Today’s Wellness Wednesday focuses on a different aspect of wellness – financial wellness. As a lot of you already know, I stopped working right before having Max and I’ve been staying home with him since May. Going from two paychecks to one has been a transition, but we’ve done really well by following a budget, and I’ve received a lot of questions about how we make it work on one salary.
- All of our money is shared between the two of us – we don’t have any separate/individual/private accounts – everything is transparent and all monetary decisions are shared.
- We preemptively saved money for larger expenses that were on the horizon – funding our IRAs, purchasing a new car, saving for property taxes, and building a larger emergency fund – before I stopped working, to make sure we had a cushion just in case we needed it.
- We don’t have any debt except our mortgage – if we did, we would be paying that off before saving any money.
- Our credit card bills are paid in full each month – we cash flow all purchases and are very debt averse.
- We follow a lot of Dave Ramsey’s principles – although we haven’t read any of his books, we follow a lot of the guidelines on his website.
- This is what works FOR US. Garrett and I are both very organized and detail oriented people (and he is an accountant ), so we like having a fine-tuned system for tracking our money.
Let’s get down to it
Being on a budget isn’t “fun” if you’ve been living a life of luxury…it feels like going on a diet. Like, you REALLY want that cheeseburger (new dress) and fries (shoes) but you know you can’t have it. BUT you have to remember that the lifestyle choices you’re making are temporary and worth it. Believe me, it gets better after time.
The first step: start by tracking ALL of your income and expenses. You can’t create and follow a budget if you don’t know how much money you have and where you are spending it.
We track all of our finances using Quickbooks. I purchased Quickbooks when I started consulting because I needed it for tax purposes. After figuring out how to use it, I decided it would be ideal for tracking my personal spending, too. Garrett and I both put a lot of work purchases on our personal credit cards (flights, hotels, meals, etc.) and then get reimbursed for them later. This expense/reimbursement model made it really hard to track how much of our own money was being spent in certain areas, and websites like mint.com don’t have the ability to filter out business charges and only view personal charges. With Quickbooks, we can classify all transactions as business or personal and then filter the business transactions out of all our reports. This way, we know exactly how much money we’re making and spending down to the penny. We also know how much we’re spending in each category (or “account” in Quickbooks lingo).
Our take-home pay aka net pay (after 401k contributions) is used as the top line for our budget. We created our budget by tracking our spending per “account” and then sat down and figured out if we could trim it. So, obviously discretionary spending like clothing could be trimmed down, but utilities (water, sewer, electricity) could not be. After all expenses have been budgeted for, the bottom line should be net positive (spending less than you make, therefore making money at the end of the month).
Our Quickbooks expense accounts include:
It took us a few months to get the budget numbers dialed in, but now we’re really good at anticipating any big purchases and sticking to our budget.
- Your budget should not be the same each month! You really need to think ahead and adjust your budget based on your circumstances. For example, we budget more in our Gifts account if we have weddings, birthdays, or holidays that month than we would in other months…and if we are going to spend more in the Gifts account, then we should spend less in another account (e.g., Entertainment).
- You should rarely budget $0 for any area/account. It might seem like a good way to spend less money, but you need to live your life, so it is more realistic to scale back multiple accounts than to cut one account back to zero.
- All purchases need to be intentional – no more shopping just to shop, buying extra stuff at Target (boo), or going out to eat whenever you want. It sounds so intuitive and easy, but it does take practice, patience, and delayed gratification to make it work.
Budget vs Actual
Garrett and I both classify our Quickbooks transactions almost daily. We also run the Budget vs Actual report for the month and our Balance Sheet report (showing all assets, liability, and equity by month for the year) every Sunday night during our Family Business Meeting to see how we’re doing. If we are already at 50% of our budget only 1 week into the month, we know we need to dial back our spending. During the Budget part of our Family Business Meeting, we’ll also discuss any big purchases we know are coming up, any bills that need to be paid and who will pay them, or discuss ways we can save money (e.g., canceling a membership we don’t need anymore).
Depending on your situation, you could use Mint.com or an Excel spreadsheet to track your income and expenses and budget vs actual over time. Quickbooks works really well for us, but you have to find the system that works best for your family.
Even though we’re on a budget, I no longer feel like we’re “on a diet” – it was just a big change from what we were used to before with two paychecks. Change is hard sometimes, but you adjust to your new normal. I also think that no matter your income, you should be following some sort of budget to be fiscally responsible. It’s not about being frivolous or being cheap, it’s about being wise with how you spend your money.
Next week I’ll write a post of all the different ways we’ve been able to save money and other ways that we could still try if we needed or wanted to save more. Leave a comment below with any questions or topics you’d like me to cover in next week’s post!