, and attack that one with a vengeance. When that one is paid off, throw everything from it onto the second one, etc. It's called the debt snowball.
3. Build up an emergency fund of 3-6 months of expenses (expenses are now lower because you've paid off your debts)
4. Invest 15 percent of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give! - Invest in mutual funds and real estate