This is a guest post from Frugal Babe
, who was kind enough to contribute this post for your reading pleasure while I am on vacation. If you enjoy reading it be sure to check out her blog!
Welcome to Frugal Babe readers! A little bit about me… if you’re looking for financial advice or wisdom, you’ll have to go elsewhere; I’m still looking myself! On the other hand, if you’re in search of an (overly) intimate look at one family’s finances and journey out of debt, with a few French/American cultural observations thrown in for flavor, well than, you’ve come to the right place.
Money can’t buy happiness. How many times have you heard that one? If you stop and think about it, you have to sort of wonder why we all work so hard to earn money, spend money, and squirrel away money for a rainy day. They way I look at it, money may not buy happiness, but it does buy security, and that’s a factor in my own happiness. Getting a new shirt might give me a little thrill, but it doesn’t last long. But having a solid emergency fund – something my husband and I are still working towards – creates much more than a passing thrill. It might not be as exciting as a shopping spree, but it’s a constant sense of peace and security that comes with knowing that you’re not living right on the edge. Retirement savings fall in the same category for me. IRAs aren’t nearly as exciting as a brand new pair of high heeled black leather boots. There’s not much that’s sexy about a brokerage account. But knowing that you’re slowly but surely building up a stash of money that will come in very handy in 40 or 50 years does create a warm fuzzy feeling that the boots just can’t match.
My husband and I are very much on the same page when it comes to finances. We’re both focused on our long-term goals and quite happy to wear second-hand clothes and drive 17 year-old cars. But that’s not to say that it’s always easy to save money. So we try to balance having fun with our strong desire to create a financial security blanket. I’ve found that the best way to accomplish this is by building some wiggle room into the budget, and by breaking big goals down into smaller steps.
Last year, we started tracking our spending. For about four months, I kept track of every single receipt. Every purchase went into Microsoft Money and we saw at the end of each month exactly how much we spent in each category. It was interesting, but there were no big eye-openers. We weren’t spending half a house payment on haircuts and coffee. There really was no latte factor at all. The numbers that we were getting at the end of the month were about what we expected them to be. But I was spending several hours each month recording all the purchases and tracking our spending. I decided I wanted a new method – one that would give us some built-in financial freedom while at the same time allowing us to focus on our major goals.
We decided to just set a monthly spending limit. $1000/month works for us. We have one joint-account credit card and we put every purchase – no matter how small – on that card. Groceries, gas, phone, entertainment, etc – it all goes on the same card. We check the balance on the card every day, and keep track of how many days are left in the billing cycle. That way we know how much more room we have in our “budget” at any given time. The last few days of each billing cycle tend to be a bit lean, since we’re usually pretty close to the $1000 mark by about day 25. But it’s fun to challenge ourselves to stay under the $1000 limit, so we’re pretty motivated to put the card away once we start getting close. I like the freedom that the overall limit gives us. If we want to spend more on groceries in a particular month, we can do so – as long as we cut back somewhere else. Having a strict budget for every spending category seemed much more restrictive to me, and I prefer the flexibility of the self-imposed credit card limit.
The other tool we use to achieve our financial goals is to break them down into smaller parts. Our big goal is to save lots of money for retirement and to have an emergency fund that can cover three months of living expenses. But those are a bit broad and daunting when we look at the big picture. So instead we look at what we can do today that will put us one baby step closer to where we eventually want to be. We set a number – again, $1000 works for us – that we want to save each month, and we work towards it throughout the month. We automatically put $80/month into my 457 plan, $200 into my husband’s IRA, and $100 into our emergency fund. That’s $380 that we don’t have to think about at all. Then we make sure that we put at least another $620 into our HSA or IRAs over the course of the month. With online transfers it’s easy to make a small deposit every week or two, and the whole thing never seems daunting. And yet at the end of the month, another $1000 has been stashed away. Somehow it seems much easier than if we had to come up with $1000 all at one time each month. And it makes it much easier to resist the pull of the black leather boots, since I watch how quickly small amounts add up over the course of the month to get us to our savings goal.
Overall, I would say these are the two most useful tools I’ve found to keep us on the financial path we’ve chosen. I know that money can’t buy happiness, but I sure do enjoy the feeling of knowing that each month we’re putting ourselves in a slightly better financial position than we were in the month before.
What works for you? What tools and tricks do you use to keep yourself motivated?