Wednesday, September 11, 2013

The Monies & Budgeting

Yep, still waiting.  No update, except the number of potential parents on our agency's website has swelled up to 232 (we were number 215 when we joined).  We probably need to strap in for the long haul.

So I thought I would talk about money.  Not so much about how much we've spent/will spend (spoiler:  it's a LOT.  Enough to make me throw up in my mouth a little).  But more about my thoughts on budgeting in general.

I love money.  Not in a sick superficial kind of way (I don't think?), but more in a capitalistic, economist kind of way.  I have an accounting and finance background, so it only makes sense, but I love investments, and spreadsheets, and budgeting, and formulas, and ALL OF THE THINGS.  So I will try not to make this post too long, but I could talk about money forever.

I've had people ask me in real life what kind of budgeting system we use, so I figured that's what I would blog about today.  There really isn't anything but some common sense involved here, so it isn't earthshattering advice by any means.  But anyone going through infertility is faced with the money woes at some point (unless you are super super lucky to have insurance, and in that case, God has blessed you immensely. Go light a candle at church in thanks).  So a check on budget can always be useful.

T and I use an online envelope-based system.  We specifically use mvelopes, which works just fine.  There could be better systems out there, so I'm not necessarily endorsing mvelopes, but rather the methodology in general.  You could totally do this manually with spreadsheets, but that sounds like a huge headache for me, so I would definitely go with something computerized.  We actually pony up cash each quarter to pay for it, because it is that valuable to us.  If you can find something that works for you for free, more power to you.

A quick definition check.  An envelope system is not a budget on its own per se.  A budget says I will spend x amount on x category over a course of a defined period (a month, a week, a year).  An envelope system is more powerful, I think, because it says exactly what you have to spend RIGHT NOW, based on the money you have RIGHT NOW.  The easiest way to think of this is the old-school method of cash & actual envelopes.  Once you got paid, you took the actual cash and divided it among a grocery envelope, a mortgage envelope, an entertainment envelope, etc.  If you were going to the grocery store, you grabbed the envelope and knew you could only spend that much.  If you needed to go over, you had to dip into another envelope and would have less to spend on, say, entertainment.

Online, it works the same way.  You set up funding plans for every one of your paychecks.  You can plan to take the mortgage out of one paycheck or spread it over several throughout the month.  Each time you actually get paid, you can fund envelopes manually or use your pre-set funding plan.  At all times, your amount in your spending account(s) equals the amount in your envelopes.  You know exactly where your money is allocated at any given point.  It may look like you have a ton of money in your checking account, because you just got paid, but if that is already 90% allocated to mortgages, car payments and other big ticket items, then you really don't have much discretionary cash.

We put almost all variable expenses on a credit card and pay it each month.  You still have envelopes related to those expenses.  When the transaction downloads, say $100 to the grocery store, the system takes it out of the "Groceries" envelope and puts it in the "Money for Credit Card" envelope.  Then I know that I have $100 in my cash account that is already allocated to the credit card payment.

I like the system because it can be as strict or loose as you like. T's and my combined financial budget has evolved fairly dramatically since we've been together, and the envelope system has stayed with us throughout:

Real Life - At First 
Basically paycheck to paycheck, not fully combined
When T and I first moved in together, we weren't ready to be a completely combined financial household, but could share in basic household costs.  So what we did was open a joint account and a joint credit card.  We calculated our fixed expenses (the mortgage, as we moved into my existing house, the utilities, satellite, etc) and each transferred half of those costs to our joint checking account each month.  Then we put all household variable expenses on the credit card (like groceries, dinners out together, etc) and when the bill came, we each paid half of it.

Note this worked because our salaries have always been fairly similar.  If there is more of a disconnect between a couple, you would just want to not split halfsies, but maybe 60/40 or 75/25 (or whatever works for you).

Since it was meant to be a zero-sum game, basically paycheck to paycheck, with no money left over in the joint accounts (all remained in our individual accounts), I did need to track the cash to the penny.  It would not be good for me to make a credit card payment, thinking there was a lot in our account, but in reality that was already allocated to the mortgage payment occurring the next day.  In practice, we were each putting money in the account to cover expected expenses each paycheck, so it wasn't related to any one expense in our heads.  So the envelope system really came in handy.  I logged in, and could see our checking account balance, and it was allocated to mortgage payment, water payment, money for credit card payment, etc.  If I wanted to make a credit card payment mid-month, I could see exactly how much was in that envelope.

 Real Life - In the Middle
Funding in advance, Planned savings
Right before we got married, T and I combined our finances completely.  This helped us jointly save for the wedding costs and both take ownership for our financial picture.  It kind of morphed into me running the finances in our house, but he can log into our system at any point and see what's what.  We made enough money that we didn't need a hardcore budget, but I would have died a little inside to just let our finances run free.

