My Money Blog

Our First Budget

A couple of weeks ago, my wife and I sat down to make our first real budget. Now, we've tried to stick to a budget before, but it was completely unrealistic, and we had no real goals in mind when working on it. The result was a meaningless piece of paper that we looked at on the first day of the month and never really looked at again.

You have to be completely committed to sticking to a budget, otherwise it will not work. Maybe this isn't true for everyone, but it is for us. Each night we talk about where we are in our budget: how much we have spent and how much we have left. We still have three days left on this budget period, and we have run out of money in certain categories, so we will not spend another penny. Here is how we came up with our budget.

First, we had to determine the time period for each budget. We get paid every two weeks, both on the same day. So each budget has to go for two weeks. This presents challenges because most bills occur monthly, and our pay comes at different times of the month each month. Some months we get paid twice, and occasionally, we get paid three times. I am sure in the months where get paid three times, we will save the extra money for the summer, or pay extra on our debts.

Next, we had to prioritize our bills and needs. We will not use credit cards to pay for anything anymore, so the total of our budget cannot exceed our pay. This was particularly challenging this time because our paychecks in the county we teach in are smaller for the first check. Here is what we came up with:

1. Necessities: Utilities, Water, Phone, Groceries (Food), housing
This are things we need to have and can't be sacrificed. We listed these first to make sure they were covered.

2. Mortgage Payment

3. Daycare
While this is not a life necessity, it is necessary for my wife and I to work.

4. Debt: Credit Cards, Car Payments, Student Loans, etc...
If you fall behind, the debts snowball. We make sure at least the minimum is always paid.

5. Savings
You may think it is odd that this is down this low - but it doesn't make sense to put money away while you are paying interest on your debts. My savings account might earn .5%, but I am paying 22.9% on a furniture loan. Right now, we are only saving for the holidays (so we don't have to charge gifts) and our emergency fund.

6. Luxuries: Cable, Cell Phone, Entertainment, etc...
These are nice but not necessary.

7. Other
This is where everything else goes. My daughter's birthday is coming up, so we added in a line item for gifts. The priority here will vary.

This is obviously not a concrete formula, just a nice starting place. Once we set our priorities, the budget wasn't too hard! We had to figure out which bills would be due soon that would be covered by this paycheck. This time, we are paying everything except our mortgage, which isn't due until after our next paycheck (so our next budget will be centered around our mortgage). We did have to make some sacrifices though...

We will not be eating out much anymore - it is easier to eat in anyway with two young kids. Plus we will save on gas.

We are going to try and stretch our gas so we don't spend as much on it - this might mean combining trips and doing more shopping online. That won't be so bad.

We are going to be clipping more coupons for groceries. We are also going to find ways to stretch our grocery dollars more (that is a topic for another day).

This seems easy enough. After trimming in some places, we even had a little left to pay extra on debt - which is going to be a priority for us until our debt is gone.

It turns out we should be able to cover all of our bills and expenses with our income - so the fact that have this much debt means we have been overspending for years. I wish we had taken our money more serious earlier on. We have about three days left on this budget, so I will post then and let you know how we did!

Our Plan of Attack

So now the we have decided to improve our financial situation, it is time to come up with a plan of attack. Here are our long-term goals for our financial situation:

1. Eliminate all non-mortgage debt.
We sat down to work on our budget, and I am shocked about how much we pay towards debt each month, even by just paying the minimum. I am guessing a third of our net income is going towards debts other than our mortgage. That makes me feel a little sick, and that is probably a good thing (feeling sick, not the debt...).

2. Set up college savings accounts for our kids
I would really like to be prepared for when my girls go to college. Fortunately, the are so young that I have plenty of time to do this. However, it doesn't make much sense for me to do this now... Why put money into an account that is currently earning 5% interest when I could pay off a credit card that is costing me 15% interest. I also would like to help my kids by helping them not take out student loans.

3. Contribute more towards our retirement.
We already have some retirement accounts, including a decent pension plan from the state of Florida. I would like to save more, but again, this doesn't make much sense until I have paid off my debt.

4. Pay off my mortgage.
This is a long way away, but it is a nice goal.

Now that my goals are set, it is time for a plan of attack. Like I said, I have read a lot about other peoples' financial stories, and have learned a lot from listening to Dave Ramsey. I am going to go into more detail about how I am paying down my debt on a later post, but I do have some basic strategies in place. My wife and I sat down, and came up with some pretty basic, common-sense short-term goals:

1. Create a budget, and stick to it.
We have just finished our first one, and learned a whole lot about where our money goes (and it's not pretty). Teachers have to be creative when making a budget because of our pay schedules - although I am sure you can say that about a lot of people/jobs. I am going to post this weekend about how we did our budget.

2. Stop using our credit cards.
The only way to do this is to stick to the budget and follow the next goal.

3. Make more money than we spend.
Easier said than done!! When we first made our budget, we actually had more in it then income. Our income will go up in a few weeks, our first check of the school year is a little smaller than the others. So, needless to say, we had to make some tough choices, but we did it.

4. Find ways to increase our income.
This is also not easy. Getting a normal second job can be hard for a teacher to do, because of all of the extra after-hours work we have. So we are looking for ways to pick up some extra income, and we have actually found some! I will post about that later on. At this point, however, any extra income will be devoted to extra payments on our debt.

5. Do all of this, without it affecting our kids.
This may be the most difficult. Our biggest rule we made when trimming our budget was not trimming anything that would affect the girls - we also will not sacrifice the quality time we spend with them. Any efforts to make extra money are usually done after bed time.

I'll spend some time in the next week sharing some of our strategies and ideas... If you have any tips for us, please share in the comments!

Welcome

Hello, welcome to blogaboutmoney.com. I know the address is not that creative, but it's pretty accurate. This is a blog about my money, or better yet, the lack thereof. My name is Mike, and I am a twenty-something year old dad of two young kids. My wife and I both work (we are both teachers, which doesn't help our income), and got used to the lifestyle of two incomes with no dependents.

Things changed a couple of years ago with the birth of our first child. Our kids are the greatest things ever to happen to us, but with these blessings came all kinds of new expenses - day care, formula, baby food, diapers, insurance, etc... We now find ourselves in the same position that I am sure many people are in - we owe money to plenty of people: credit cards, car loans, students loans, mortgage, and do not have much saved up.

I spent a lot of time traveling last summer - we moved to a new city, and I made plenty of car trips between the two places. During those trips I started listening to the Dave Ramsey show. This was time well spent, as I have a whole new outlook on my family's finances.

I have spent a great deal of time in the last year reading other peoples' blogs about money and got lots of ideas about how to save money or make more money. I have learned a lot by reading other peoples' stories, and so I have decided to share mine. I believe everyone can learn something from anyone, so maybe their is something I can share that might help you (or maybe not...).

So, I guess this really isn't a blog about my money, rather a blog about my quest to accumulate more money... Either way, thank you for reading!