Tag Archives: Getting Started

SPENDING MONEY: What’s your Magic Number?

“Spending Money” is the cash withdrawn and used in the envelope system. At the very, very beginning of gaining control of the green men in my life (primarily the Misters Lincoln, Jackson, and Hamilton—Franklin in my dreams only), I decided to sit down and calculate how much money I was sending out into the world versus how much money was coming to me (this can be a scary and enlightening step but is a necessity).  Then I had to be brutally honest with myself about what I was actually using the money for—eating out, bars, haircuts, shopping trips, morning coffee, lunches, etc. After my initial review and consequent revelations, I began budgeting between $100 and $150 for each two week period.  If I know I won’t be going out a lot of don’t have anything on my shopping list, I’ll budget $100.  Cutting back without emotional or recreational hardship when I can (I know I’m being a tad dramatic here, but missing social events can cause emotional pain, right? Right?!?), enables me to spend more during the weeks that I don’t think my typical budget is big enough because I have “saved up” for it. 

Following a realistic system of give and take—give a little in August and September because you know you are going to need to take a little for your vacation in October—will help you curb unnecessary spending. Sometimes (most-times actually, but that’s not a real word) it also brings an awareness that leads you to save, and the saving will feel good instead of impossible! Remember to be honest with yourself about how much cash you actually need to have a good time, and remember that you’re goal is to save or pay off debt so don’t budget more than you need. You might not believe us now, but when you are counting your dollars and change at the end of the month, deciding whether or not to get that new Essie nail color, you will experience the thrill of making it work (do I need to cite Tim Gunn here?), and you will like it–you’ll like it a lot.

 

DREAM ABOUT IT and then SLEEP ON IT. Trust us.

One of the most difficult parts of managing cash is controlling your impulses. A strategy that we use to maintain motivation and not go on impulsive spending sprees is creating the the Wish List. It can have anything on it—from a new car, to a mattress cover, to some new sunnies.  When you create your Wish List, you give yourself a hard copy of all of the things that you need (but don’t need RIGHT NOW!), and when you save up enough spending money, you can start checking some of these things off your list.  It’s funny how some of the things you think you need today, lose their allure in a few months when you have saved enough money to truly afford them. Sticking to your spending money is THE HARDEST part of sticking to a budget (it is seriously as hard as being honest about what you record in your food journal—is there really a truthful food journal out there?!?), but it’s the easiest and most controlled way to start getting out of debt!

Dollar Dollar Bills (in envelopes) Y’all

The envelope system we mention so frequently is a no debit/credit card system (and another little tip we learned from Mr. Ramsey) that helps keep spending under control for miscellaneous things you buy or do throughout the week.  We both keep a “spending” envelope and a “grocery” envelope.  Spending money is money you use when you go to a restaurant, get coffee, buy make-up or hair products, go shopping, etc.  This is anything that’s NOT in your budget.  When you get paid, go to the ATM and take out your pre-determined amount of spending money that is defined in your budget.  You have that amount of money to spend until the next time you get paid.  Same goes for groceries.  If you run out of spending money and use your debit card, you are NOT sticking to a budget.  If you are trying to save money or pay off debt, using your debit card in addition to your spending money envelope will deter you from achieving your financial goals.

 If you would like your friends to continue acknowledge your friendship while you are together in public, do not take the word “envelope” literally. Please (PLEASE!) feel free to substitute the words “clutch, “change purse,”  “pouch,” or “wallet” for envelope. We want you to remain so popular among your friends that you have difficulty rationing your cash allotment for the week, and we all know that using a plain white envelope to carry cash is not going to get you there. Being responsible does not have to mean that you are as boring as the proverbial plain, white envelope.

no-env.

Do you see any envelopes on that table? Didn’t think so! We want our friends to continue to invite us to Happy Hour. Solo HH just doesn’t seem very happy.

Example:

My budget says that I get $75 per week ($150 per 2-week pay period) for spending money and $200 per pay period for groceries.  On the 15th and the last day of every month, I drive over to the ATM, withdraw $350 (or $360 if it’s an ATM that only does increments of 20) and don’t go back or use my debit card until the next pay period.  This forces you to PLAN AHEAD on things that you might want to do or buy.  For example, if there is a bar crawl you’d like to attend this weekend and then a friend’s birthday dinner on Wednesday, you’ll have to make sure that you don’t spend $150 at the bar crawl because you won’t be able to go out for your friend’s birthday.

