Our feelings on spending, debt, and budgets.

Our Financial Childhood

My wife and I butt heads occasionally on money matters. They are usually small, inevitable differences in opinion about how much of our income should go to savings, debt-repayment, and here-and-now spending. I tend to pull towards debt-repayment and savings, while she wants to enjoy the fruits of her labor now.

There is a middle ground, where we can continue to make progress on the debt, stash some extra money away in savings, and still have some money left over for entertainment and other material luxuries. Since our wedding last year, we have swung back and forth around that happy medium. Some months we do very well with savings and debt-repayment, but do nothing for fun, while other months we spend a little more than we should.

Our Finances: An Update

I've been picking away slowly at debt for a long time. Getting married last year was a wakeup call of sorts, and its time to get organized, get a plan, and get into a more comfortable position with our money. For our plan to be successful, it needs to satisfy three key elements: it must be flexible, it must be achievable, and it must meet both of our needs. Here are the major steps in our plan, and I'll write more about each step in future installments.

The Plan

1) Establish savings - in the last year, for every month we make substantial progress on debt and savings, we have another month that sets us back with an unexpected (and sometimes expected but not anticipated) expense.

2) Pay off Debt - ok, that goes without saying. With better planning, I want to figure out how much we can reasonably afford to pay towards debt every month, decide on an order for the payments, and snowball and snowflake until its gone. With the bolstered savings plan, we won't have to resort to credit in the face of unplanned expenses.

3) Live Frugally - This one is somewhat vague, and this is where the balance really comes into play. If I invest hours each week researching the best price for groceries and nit-picking at every little expense, I have accomplished nothing. However, I am always looking for ways to trim expenses.

4) Get Real About the Future - I am 27, have no savings and no retirement. I should have, could have, and wish I had started earlier. It makes no sense to cry about it now, but it is time to start planning.

The Progress

I setup some automatic transfers to start moving money into our long-term savings and investment accounts before we even realize it is there. Starting in December, each month I will put $100 into low and moderate risk investments and $40 into Long-term savings. Eventually, I want to increase those amounts, but I want to clear up a couple of credit accounts first.

December is Open Enrollment at work, and I have all of the paperwork for the 401(k) and Flexible Spending Account. Our company matches 50% of 401(k) contributions up to $1000. I plan to maximize their contributions by investing $2000/year ($77/paycheck) for this year. I figure on about $2200 in medical expenses annually, including glasses and contacts, co-pays, and OTC products, so there's another $85/paycheck.

With the automatic savings, 401(k), and FSA setup, I just cut our bi-weekly income by about $200, once you consider the decrease in withholding. Now, I need to sit down with the wife and review our expenses, look at our debts, and get our budget on paper for the first of the year.

Until next time,
Jonathan