Tuesday, May 22, 2012

on debt and dave ramsey, part ii.

Many moons ago, a friend and blog reader asked me my thoughts on budgeting. I told her I’d tackle it in a blog post, and guess what? I never did. I hate talking about money, remember?

I figured now might be the best time to do try, though, since Jordan and I have been budgeting — with varied degrees of success — since 2008, and since yesterday’s post was kind of money-centered. Better late than never, right?

Let me remind you: Jordan and I don’t follow Dave Ramsey perfectly. We do our best, but we also have a life, and sometimes, life can get in the way of budgets and emergency funds and debt snowballs. Dave Ramsey currently leads a very, very different life than I do, and I’m okay with the fact that I might not follow all of his principles to a “t.” In fact, I believe that my best financial example isn’t Dave Ramsey. Instead, I look at my grandparents, three of whom have left this world behind. They all worked hard, saved up some money (my grandmother did so in a sock, something she told me to do when I was a little girl), had fun, and gave a lot away. And you know what? When they moved on to the next life, they didn’t leave a whole lot behind. I like that; I firmly believe that although they wanted to be good stewards of their money, they also knew they couldn’t take it with them. It’s a principle and a legacy I hope I’ve inherited.

Those things aside, Dave Ramsey did help me and Jordan learn how to budget better, and when we were living on one income, that was super important. (It’s still important, but it was even more important when we had fewer funds coming in each month.)

Some things to remember:

- Your budget will change. What worked for us a year ago probably doesn’t work for us now. Life moves in seasons, and your budget will change a bit to coincide with those.

- You will not follow your budget perfectly. Jordan and I are similar in a lot of ways, but when it comes to budgeting, I’m far more free spirited. Each month, I know: Something’s going to come up, and we’re going to wind up “stealing” money from the clothing envelope to foot our restaurant bill. That’s fine. I don’t get a lot of new clothes, but that’s fine. If you try to adhere to your budget without making mistakes, you’ll go crazy. I’ll take the mistakes and keep my sanity, thank you very much.

- Your budget shouldn’t look like my budget. Enough said, right?

- It takes a while for a budget to function like it should. After we were married, Jordan and I waited a month to go on a honeymoon. He had law school exams, so we left for Rhode Island in December, and it was lovely. However, we were just getting used to a joint bank account, and because we didn’t have credit cards, the bed and breakfast where we stayed put a rather large hold on our debit card, to be given back to us once we checked out (most hotels do this, but neither of us really knew that at the time). Because we had budgeted the trip perfectly (i.e., no margin for error), we wound up calling my parents in tears for help to pay for our honeymoon. We were able to reimburse them when we got back to town (the hotel gave us back the money they’d held), but it was humiliating and mortifying. Cut yourself some slack those first couple of months. You’ll need time to adjust your budget, to figure out where and how you really spend your money. Your categories will change and adjust, and that’s okay.

Basically, our monthly budget boils down to this: We don’t spend more than we make. (Simple, right?)

If you’re just starting out, track your spending for a couple of weeks, and develop your budget from there. That way you can get an idea of where your money is going right now. It’s hard to start a budget completely from scratch since you may not know what your major and minor expenses are. And don’t feel the need to lie. If you spend more on clothes than on food (as long as you’re not starving), have a larger fund set aside for clothes. The budget isn’t for how you want to one day spend your money; it’s for how you spend your money right now.

A budget will change with you. When I was a little girl, my parents taught me and my brother about budgeting by setting up a cash envelope system that looked like this:

Lunch money
Fun money

As adults, Jordan and I actually use a similar system. In fact, probably our biggest budgeting tool is our cash envelope system. Everybody’s system will be different, but ours includes these categories:

Fun money (one for Jordan, one for me)

At the beginning and middle of the month (we’re both paid twice monthly), Jordan goes to the bank and gets out cash in the appropriate amounts for each envelope. We use this cash system for almost everything because we believe we spend less when we use actual cash instead of our debit card. Of course, we’re not perfect, and some months we do better than others, but we always do a better job spending and following our budget when we use cash. Our exception is gasoline; we never pay in cash, always with our debit card.

Like I said above, your budget will change with you. Our envelope system has morphed a lot over the years. After a couple of years of spending, we realized I bought stamps at least once every other month, which meant we were using grocery money (or money from some other envelope) to pay for packages and stamps. Now, there’s cash specifically for that. I also like to buy things for our home; sometimes, it’s as small as a new candle; other times, I save up for a fairly major purchase. This meant we needed a “home fund.” We also recently added a gifts envelope because we realized we were spending a lot of money on presents (birthday, wedding, baby, etc.); that now has its own envelope.

Of course, this envelope list doesn’t include things like rent or utilities. Those are included in our overall budget, but not in our envelope system.

Your amounts for each portion of your budget will be different; you may eat out more than you buy groceries, so your restaurant fund will be bigger than your grocery envelope. I only buy stamps every other month, so that cash amount is pretty small compared to doctors/medications, which builds large over time since we mostly just have annual checkups and monthly prescriptions.

Jordan also thinks it’s important to have fun money. (Dave Ramsey calls this blow money, but I think that’s dumb, so we call it fun money.) Set aside money each month to use however you see fit, money that is strictly “yours,” to be used for something totally fun. For me, this means lunches out with friends or a book or two. It’s not a lot, just enough to make sure we get to treat ourselves every now and then.

Finally, if it’s important to you — and I hope it is — set aside money each month to give away. I can’t remember if Dave Ramsey says this or not, but for Jordan, it’s important that we give first, before we do anything else. I’m so grateful he feels that way, because I believe giving is more important even than saving or paying off debts on time. We’re called to give, and that’s what we try to do. Sure, that means to our church, but it also means through programs like World Vision or through friends who are serving as missionaries across the world. Sometimes it means buying McDonald’s gift cards to pass out at stoplights or anonymously sending grocery money to someone we know needs it. The fact is, giving is fun. It’s life-giving and honoring to everyone involved, and you know what? Even if your budget is really small, even if your income is miniscule, giving is so rewarding. Just set aside a little to do something nice for someone else, to support someone who perhaps is even less wealthy than you. I promise you won’t regret it.

That’s it. That’s all I’ve got on budgeting. I’m bored just typing and re-reading this, but if you have any questions, leave them in the comments. I’ll try to answer them there!

Happy budgeting!

1 comment:

Sabrina said...

Another great and extremely helpful post! Thank You Annie:)