Thursday, May 2, 2013

5 Ways to Own Your Finances

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Okay, okay. I know that finances don't typically fall into the category of loveliness. Bear with me.

My husband and I are aren't bad with money. We've never had any debt except a little student loan debt and a small moving-related setback right after we got married. But we also haven't managed to save a whole lot, and since our main current source of income was until recently commission-based rather than salaried, it could sometimes be a little nerve-wracking waiting for the next paycheck to come, especially when some months it might still not be enough.

But I'm telling you, our family started the first budget that we've really stuck to in a long time, and it feels lovely. Here are some of the things that have really helped us cut down our unnecessary spending and get money in savings for the first time in our two years of marriage. (Note: some of the things we've been doing were inspired by Brain Ford's 8 Pillars of Financial Greatness. It is awesome.)

  1. Base your budget on the things you value most. If you value your family, travel, and staying out of debt, why would you spend your money on cars you can't afford, too much fast food, and expensive electronics? Sit down with your family, make a list of the things you value most, and then look at what you spend your money on. You will probably be shocked at how much you spend on things you actually don't care about at all, and how quickly little nothing purchases eat away at your money. Our list of values looked something like this (except there were a bunch more): 
    • Family - future and extended (i.e. having enough money to meet our obligations to current and future kids, and being able to visit our family in other states)
    • Security - having a place to live and a reliable car, being able to afford food and gas and stay out of debt
    • Relationships - being able to spend time together and build memories (vacations, date nights, fun outings together, etc.)
    • Health - being able to pay for insurance so we can go to the doctor if necessary; being able to eat healthy foods
    • Etc.
    Once we saw our values written out, it was easy to make some choices that had been hard before. For example, I wanted to use our tax return to buy a new computer, but when I really thought about what I valued, I realized I'd rather wait on the computer and instead put aside some savings so we can afford to have more kids, and so we can go to visit family in Texas this summer.
  2. Establish an emergency fund. It doesn't have to be huge at first, but you should consistently add to it, and you shouldn't touch it except in an emergency. Your TV going out in the middle of football season is probably not an emergency. Your furnace going out in the middle of winter is. If you have an emergency fund, you don't have to go into debt when your car breaks down or you find out you have twelve cavities, and you don't have to lose your financial momentum (especially if you're paying off debt) or destroy your budget to take care of it. You have the money saved, you pay for your emergency and carry on with your life. We had a large tax refund this year and put $1000 nest egg in our emergency fund, which made me feel awesome.
  3. If you can't figure out why your money disappears so fast, switch to cash and debit cards instead of credit cards. Credit cards are convenient, and some people pay them off at the end of each month and just use them to get rewards without going into debt, which is fine. (Using them to buy things you can't afford so you end up paying twice what the thing cost in the first place is probably a bad idea though.) That said, there is definitely a switch that goes off in your head when you have to hand the cashier $50 in cash. It will make you think about everything you add to the cart. (I kid you not, we have put back a bag of sausages before or decided not to buy olive oil until next week just because we have our grocery budget in cash. Maybe it's silly that we walk through the grocery store going, "$43.50! $47! $51!," but we stick to our budget.) We pull out our money for our groceries, gas and discretionary funds at the beginning of the month, and we don't spend any more than that on those things, even if we have it in our bank account.
  4. If you share finances with someone else, you should each have a discretionary fund. There are things you want to buy that your partner doesn't care about. There are things your partner spends money on that you think are stupid. Establish a certain small amount each month that you can each spend without feeling like you need to justify it to your partner, and without feeling guilty about spending your family's money. Budgets feel a little like diets sometimes, and diets always go better if you get to eat some of the things you love even though you're cutting back overall. Having a discretionary fund will make you feel less stifled by your budget (so you won't suddenly splurge in revolt), but it will also make you aware of what you're spending on little purchases here or there. Because we take that money out in cash, we can also save it if we want to make a bigger purchase for ourselves, and it doesn't end up getting spent on something for the kids or the car. Last month I bought a couple of t-shirts for myself at the beginning of the month, a couple of treats for myself and my husband somewhere in the middle, and went out to lunch and to Old Navy with a friend at the end of the month. I didn't have to worry about whether I was spending money we didn't have because it was mine, and it had already been figured into the budget. 
  5. Automate your budget as much as possible. A lot of your monthly bills will let you set things up so you can have them automatically deducted from your checking account. In the same manner, you can (gasp!) have money pulled directly from your paycheck into various savings accounts - then you don't even have to look at it when it comes in - you just start assuming you have less money to spend, until that day when you have lots of money to spend, on something neat like a house down payment. We have all of our monthly bills (utilities, student loans, insurance, etc.) deducted automatically from our account, plus we transfer money from each paycheck into different savings accounts: one for emergencies, one for travel, one for our next baby (so we don't have to spend nine months paying the next one off like we did with the first one.) 
Being aware of your finances is not a drag. It's liberating when you start to realize you can save a little money and you aren't panicked when the bills come in each month. It might not happen all at once, but no matter how much money you make, having good financial habits will make you feel more in control of your life. And that is lovely.


Jules said...

I think this is all good advice, but I will say one thing about automated bill paying and that is that you still have to closely monitor what they're taking. Some utilities fluctuate, obviously, but things like cable and internet shouldn't and yet almost always do. Constant vigilance!!!

Meg said...

Excellent point, Jules. Saving yourself from your financial whims should never put you at the mercy of dishonest companies and their "accidents." I know we periodically get charged fees by our bank that we shouldn't have to pay, but they only stop charging them if we call and tell them they're cheats. You definitely have to pay attention!