We’ve been putting off this blog post, but finally decided to go through with it because it will give us more accountability and it’s the end of a full year of financial change for us. Plus if we’re struggling with something we’re positive someone else out there is too!
It’s been 6 months since our last financial confessional…
If you’ve been following our posts this past year you’ll know that we made some major changes for 2013 in terms of our finances. The short story is that we decided to get financially smart and read Dave Ramsey’s The Total Money Makeover! (For the first half of our story read…debt-free) Last you heard from us we had sold our car, paid off our loans, put ourselves on a strict cash budget, and had started some serious saving. All of that seemed to go by quickly and was fun checking accomplishments off our list (this coming from Marissa- I’m totally Type A).
Updates and reality hits…the exciting part was seeing our debts disappear and feeling financially free by using cash. Then we realized our budget had to be adjusted several months in a row before we finally got it right. The first month we hadn’t given ourselves enough gas money so we’d start a new budget. The next month it was something else we needed to adjust and this went on for several months. We now understand that our budget will be ever changing (for example, in January our cost for internet is increasing) so we will always need to be open for changes. Saving for our 3-month emergency fund was much more rewarding (compared to the drudgery of redoing a budget 5 times)! Once we had an approximate monthly budget we basically multiplied it by 3 and saved enough money to cover our expenses for 3 months in case of emergency. We are now working on turning 3 months into a 6 month emergency savings fund.
The next tough hurtle we came to was saving and learning all about ROTH, HSA, and Money Market accounts. We had a lot to learn! We also had to start learning to think ahead, big time. In the past when things came up, like vacations, car repairs or friends’ weddings, we just paid for them on the credit card (note: we always kept our credit cards paid off each month), but now we are set up on a budget where every dollar is accounted for so we HAVE to think ahead. For example, each month we set aside a certain amount of savings for travel, gifts, car repairs, etc. in an online banking system where we can have each item separated (we use CapitolOne 360 or what used to be called ING because they let you have as many separate items as you wish). When something comes up like needing an oil change or a friend in Ohio gets engaged and we want to fly back for the wedding we’re covered because we’ve been purposefully saving for it!
Here’s a quick example of some categories we use and what you could save each month…($ is just an example and not a real reflection of our budget)
Car Insurance…..$50 (we pay our car insurance every 6 months in full to keep payments low, but this means we have a large payment each 6 months so we save up for them)
Renters Insurance….$10 (same as above, we pay this once a year and save up for it so it’s not a surprise that month in the budget)
Gifts….$50 (we use this fund for birthdays, holidays, cards and weddings we attend as guests)
Car Repairs/Tab Renewal….$50
We also save for the items that are 100% necessary like retirement. A percentage of our monthly income is set aside each month for this as well. Through trial and error we’ve discovered that setting aside your savings must happen on or near the 1st of each month (and would be even more awesome if it was automatically withdrawn) so that the funds are just gone from your checking account and you can’t even see them in there to spend!
The toughest part has been cutting back on the unnecessary spending. We have set goals for buying a home and future travel, which are more important to us than having a new set of jeans or eating in rather than going out. It has certainly helped keeping our goals visible and visiting them weekly so we know what we’re working towards.
It’s been a tough 12 months, but we’ve learned a ton and now that we have the hang of things we feel so much more financially responsible with our money. As Dave Ramsey says, “If you will live like no one else, then later you’ll live like no one else.”
Hopefully this helps someone out there! If you have tips or tricks for us definitely let us know…we’re kind of addicted to learning. ~Erik & Marissa