The real magic is in the monthly budget. Monitoring our finances--knowing where the money is coming from and where it will go--is essential in reaching larger goals like paying off $54k in debt.
Over fifty-four thousand. Phew. That number makes me feel little. And weak. Because we're a family of four living on one income. My husband is a hard worker and has a great job that he enjoys, which is essentially a ministry position. He works for a Christian college with great benefits, and less-than pay. I keep pluggin' away in the ministry of our home. Raising our two kids, maintaining the household (like our budget), and freelancing a little to build experience and hopefully do more in a couple years when the kids are in school.
For now, we're a family of four living on one income, with debt that outnumbers a year's salary. That can be overwhelming. Except for two things that keep us going: Our monthly budget and God.
I take pleasure in our needs, because
when we are weak, God is strong. | 2 Cor. 12:10
So, we keep movin' along, trusting that God will provide our needs. (Phil. 4:19) Making the best use of what belongs to Him. (Ps. 24:1) Knowing that kids aren't toddlers forever, and our income will likely change. (Ecc. 3:6) Knowing that He has the details and our futures in His hands. (Jer. 29:11) Accepting that being faithful in this little will train us to be faithful in much. (Luke 16:10)
Here's a little bit more about how we handle the monthly budget, and make the best use of the little* we've been given.
Setting a Budget
The first year of our marriage I kept track of our budget in a simple notebook--true story. Then, I signed up for Mint (it's free). I loved the idea of it, but couldn't figure out how to make it work for me. A couple years ago I upgraded our budget to a fancy spreadsheet full of formulas and such--this has been so functional and effective. You can find budgeting spreadsheet templates at Vertex42.com. That's where I found mine, complete with a debt calculator and all.
These are just a few of the options available for tracking a budget. The point is to write (or type) it to see progress and make changes or adjustments as areas of weakness become apparent. This helps us know where we overspend, assures we always have money for the essentials, and helps us save a little bit to be used for a snowball.
There are three types of expenses I've noticed in our budget setting...
Set ExpensesThese are things like utilities, rent, insurance. If we shopped around or changed services, the amounts could technically be different. But as long as we stick with the same service, these amounts need to be paid each month. Included in this are any minimum payments on credit cards, loans, medical bills, etc. Anything with a payment amount and a due date goes in this category and has be budgeted first. (We include tithe in this category, because it's non-negotiable for us.)
Flexible ExpensesThe amount left is what we have to put into more flexible categories: What we spend on gas, clothes, food, etc. These things are essential, but it tookk a month or two to find what we should be paying for these. There are not necessarily any set due dates for them. These are budgeted second, simply under the principle that we could technically cut our grocery bill by eating beans and rice so that we can pay our utilities and keep the lights on, as an example. It's also important that we try to save in these categories to lead to a bigger snowball (below).
Disposable ExpensesThese are the extras included in our budget, but are much more flexible. If things got really tight, these are the ones that could technically be halted. Spending or fun money, entertainment, eating out, clothes, etc. Also included in this category would be a snowball payment. While the snowball is really important, it's taken out of what's left after paying set and flexible expenses. Spending on fun stuff should be limited to help create a bigger snowball.
Sticking to a Budget
When it comes to sticking to the budget and not overspending, there are three basic things that we do...
Zero Balance BudgetEven though we have an idea of our monthly budget, we go over the details the beginning of each month when Daniel gets paid. We always aim to balance our budget down to zero. If it ever shows in the red, that means we've overspent on something and need to make up for it somewhere else. If it shows in the positives, that means we have disposable income that needs to be budgeted otherwise it will disappear without us knowing where we spent it.
Auto PaymentsI have auto payments set up for all of our utilities, insurance, etc. If it's something we have to pay monthly, it's automatically taken out of our account. I'm positive our bills would be forgotten a time or two if I didn't do this. I'll add that I am always aware of how much will be taken out and when, and it's definitely included in the budget.
