Finding the balance - Spending vs. Saving

I equate managing my money to managing a business - "money in" needs to exceed "money out" in order to be profitable. If only it were that easy.

What are the key factors that impact the success of a business?

Customers - No business is successful without selling a product or service to the customer. Customers generate income. Good customer service produces happy and better paying customers, and thus more income. My customer, the source of my income, is my employer. The happier my employer is with the services I provide, the better and more reliable my income stream becomes.

Employees - Quality employees are crucial to the success of a business. Depending on the nature of the business, employees produce a product, provide a service, or perform any of a number of ancillary tasks necessary for others within the company to produce a product or provide a service. I am the only employee on the payroll of my personal finances. Employee satisfaction plays an enormous role in quality of work and productivity. In other words, the happier I am, the more productive I can be in providing services to my employer and performing all of the ancillary tasks necessary to provide those services.

Taking the essentials of business management and applying them to my personal financial management:

Employee Satisfaction: Even though it reduces the profit margin, it is necessary to direct some expense to projects and programs geared specifically at improving employee satisfaction. I need to spend some money on myself, through "luxury" expenses, entertainment, and personal and professional development in order to cultivate employee satisfaction and improve productivity.

Invest in the future: Any good business manager knows that a stagnant business will flounder. The business needs to keep pace with a changing market, and some funds need to be invested in new product lines, research and development, marketing, and such - funds with no explicit payoff, but statistically will improve the performance of the business down the road. Some money needs to be invested in my future, through education and training, savings, and retirement planning.

Why am I writing all of this?

I have always struggled to find the right balance in my expenses. Through college and after graduation, I spent too much to develop "employee satisfaction" without a sufficient increase in productivity to cover the expense. The resulting debt continues to haunt me years later. I started to swing to the other end of the spectrum, ignoring "employee satisfaction" and instead focusing on debt repayment and savings. The resulting drop in employee satisfaction quickly led to burnout at work. If left unchecked, that burnout could threaten my productivity enough to impact income.

With every review of my budget, I reconsider the rates for debt reduction and savings and the amounts available for entertainment and "employee satisfaction" projects - new uniforms (clothing), work environment (household purchases), and benefit packages (vacations and such). With every review I get a little closer to a balanced approach to debt repayment and savings with enough "all about me" expenses to break up the month.

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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

Getting started on the quest

I have not made any specific "get out of debt" goals yet -- I am still trying to find the balance of debt repayment versus living comfortably and enjoying life. While I try to find that balance, here is the lay of the land to get the quest started - this should be current as of December 1, 2007:

About Us
We are recently married, September 2006, and still feeling out our financial values. I ran up quite a bit of debt during college, and she has some debt from old medical bills she incurred while uninsured. We both work for an Ambulance Service, so we spend a great deal of time every day on the road, yielding some rather essential "extra" expenses - dining on the road and cell phones are at the top of that list.

We are both hourly employees, paid biweekly, myself a manager and my wife a "blue collar" employee. I am also a reservist, which generates some handy extra income. Since I make about twice as much annually, I usually figure on one-third/two-thirds when paying the monthly bills and each of our "fair" contributions to the joint expenses.

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Our financial summary as of December 1, 2007

My Checking (USAA Bank) - $190.08
Her Checking (KeyBank) - $43.84
Billpay Checking (USAA Bank) - $713.82

Primary Savings (USAA Bank) - $247.01
Long-Term Savings (ING) - $150.02

Universal Card - $8,496.52 (4.0% until paid) - Cards destroyed.
Capital One Card - $435.00 (15.4%)
Citi Card - $3,185.98 (10.24%) - Card frozen in large block of ice.
US Card - $10,502.03 (11.65%) - Cards destroyed.

Investment Account - $1,628.04

Car Loan - $15,855.47 (7.4%) - Asset valued at approximately the same.
School Loan - $4,499.81 (6.97%)

Misc Debt - $5,755.13 (0% until 12/2008)

Current Net Worth = -$29,842.99
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So, the picture is not a bright one. The credit cards are a problem, the lack of savings is not good, and the interest is rediculous. Luckily, I never have a problem meeting the monthly payments - just in hammering down the principle.

Over the next week, I will outline my current plans and goals for each category. I hope to post once every couple of days, to include progress reports, new ideas that I'm trying, and other personal finance tidbits that I pickup along the way.

Until next time,
Jonathan

Changing Directions

Trying to earn money doing surveys does work - I have a $30 check coming from InboxDollars for many nights of surveys and following advertising links. However, the payoff really isn't worth the time spent trying to hit that $30 threshhold. It is, however, $30 more than I had and will make a nice snowflake for my credit card debt.

So, the making money on the internet idea really isn't paying off for me - too much time, not enough return. I'm far better off spending that extra time at night with my wife.

I am shifting the direction of the blog and using it to log our progress towards becomming debt free. A few words on my debt-reduction philosophy - everything is about balance. Yes, I could live uber-frugally and pay off the debt faster, but at what cost. Instead, I plan to reduce the debt at the fastest pace possible while still enjoying a comfortable life. Through smart decisions, I think I can reduce the debt at a reasonable pace but still enjoy some luxury.

I need to review my budget and accounts this month anyway so I can setup my 401(k) and FSA, so my first post about My Debt Quest should be ready in the next week or so.

Things to look forward to with this blog:
- Frugal ideas that don't sacrifice personal comfort.
- My personal thoughts on money and debt.
- Links to other personal finance blogs that share my ideas and values.

Until then,
Jonathan