Friday, March 1, 2013



March 1 marks a change for Ben and I.

In recent weeks, I had a lot on my heart and my mind between the stress (and excitement) of saying goodbye to Tiny Tim (our fourth foster bulldog who was adopted 10 weeks after coming to our home), studying 20 hours a week for my PE exam (in addition to working full-time), the declining health of my grandpa and the welcoming of our nephew.

It's caused me to take a step back and think: what are we doing and where is our life headed? It's made me question what do we want for our life and how will we get there?  Yes, big, deep, scary, but exciting, thoughts.

Our biggest priorities right now would follow the timeline of purchase a home, settle in, and start a family.  We have agreed that, ideally, we don't want to have a baby until we have a home to raise that child in. Turning 27 in May, biologically speaking, this means all of this would happen in the next few years (God-granting).

But, something you may have noticed about me is that I'm a planner. I'm OCD when something crosses my mind. I'm stubborn. I hate waiting.  Ben says he hates this about me, because he is so the opposite, but I think secretly and subconsciously, this is why we mesh.  We balance each other out.

Being the Type-A person I am and talking with Ben, we realize that logically our first step is to get our finances in order.

Now, we have a budget, but I would call it a loose budget.  We know our rough monthly costs. We have joint checking account and a credit card. We put in what we need in the joint checking (proportionally to our salaries) and whats left is our "individual" money. This method has worked for us the past three years, but honestly there's not a lot of accountability.

Sure we've had a wonderful year with our trips to Europe, Ireland, and NYC.  And we could "afford" those, in the sense that we had the money in our accounts already. We don't have 1 cent of credit card debt, but at the same time, because we were saving independently from one another; we didn't really have a goal for our future with our savings.  Does that make sense?

The past two months, I've tracked our spending and we've updated our budget.  Today starts the implementation of this new budget.  So without going in to number details, I'll tell you what we're changing.

Retirement Contributions: My company matches $0.25 of every dollar I put into my 401K, up to 6% of my salary. I was contributing 8% to my 401K and while I do get some "free" money, it's not a ton. Ben's previous company didn't offer a 401K, so Ben started a Roth IRA last year that he's been contributing to.

At this point, you may be asking what's a 401K and what's a Roth IRA?
  • In basic terms, a 401K is a retirement account that you put pre-tax money into.  When you're a certain age, you're allowed to withdraw this money, but will be taxed on it.
  • Roth IRA is a type of IRA (individual retirement arrangement), where you put post-tax money in to gain interest. You're not taxed/fee'd on this money when you withdraw it in the future, as long as you're a certain age (however, there is a limit to what you can contribute ($5,500/yr for 2013), and restrictions on who can have one (based on income).
  • One nice thing about a Roth is that you can take out the money you've put in prior to retirement, you just can't take out any of the interest you've earned, without a fee.
    • This could come in handy for saving towards a down payment.  Say we both put in the max in 2013, so $11,000 total and that money grows to $11,358 (random number here), by 2014.  We could take out that $11,000 we put in and leave the $358 we gained during 2013 without any fees!
    • We could take out that additional $358 we've gained, but there are restrictions and fees associated.
Ben's new company offers a 401K, so we're now both contributing in the percent of our salary that our company matches and the rest of the money from our checks for retirement is going into our Roth IRAs.  Yep, I started a Roth as well and decreased my 401K contribution from 8% to 6%. Considering we're in our 20s, taxes will only grow and this way when we're ready to retire, we'll have the money wait for us, without any fees!

Savings: After retirement funding, our next goal is savings.  When banking independently, I did have a savings plan for myself that I typically was able to stick to. I knew how much money I could realistically save in a year and was proud of that.  However, since Ben and I are a team,  it makes sense that we should know how much money we will save together in a year. 

So, after maxing out our 401K matches and Roth IRAs,  we looked at our necessities (rent, dog car, bills, food, etc) and looked at how much money we could put away each month.

Spending: With savings, also comes spending.  This is where our problem point was. Well, I wouldn't say it was a problem, as we both spent in moderation, but it was the most "lax" part of our budgeting system.

Since deciding to change our system we both took a look at what we were spending each month and agreed that we could, and should, reduce those amounts to meet our savings goals.  Thus, now we'll both be getting a monthly "allowance" for individual spending money.  Which means if one of us wants a big-ticket item, we'll have to save up our spending money to buy it.

This change in spending will be one of our biggest challenges. It was amazing to me that previously I was giving myself around $450/mo for shopping money (after saving 32% of my post-tax income) and I was pretty much unable to account where it went! I mean, that's a bit scary when you think about it...over $5,000 a year unaccounted for?! YIKES!

The spending changes leads us to the implementation of our new budgeting method...

Envelopes: Yup.  Have you heard of this?  More or less we looked at items in our budget where we commonly spent more than we budgeted for.  For us this is/was:
  • Groceries
  • Eating out
  • Entertainment/Fun money
With the envelope method, each month we'll fill up an envelope with the monthly allowance for the items above (We're still working on the details on when. With our paydates, we may fill envelopes on a two-week basis instead of monthly.  We'll figure out the kinks as we go), this way we'll be forced to stick to our budget. 

If we get to the last week of the month and have $10 left in the eating out envelope, well guess who will be eating in all of that week? Us?  And if the grocery envelope is running on fumes? Well, it looks like we'll be eating PB&Js. It may sound harsh, but we've agreed that we need improve our financial discipline to reach our future goals.

Sure, we'll drastically cut back on the use of our rewards credit card, but in the long-run, following our budget will help us save more money than we would earn back in potential awards.

Conclusion: With all of this, assuming we can hold to our current numbers, we should have enough saved in a year from now to a comfortable savings for a down payment, and then some! Now, I don't know about you, but that actually has me EXCITED to start this whole process and change!

The next question is, where do we want the house that downpayment is for, to be located? Well, this post has already grown quite lengthy, so I'll save that more another time. To be continued :O)

Talk to me: So tell me, do you have any words or advice? How do you and your significant other bank? Or is it just you and if it is, how do you hold yourself accountable?

Update: Curious how we're doing? Check it out.

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