Wednesday, March 5, 2008

Financial planning

Recently, the hot topic around our house has been our family's budget! We're nearing the end of a two-year stint without any income, and while business school has been a great experience, I think we can all agree that it's about time for it to be over so that we can begin life in the "real world" again :) As we look at our projected budget for next year, we seem to come back to the same questions over and over again...With just about no "wiggle room" in our budget after the necessities are taken care of, what are our priorities and what are we willing to sacrifice? Every family's answer to this question will be different, so of course there are no right or wrong answers here, and that's almost what makes it more difficult! One of our biggest expenses will be our monthly mortgage payment, so we need to decide what trade-offs we're willing to make in terms of our living situation, and that decision will impact how much flexibility we have in other areas - schooling options for C (only a year away from kindergarten!), travel, gifts, dates, etc. All of these are not necessities, but how will we feel if they're just not a part of our budget for a few years?

I know that all of you moms deal with the same issues for your families...What process do you and your hubbies use for sorting through priorities and making those tough decisions? Again, I know that everyone's "final list" of priorities will be different, but I think we can help each other out when it comes to the process that we use in prioritizing. What are your thoughts?

One final thought on budgets: One of the reasons that I love having a budget the most is that it actually gives us more freedom, because if we stay within the limits of what we have allotted for each category, we know that we are doing just fine. So, if we have allotted money for dates, then I don't feel guilty about spending that money - the same goes for things like family outings, haircuts, etc. This doesn't mean that we don't try to save money where we can, but it gives us the freedom to spend the money that we have allotted because we know that we have put a lot of thought (and hopefully prayer!) into constructing our family's budget. 


Right Said Red said...

Oh wow, what an intense topic. MaryAlice and I were just discussing budgeting the other day. About every 4-6 months I go back through our budget and update things to reflect what we are actually spending on different items. We charge most things (but always pay the bill at the end of the month). I find the credit card bills and end of year summary really helpful to reflect what we are actually spending.

That being said, I agree with your thoughts Kat on how a budget can be freeing. I always feel guilty when I spend money on "non-essential" things like dates, new clothes, etc., but if I have a budget for these items, it is easier not to feel guilty.

That being said, when house shopping, it is important not to overreach and be house poor. I would prefer a smaller house (and then a move later on) so that we could still have a budget for dates, travel to see family, etc. I would budget these other items first, then figure out what you can actually spend on a house (and don't forget about property taxes!) I would be conservative with your estimates, as you may have hidden expenses in moving to a new area--for example you may drive more in Texas and thus spend more on gas.

Joe and I are about to sit down with a financial planner to talk about our finances--and budget, so I will probably have more to add on this topic later.

Anonymous said...

Ahh the life of graduate school... My family of four has a similar situation. We budget down to the penny. Not to bring the topic of this blog back to food :-), but one way that I found to save money was to look at our grocery budget. eat less meat/ more dried beans, no prepackaged snack items, oatmeal instead of boxed cereals. There are a thousand ways to penny pinch. It takes some getting used to, but it makes our favorite foods all the more special and celebratory when we can squeeze them in (and we do eat "special" things at least once a week). It may also seem extreme, but it can also be spiritually uplifting. Take time sometime and read what the Church fathers have to say about food. It's very convicting. How many of us eat to nourish our bodies and how many of us eat to satisfy other desires? Unfortunately, I admit that what I choose to eat has more to do with me me me want want want than with the goal of taking care of the body God has given me. Perhaps this is why so many lent promises have to do with food? Are we really more gluttonous in America than we realize?

B-Mama said...

I have loved the budget wisdom of a man named Larry Burkett of Crown Financial Ministries when it comes to finances. I latched onto him during my later evangelical days and appreciated how he applied Biblical principles to a budget. Whenever GG and I are ready to make a big financial purchase, I always pull out my Financial Planning for Young Couples, which advises on various budgeting categories.

He recommends setting aside no more than 38% of your net income for housing expenses (this includes mortgage, taxes, insurance, AND utilities!) GG and I tried to stick to this during our house hunt and went a little over, but have also realized we haven't exhausted funds in other categories (e.g. car payments).

He also suggests setting aside monthly money for travel, clothing, entertainment, etc. Until law school (when we started having NO income!) we wrote down every expenditure under various columns and would tally up the total at the end of the month. I had to be on GG occasionally to write things down. The best part was when we were especially frugal and saw the $$ leftover at the end of the month.

In general, budgets are so personal! Not one size/organization fits all!!

Kat said...

B-Mama, it's so funny, I sometimes listen to a radio station where Larry Burkett advises people on their finances, and I have found his advice to be very easy to follow and helpful. I'll have to check out his website! I like the idea of having very specific guidelines to follow, especially as a young couple buying our first home, so I will check out what he has to say.

