This guest post from Heather is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes. Besides teaching elementary band and running a personal training business, Heather keeps a healthy-living blog called Change Is Possible, plays trombone in a local community band, and dances whenever possible, whether there's music playing or not.
Ours is not a story of paying off tens of thousands of dollars in a short amount of time, but it is a story of saving money and debt reduction.
My husband and I have been married for five years, and in that time, we've tried numerous budgeting techniques — to no avail. All failed for various reasons. We knew what we were spending. We weren't spending more than we were earning, but we weren't saving much, either. Something always “came up.” Paying off things like the mortgage or my student loan weren't even on the radar. Those are just normal part-of-life payments, right?
We're both teachers, are paid only in the months that we work (early August through late May), and don't take regular summer jobs (though one or both of us will occasionally pick up a gig here or there). We have an automatic deduction set up from his paycheck so a chunk of each pay goes straight to the credit union — where we have no other accounts — for us to live on from the last paycheck in May until the first paycheck in August. We never see it except on monthly statements, and have never been tempted to touch it until needed.
Separately, we have an emergency fund. We don't fund it often, but it contains a fair amount of money for the just-in-case. Again, we're good about not spending it except in case of an emergency. The only emergency we've had so far was my cancer diagnosis three years ago and the subsequent six-month absence from work.
Our budgeting plan at that time was fairly simple: We totaled our monthly paychecks and divided the money among our budget categories, including our monthly bills (mortgage, car payment, student loan, utilities, etc. — we didn't/don't have credit card debt) and other expense categories (transportation, groceries, entertainment, etc.). We tracked it all in an Excel spreadsheet.
Money for nothing
A couple of years ago, my husband bought his first-ever new car, a Scion XB. He researched and determined that they were holding their value really well — he couldn't find one used for much less than one new, and he wasn't interested in one that was tricked out. The '90 Bonneville was donated (bad transmission); we made a little down payment, and added a car payment to our monthly bills. (My car was bought in cash before we were married.)
Over Thanksgiving weekend 2009, we were reviewing our finances and for some reason, we took a look from a different angle. We subtracted only our monthly bills (mortgage, etc. — not groceries, gas, etc.) from our total monthly income, and were shocked by how much we had been spending on everything else. What were we spending all of that money on?! We'd never calculated how much money we spent beyond the bills. We were especially surprised because neither of us is a big spender or shopper, so how were we blowing through the cash so fast?
Solving the problem
We came up with a new plan to correct the problem. We took the money that remained after our monthly bills were paid and divided it by four, which gave us roughly a weekly total. We took that weekly total and cut it in half:
- One half was our weekly cash allowance: $250. With that, we would buy food, gas, meals out, other entertainment, doctor copays, etc.
- The larger expenses — house repairs, deductible payments, insurance payments and the like — would be paid out of the other half. This was typically things that cost more than $50.
The monthly spreadsheet would account for the cash in one lump sum (not accounting for where it was spent), plus itemize other money spent. Cash came out on Sundays just before grocery shopping. What was left was stored tucked in an envelope so we could both take as needed. Our newest attempt to budget began.
The weekly cash plan worked well; over time, $250 turned into $240, $220, and eventually stabilized at $200. Other expenses were easily taken care of, and our savings account grew. We didn't feel pinched or deprived. When unexpected expenses popped up (e.g., surgery for kidney stones), there was money in the bank to cover it without touching the emergency fund. Without thinking, we were saving over half of what we'd been spending before.
Cue summer 2010. We sat down to look at upcoming expenses:
- We were taking a vacation.
- I was starting a personal training business and needed to buy a defibrillator.
- He needed a summer class for seat hours to maintain his certification.
- Car insurance was due.
- Plus all the usual suspects.
We added it all up, looked at what was in the bank, and blinked in disbelief. We added it all up again and brainstormed for the details we certainly must have missed. Nope — everything was accounted for.
We had enough money in the bank to live throughout the summer (including vacation, the AED, the class, etc.) without touching the credit union account. And there was enough money in the credit union account to pay off the car. In June, 2010, just six months after embarking on the new budgeting plan, we paid off the Scion XB, two years ahead of schedule.
This school year hasn't seen the same saving/debt reduction, as my teaching position was reduced to half-time. While my paycheck is cut in half, this gives me the opportunity to spend more time trying to build my training business, which will replace (and hopefully exceed!) the lost teaching wages. (By the end of this school year, if all goes according to plan…)
If we hadn't had this new budgeting plan in place, my salary reduction would have been a disaster, partially because we wouldn't really know where best to cut, and partially because we'd still be accounting for a car payment every month.
The plan suits us both and has been easy to use. I'm excited for the possibilities of what's to come.