The Birth of your Personalized Budget

The list of reasons describing why Sam and I have become such amazing friends is long (and magnificent), but one repeated element found on that list is a shared love across several aspects of our lives. For example, we both love walking while talking, we love her dogs (Okay Sam loves them more, but I like to think of myself as their favorite aunt), finding new adventures, laughing, sun-soaking, working on our fitness, and discussing the mystery of cellulite and possible ways to escape its wrath. My gushing would not be complete without mentioning our mutual and undying love for the B-word–Budget.

Our budgets are our babies, and we love them—like really, REALLY love them. We take care of them and make sure they are never malnourished or lacking. When they are looking a little thin, we might fatten them up by eliminating a tapeworm (goodbye to that gym membership that’s been used twice in the last six months) or feeding them more (think side job or selling your “stuff” that’s transformed into your “junk”). When they are bored or lame, we find a way to make them more interesting (time to find the money for a weekend getaway). Properly birthing and caring for your budget is the key to getting out of debt quickly while still finding the funds to enjoy your life right now.

The beauty of the personalized budget is that it is PERSONALIZED. It’s YOUR creation—your baby, if you will—and you get to decide where to put your money. Properly setting up and managing your budget enables to you be prepared for and determine how much money you will have left over from your paycheck, and best of all, you decide where that extra money goes. We have developed our tried and true list of four simple questions you need to ask yourself in order to create an individualized budget that suits you and what you want and need in your life:

1. What are my consistent automatic monthly payments, and how much money do they cost me?
Examples: rent, utilities, insurance, minimum debt payments.

2. Beyond my automatic monthly payments, how much money is required to fund the unique “needs” for this month?
Examples: Car expenses (gas, oil change), pet expenses, hair or doctor appointment, airfare, gifts.

3. How much cash am I using this month/pay period? What do I think is an appropriate amount for my “Fun Fund”?
Examples: Groceries and the money towards “wants” such as a pool pass, drinks or dinner, mani/pedi, shopping, etc. Unfortunately the list is long. Sam and I have one cash envelope for groceries and one for the fun stuff.

4. Where do I send my leftovers?
Examples: Emergency Fund, Side Savings (a large and known upcoming expense such as Christmas or airfare), Extra payments on your debt.

The budget is flexible, and you should be changing it whenever your life calls for it. We budget our paychecks a couple of days before they enter our bank accounts. Each pay period entails its own unique variations. You are the person who is in tune to your own long term goals and short term needs and wants, and you are the person that will know whether or not you have created a budget that will help you reach these goals in the way you desire.

Sam and I have both uploaded our own personalized budgets onto the website including the details of how and why we choose our specific plans. There is no such thing as a one-size-fits-all budget, and we want you to see that even though we have the same end goal and will reach it using the same principles, we are each tailoring our personalized budgets to fit our current incomes, needs, and wants. The most exciting part is we are both finding success, and if you believe in the B like we do, chances are you will too!!

9-1-1 – – – What’s your Emergency Fund?

Dave Ramsey has played a significant role in shaping our views and methods on reaching financial freedom, and we follow his rule on the creation and maintenance of an emergency fund. It is one of the most important aspects of our budgeting. Some of you may currently have nada in your savings, and some may have a few thousand. Like Ramsey, we suggest putting $1,000 in your emergency fund until you’ve paid off all of your debt.  After you pay off your debt, you can set up an emergency fund that covers 3-6 months of expenses.  One thousand dollars will cover most emergencies.  Emergencies are defined as SURPRISES —car or home repairs, anything that is unforeseeable and out of your control.  Some people may feel like $1,000 is way too little to have in an emergency fund.  Remember that you are trying to pay off debt, so you don’t want to sit on thousands of dollars while interest is being added to your debt every day.  If you don’t have $1,000 in your emergency fund, save up for that BEFORE starting to pay off any debt.  If you have over $1,000 in your emergency fund, dump all of that extra onto a debt and watch how relieved you feel!!

Becoming Little Miss MOTIVATED

OK.  Anyone could sit down and create a budget, but it takes motivation, drive, and discipline to actually stick to that budget.  Before we start telling you how to create a budget and use all the tricks and systems to be successful, we need to motivate you about why you should! 