Red, we've also been advised against being "house-rich but cash poor", so that's definitely something that we're thinking a lot about. The problem is that for a less expensive home, we may end up either 1) living further off of the beaten path or 2) in a home that isn't comfortable for our family. But, I'm sure that with some patience and persistence, we'll find a place that works great for us!

Anonymous, thanks for the reminder of how food and budget are so closely tied together. I'll have to read some of the Church fathers' documents on food...I'm sure that they would be very convicting for me as well!! I like the idea of being frugal for most of the week when it comes to food shopping, and having a treat for the family once a week - we take a similar approach around here, and I think that it works very well. Sometimes the treat comes in the form of a special family meal, and sometimes it comes in the form of going out for a family meal - both are occasions to look forward to! Even if we get to a point where we don't need to be so frugal, I hope that we can keep a similar mindset!

AWOL Mommy said...

I am too disorganized to budget and have nothing of value to add to the substantive discussion which I already see here, however, I wanted to say hello - and let you know how inspired and pumped up I am about this blog! I found it through B-Mama's blog, and will now visit and contribute as regularly as my five week old will permit. I love you all and am inspired to rejoin Right Said Red's Small Group Bible Study via the web, across the miles.
So much love,
AWOL Mommy

k said...

Oh budgeting, so much angst in our house. We stretched a bit when we bought our house, and then two months after moving in our taxes got almost doubled which promptly moved us into a more house poor situation. Now a few years into living here we are just getting back into having some wiggle room.

We spend mostly on credit card but PAY it off every month.

We use Quicken software to categorize our credit card spending every few months and then try to adjust our budget accordingly.

We ALWAYS over spend on gifts (really hard to work in a toystore and not do this) and this year we made a separate gift budget which really helped. We tried to combine hobbies we love like making beer & knitting and apply that to our gift giving since we'd be spending money anyway (and that has worked out so well because Alice has gotten tons of knit things for her baby...oh wait his hat is still on my needles!) But in theory :)

Since we are categorizing the credit cards & can keep tabs on that, we also do a cash allowance so you aren't burning unaccounted for money by just taking out cash all the time.

We've been more accepting of hand-me-downs, offers of free babysitting, and potlucks vs. meals out. This nourishes our connection with our friends & community as well as our many people love to help so we should take them up on it (I know I love sharing my sons babies clothes).

And as a future librarian I will say...the library rocks! Free books, audio books, and movies. Ours is having a "date night" next Saturday where they will be open late and serving free coffee beverages. What a great cheap date!

texas mommy said...

As the only contributor to this blog who has not endured the difficulites of no-income-husband-in-grad school and having even had two incomes when we were first married, I admit that we don't have a budget. I try to spend reasonably and still wear clothes from high school and Mr. Incredible, who HATES shopping, doesn't spend at all, unless I force him to buy clothes or the pope had a new book out. Then he gets all giddy with excitement and orders it online.

I hate wasting money. Today, as I sat waiting to get my haircut for the first time in, I kid you not, 7 months, I thought about spending the extra $5 for a shampoo as well. But I couldn't do it. It was just $5 I didn't need to spend and I couldn't bring myself to spend it!

We do spend a lot on food, especially since we buy organic dairy, some produce and natural meats. I'm pretty sure I spend more $$ making our bread and other things, but this is more of a priority for us. But we never eat out during the week and save our dinners out for the rare, but very nice place.

The library is our best friend. I especially love placing holds because then I don't have to scour the shelves while holding a one year old and 2.5 year old over my pregnant belly. Even so, my greatest tendency to overspend is on books! I always have an amazon wish list going.

Kat, I have tons of home buying/home owning advice specific to Texas. For example, you need to budget about $300-400 a year for quarterly exterminations. Fire ants and kids do not get along. While there is no income tax in TX, property taxes are INSANE. Oh, and you will probably pass out when you get your electricity bill in July, even if, as we do, you keep it very warm inside during the day. Also, running a sprinkler system in TX really adds up (and you have to b/c the soil will destroy your foundation). And you'll have to decide if you want to cut your grass yourselves in 110 heat in August. We'll have to talk about these things on the phone.

Mary Alice mentioned this on her blog awhile ago, I think, but we invested in life insurance for both of us. It may be less than you think, but provides a lot of security.

Our long-term investments are in a combination of stocks and mutual funds, almost all long-term investments. It helps to have a CPA dad and an investor father-in-law.

Juris Mater said...

Hilarious, girls. I grew up on Larry Burkett, because my dad teaches several Crown Ministries small group studies per year in our area and has done so for as long as I can remember. The result: my greatest vice may be my miserliness and penny-pinching. Ha : ) But Burkett seriously is absolutely great. Just don't raise your kids on a biweekly dose of the guy! Crown Ministries has budgeting software that incorporates his concrete principles plus lots of great Scriptural reminders, which I highly recommend.