CashWhatever is not automatically withdrawn, and has potential for us to overspend, is taken out in cash. We are not always great about this, but it helps a lot when we do. We basically have two cash categories: Household (for groceries and necessities) and spending (for clothes or whatever else we want that's not in the budget). We don't take cash for gas, simply because that's a category we never go over in.
Our Budget Categories
Here are some of the general categories of our budget and how we handle them (loosely in order of what gets paid first)...
Employer DeductionsHealth insurance for our family, flex spending account for our medical expenses, retirement contributions, and taxes are all taken out before we receive the paycheck. We have incredible and affordable health insurance through Daniel's work, which is a huge blessing. He claims enough dependents on his taxes so that no more is withheld than necessary. (Better to receive that money each month in our check, than receive it later in a return). It's a good idea (one encouraged by Dave Ramsey) to not contribute to retirement until you're out of debt. The idea is that you "get gazelle intense" and do everything you can to eliminate debt within a couple years, then start throwing money into retirement. We, however, are in the middle of a long debt-repayment process, and my main man's employer matches 100% of contributions up to a certain amount. So, we contribute that amount (I think it's around 3%). It's not much, but it's being matched which doubles his investment.
Tithe + GivingWe give 10% of gross income. This is a non-negotiable that we give even if/when we're "too poor" to do so. It has never prevented us from eating or kept us from paying our bills. Which, considering where our finances have been, is a miracle and testimony in itself. Once we're debt free, we look forward to giving more than this. But this is where we are now.
Rent + UtilitiesWe live small in a 2 bdrm apt, paying 650/mo for rent. We technically could find something a little cheaper, but would sacrifice having a washer and dryer in our apt. and other things I consider a need with two young kids. Being sandwiched between residences on either side also keeps our utilities pretty low--often less than 100/mo total.
AutoWe had the same auto insurance for the first couple years of our marriage. I thought I had the best deal because I had all kinds of "discounts." But we shopped around and now pay less for full coverage than we did for liability, about 35/mo. My main man walks to work, and I walk Brylee to preschool. Our vehicle is more for recreation than necessity which keeps our gas expenses less than 100/mo.
CommunicationWhen Daniel got his smart phone through work, we dropped him from our plan and used the savings to upgrade me to a smart phone for about 77/mo. We had a great start-up price for our internet, that of course went up after 6 months, so it's now about 54/mo.
HouseholdWe budget 400/mo for food and necessities--that's about 100/wk. We shop each week, and if we can keep our grocery bill down, then we can use the extra to eat out. If we spend the full amount, then we don't eat out. This is something we recently started doing, because we'd spend our grocery money and eat more than we budgeted for eating out. If I plan our meals and make a shopping list, we can usually spend about 75/wk.
Student LoansLast month I mentioned that we have private student loans we're currently paying on, and federal student loans that are currently in IBR (income-based repayment). We pay 67/mo min. payments on the private loans, and nothing on the federal. After creating our budget, we had about 150/mo leftover that we use as our snowball to throw at the private loans first, and hopefully soon get off IBR (when I make more money to do so).
Education + RecreationBrylee is in preschool 3 mornings a week for 94/mo, and we have a family membership to a local gym for 105/mo. In order to afford the gym, we cut some of our spending money and cut out our eating out budget (see household plan above). Technically, we should be cutting all non-essentials and putting it all into our debt. But that's not realistic for a long period of time.
EntertainmentWe watch local TV or stuff on Hulu for free. We also have a Netflix membership for 8/mo and budget an additional 7/mo for Redbox rentals and such.
SpendingWe each get our own "spending money" or what some people call fun/splurge/blow money. This is what we use if we want clothes, coffee, or to go to the movies. We've never had much in this category--I think in our prime we were rollin' high at 75/mo each. It went down when our income went down. And we took it down even more in January so that we could create more of a snowball (see student loans above). We're now at 30/mo each for Daniel and I, and 20/mo for both kids.
It's tight, but that's the point: to feel the hurt of our debt, so we're motivated to do something about.
*While we feel poor by America's standards, we are wealthy in the world's. Our meager income puts us in the top 5.3% wealthiest in the world. Find your percentage >> here.