We weren't living paycheck to paycheck though, so I was able to fund in advance.  Our paychecks basically covered next month's expenses and our envelopes essentially never went to zero.  But I did slide over any extra money to our savings account, so the checking account will still managed pretty closely.  Therefore, the system remained a communication tool.  Tory could go in and see when his car payment envelope was funded, and make the payment at that point (he had to do that one manually vs an auto payment).  This helped, because it may look like our checking account had a lot in it, but I may have scheduled a large credit card payment, our mortgage payment, and the rest was moved to savings.  So he theoretically could have overdrawn our account if he paid the car payment before the envelope was funded.

We also could keep one savings account, but have it individually allocated to different goals.  This was accomplished with one savings envelope that equaled our account, but with sub-envelopes for each goal. We didn't sell our house when we built a new one, for example, so one envelope needed to be our down payment on the house.  Another was for wedding & honeymoon, one eventually became our infertility budget, then any extra.

From a joint standpoint, we each kept our individual accounts and get an "allowance" every month for that.  This would be used for gifts for each other, and any expenses over $100 that are truly for one of us.  For example, T is planning to use his to partially fund the Playstation 4 when it comes out, because I think that is a ridiculous expense when we already have a Playstation.  I'm allowing some of it to come out of "our" account, but he needs to pay for the rest.

Real Life - Now
More loosey goosey, but still valuable
T and I are on a stricter budget now, due to all of our infertility and adoption expenses, but it is more in our head than on paper.  We know our weaknesses (bottles of wine, anyone?) and have cut out those to save money.  We aren't taking any major trips, we aren't going out for nice dinners, etc.

I still use the envelope system, but am constantly moving stuff around between envelopes.  The most value I get out of it is seeing how much to pay on our credit card.  While we plan to pay it completely each month, we did carry a bit of a balance when buying nursery furniture.  So I can see what's in my envelope vs what the balance is on the card and know how much extra I need to take out of our "savings" each month to make up the difference.

And we've used up pretty much all our savings on the baby expenses.  I'm trying to build that back up each month and have allocated some of our paychecks to a savings envelope.  I don't impose a grocery budget on us, so I just move stuff around when that envelope goes negative (it almost always does each month.  We like food).

A few other things to give us wiggle room that you could do:

I always have a cash buffer in our "cash to allocate" account.  I keep around $300-500 in there that is never allocated.  So if we suddenly need to write a bigger check in that range that was unplanned, I don't really need to worry if we have the money available.  It should always be there.

I never updated our funding plan from our paychecks as our paychecks grew.  So, my paycheck may be $1,000 (making these numbers up), but the funding plan is only $800.  That makes us theoretically live within a budget less than what we make.  The difference can go to savings or be used to top off envelopes where we overspent (like adoption expenses!). 


Anyway, everyone has their own methodology to manage money, but if you are flailing a little, hopefully some of this advice works for you.  Again, because our salaries are fairly similar, it is easy for us to take an equal responsibility, equal benefit approach to finances.  This isn't always the case (and maybe more often isn't).  In the end, I just encourage you to both completely agree and feel comfortable with your approach.  The struggle can sometimes be when the person with the larger salary feels cheated when the other spends the money.  Communication is key, and any combination can work as long as both are completely on board with the "rules" that have been set out.

Other Notes
 Here is a sampling of the actual envelopes we have (sub-envelopes are in parentheses):  Adoption Expenses,    Auto (Car Payment, Fuel, Car Registration), Charity, Dry Cleaners, Entertainment, Food (Dining Out, Groceries), Gifts, Hair, House (Mortgages on both houses, Property Taxes), Insurance (Auto, Life/Disability), IVF, Savings (separate ones for savings within our checking account to be swept out, and our actual separate savings account balance), Utilities (water, electricity, phone, etc), and Vacation.

You can save throughout the year for single expenses, like car registration, or just start funding the envelope a few months in advance.  In advance is a key part of it though :)

If you use the online system, it can be really helpful for reporting.  I've run every adoption expense through our adoption envelope even though it can go negative while we fund it.  But that way, I can run a report on it for tax purposes to have our exact expenses. 

On our system, you can add balance sheet only accounts (e.g. 401k balances, mortgage balances etc), so you can run a net worth report at any point.  That's a nice tool too.

Okay, I won't bore you with money stuff anymore.  But hopefully this was helpful to at least someone out there!

1 comment:

  1. Very interesting! I never realized that there were online envelopes that you could use, and have always relied on spreadsheets. I'll have to check this out!


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