My husband is totally minimalist and no-maintenance, and calling myself a Frugal Franny is an understatement--I'd probably gain some sick enjoyment out of having our family living in a cardboard box eating ramen noodles every night while hiding our cash in a hole in the ground and counting it over and over and over. I had to make a hard and prayerful decision to stop budgeting a while back to allow myself to live more freely. It's so easy to be overscrupulous in this area as a stay-home mom who's open to lots of kids, because the future always feels up for grabs. I think a good budgeting program for people like us should have as a major principle that money is God's gift to us to be stewards of and to help us enjoy the richness of life. My guess is that few people in our boat are spendthrifts at risk of bankrupting their families : )

So good luck to all as we strive to be good stewards of all our blessings! Thanks for all the pointers and honesty.

PS--I left a comment on the old "On Fish" post today. Everyone MUST try Melinda's carrot muffins.

PPS--Bella just crept out of bed and dropped to her knees in the hallway just within eyeshot of me and started praying very earnestly for Aladdin. Do they always have endless tricks up their sleeves for not going to bed?

Gutterball Master said...

I am probably the only Dad on ya'll's site, so...
don't forget caulking / weatherproofing doors and windows are a must. Also, where practical (and safe due to Hg), I suggest using those high eff. light bulbs. (also no dripping/leaking water sites/ flush that water heater!)

I suggest checking out a house cleaning/maintainance book from the lib. and doing as much as you can. It can save you money long term.

I used to budget and enter those figures into Quicken, but it took too much time away from the family. Just stopped doing it.

Being a frugal Dad is good and having an understanding wife is even better.

Of course we also have a small house for now (only 2 kids at home (and 2 in heaven)).

Mary Alice said...

Just a few thoughts:

1. At Red's encouragement, we have been moving towards more regular charitable giving. This can seem hard when things are tight but I think it is worth accounting for in the budget in advance.

2. I am not frugal by nature, my tastes tend towards the luxurious, and I have complicated stay at home mom spending guilt/powerless-ness feelings, that sometimes lead to passive-aggressive spending. At the same time, I do actually need some clothes. We have recently decided to set a "spending allowance" -- I will have a certain amount of cash at my disposal each monht. If I can make good use of hand-me-downs, I can put that money towards other things, (saving for a trip, special house projects, cleaning service?), this money is for my personal needs and the children's, since I do all of that shopping. Food and School are seperate budgets.

I can already see how having this money is changing the way I look at spending.

3. We used to save all of our receipts to categorize our spending, but, like others here, have found it easier to switch over to using the credit card for everything and paying it off each month. To set my spending allowance, we went through several months of credit card bills so that we could get a good idea of where the money is really going.

4. As other's have mentioned, I do make good use of the public library, in addition to the savings, there is a limit to the number of books even I would like to own. This has been really helpful with non-classic children's books -- we might read a number of books on a subject and find one that is worth buying to read over and over again. Also, PT is reading so much that I just could never afford to keep him in books. That said, we are going to have an official "school budget" next year so that we can make some purchases as appropriate.

5. The expression is that some people are "penny wise and pound foolish." I tend to go the opposite way -- I am afraid of large purchases, which I think is a good safety check, but I can blow throw $100 on random stuff at Target once a month -- if I saved all that money, at the end of the year I could buy a new couch! This happens with school materials, too. I tend to buy cheaper things, that sometimes turn out to be inadequate. Since we have a large family and will have many elementary school years, a school budget will allow me to make a few larger purchases, like good shelving, some montessori materials, as well as to invest in a good support program (I am looking at MODG, that is a subject for another time).

Maria said...

On the spiritual side of this discussion, I highly recommend Fr. Thomas Dubay's book, Happy Are You Poor. I found it to be a challenging, but very helpful book in my work on forming the right attitude towards finances and material things in general.

Right Said Red said...

Texas Mommy,

You make living in Texas sound so appealing.


Right Said Red said...

AWOL mommy,

So glad you have found us. I can't believe it has been almost 7 years since we were in bible study together! Time flies and I'm getting old. Congrats on the new little one, a boy? I have an 8 week old, born January 10th. He was 10lbs 13oz!


Kat said...

AWOL Mommy ~

So good to hear from you! Congrats on the birth of your little guy - we hear news of your family through B-Mama, and it's good to hear from you!

Stay in touch,

texas mommy said...

Living in TX really is just has its own set of realities. We can play in the snow one day and have a picnic in our sandbox the next!

Heather said...

I am a newcomer to your blog and I have really enjoyed reading it. As a recent convert to the Catholic faith who is thinking about the vocation of motherhood, I am both fascinated and inspired by what I have been reading. Thank you so much for such an invaluable resource!

My husband is about to start graduate school and we are in the process of redoing our budget so I took a look at this post. One free financial tool that has been helpful to us is . It securely tracks your credit card and bank account activity and will categorize expenses and income as you program it to. You can see what you are spending each month, quarter, or year and whether or not you are meeting your budget goals. It gives pie charts and other visuals that I find particularly helpful.