Here are some cold, hard facts:

  1. If you pay off debt slowly, you will pay more–a lot more (and you will be paying for a long time).  Sometimes you’ll see breakdowns of different payment plans that give you a nice small number that is manageable per month.  We like that.  But then you do that math and realize your original $60,000 student loan is actually $124,000 if you follow their payment plan.  WOW.  We definitely don’t want to double our debt just because we had some selfish, unplanned, unbudgeted years.
  2. If you pay off debt slowly, you won’t be able to use the money you worked hard to earn on things that YOU want to spend it on. Instead, you will be giving it to the government.
  3. If you pay off debt slowly, you will more likely get into more debt along the way and keep the vicious cycle alive. 

Eye-Opening and Jaw-Dropping Math

Now that we have begun to enlighten you with the reality that is accepting debt as a long-term lifestyle, it’s time to use some real numbers so that when you come to that fork in the road at “debt free” and “debt burdened”  you are easily able to choose which path you want to take. SPOILER ALERT: If you are reading this, there is a good chance you are at your fork. Okay, now it’s time to put the you of today in your future self’s shoes and imagine your lifestyle as it would occur based on which path you choose to start down today.

Scenario One: You are making $50,000 per year.  That’s about $37,500 after taxes , which is a decent chunk of money.  Imagine that your living expenses are $20,000 per year—before you interrupt this pleasant scenario with horror thoughts about living on $20,000, let us kindly remind you that you just left college—okay, now we will continue. Imagine that you didn’t have any debt.  You could spend twenty six THOUSAND dollars on whatever you want!

Scenario Two: You are making $50,000 per year.  That’s about $37,500 after taxes, which is a decent chunk of money.  Imagine that your living expenses are $20,000 per year.  Imagine you are $70,000 in debt.  None of that money is yours.  Bummer.

If you are leaning towards Scenario One we are excited for you and are impressed with your excellent choice-making skills. Still needing more guidance towards the debt free path? There are a couple more possible lifestyle outcomes described below:

Scenario One-A thoughtful (and fun) post graduate lifestyle—complete with student loan debt and a solid plan to eliminate it quickly: Let’s say that you start out in the “real world” with $60,000 of student loan debt at a 7% interest rate (a typical grad student loan interest rate).  Imagine that you work hard, stick to your budget, pay extra on your debt and pay off $60,000 of debt in 5 years.  That’s approximately $12,000 per year or $1,000 per month or $250 per week.  If you’re 25 now (like I am), you will be 30 years old, with zero debt, making somewhere between $60,000 and $70,000 per year.  Wouldn’t it be great to be 30 and debt free, able to save or spend $40,000 to $50,000 however you’d like?!  Not convinced?  If you didn’t budget and make a debt payoff plan, you will be 30 years old and about $45,000 in debt…still.

Scenario Two- A thoughtless (but fun) post graduate lifestyle—complete with student loan debt and unnecessary spending:  Let’s say that you start out in the “real world” with $60,000 of student loan debt at a 7% interest rate (a typical grad student loan interest rate).  You are probably paying a minimum payment of a $450.  According to your payment plan, you will be paying $450 every month for 30 years,   totaling $124,000. That is a difference of $64,000—you have just doubled your debt. No fun.  Because you are fun and thoughtless, it is possible that you are currently going out to eat twice a week and spending $20 each time, you’re taking $160 from your possible debt payoff plan.  If you’re currently spending $100 every weekend at the bar, you’re taking $400 from your possible debt payoff plan.  If you’re buying lunch every day during the week at about $8, you’re taking $160 from your possible debt payoff plan.  That is $720 that is wastefully spent on restaurants and bars each month that you could use to pay toward paying off debt quickly. Essentially, all those little expenses aren’t so little when they are all added together.

We want our hard earned money to be our money, and if you’re reading this blog, you probably want your money to be yours too.  It starts with getting motivated by doing some simple math, is accomplished by maintaining determination and dedication, and triumphantly ends in paying off all debt so that your money can be your money!

Be sure to check out our post on starting your own personalized budget for tips on putting your money where your motivation is!

Blog Motivation Pic

By recording your dreams and goals on paper, you set in motion the process of becoming the person you most want to be. Put your future in good hands—your own.”

 

-Mark Victor Hansen-