And don’t forget to enter my giveaway for one of two $40 gift cards, which ends 11:59PM PST, Thursday, January 20th.
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Alright, on to budgeting.
I always enjoy reading about how couples manage their finances, since everyone has differing opinions on what is best, and it can sometimes be a difficult thing for newlyweds to figure out. Well, we’ve spent quite some time on hashing out our budget, and so I thought I’d share what is working for us.
First, it’s really important to review your budget periodically. We usually have a look at it every 6 months, just to make sure nothing has changed, and if something has changed, we can make adjustments before it gets out of control.
This happened to us once a few years ago, before we were married, after we moved 38 miles away from where I worked. I was getting hit with a lot more expenses for car maintenance and gas, and continuing to pay all the same bills as before. It had been a while since we’d reviewed our budget, and I was ending up living paycheck to paycheck, which obviously wasn’t a good thing.
So we decided to redo our budget in a more fair way, based on percentages. My husband makes quite a bit more than I do, but back then, I was contributing a much higher percent to our communal expenses than he was, based on our earnings. So we readjusted, so the percentage of we were each paying for was in line with what we were making. So, for example, he makes 44% more than I do, so he pays 44% more of the communal bills than I do. This worked out so much better for us, and I was actually able to start saving money from each paycheck (or, you know, start spending that money on wedding things).
Secondly, something I think is really important in making a budget with someone else is to still reserve something toward your own, personal spending. Even if you’re sharing a checking account (we aren't yet), where all bills and expenses are coming out of the same pot of money, keeping something separate for your own spending can be a godsend. I don’t need to know what he’s spending on electronics and engineering components for his hobbies, and he doesn’t need to know what I’m spending on shoes. So we each get a set amount per month for personal spending, and the other person has no say over how it’s spent. This amount can be spent every month, or saved up over time, it doesn’t matter. But it helps give you a sense that you still have ultimate control over some of your finances, since I know some newlyweds have growing pains when suddenly all the money that was “theirs” becomes “ours.”
So, let’s take a look at how we’ve budgeted out all of our expenses (not including savings). I’ve combined everything into this one chart, but what we’re doing for now is keeping separate checking accounts, and having a shared savings account. So we each have specific bills we’re responsible for paying out of our own accounts, but for ease of understanding, I’ve just listed out everything we both pay.
See that giant percentage of our expenses that is on the first line? Yeah. Living in northern California, the rent prices are just ridiculous. We pay over twice as much to just rent a house as most people pay for their mortgage. It’s really sad, actually, to be throwing away as much money as we currently are, but we don’t have much choice at the moment. With the housing market bubble in our city (homes in our neighborhood are still selling quickly), our average sized, 3 bedroom, 2.5 bath, 2,000 square foot home that we rent would sell for around $1.2 to $1.3 million. You can do the math, but having the ideal 20% down payment on a house that expensive is just not happening anytime soon!
So, you’ve seen how we break down our expenses, but there’s also the matter of our savings. Right now, we are spending 65% of our total take home pay on expenses, and contributing 35% to savings.
I’m not sure how many other people do this, but we have a very structured savings plan as well. Each month we will contribute a set amount to our savings account, and I will distribute the money into different savings “pots” in a spreadsheet.* We have lots of different “pots” like a buying a house pot, new car pot, retirement, vacation, etc. Some of these savings pots were determined by nothing more than “let’s put as much toward this as we possibly can,” like our house savings. But others are easier to determine.
I’ll use a trip to Florida in March that we’re planning for as a good example. We set up this savings pot in September, assuming we would have the full amount saved by the end of February (meaning no monthly contribution for March, since the trip takes place in March).
Basically it was as easy as determining our budget for the trip, after plane tickets and lodging, which would be paid for in advance. You just divide your budgeted total amount by how many months you have to save for it, and you’ve got your monthly savings pot allocation amount. Of course, you also have to have a savings pot for the items you will pay for in advance, but we’ve found it easier to keep track of those as separate line items, since the date you need the funds differ.
I won’t bore you with the full details of all our many savings pots, but thought I’d share how we do things, because it makes it so much easier to not only prioritize your savings, but it also makes sure you have a realistic idea of if you can actually save enough for something in time. Like, um, the $20k trip to South Africa that I want to take. In order for us to take the trip in late 2012, we would have to save over $750 a month for it. Yeah, that’s not happening! And even though I want to take that trip really badly (it’s a lifelong dream of mine), crunching the numbers helped put it into perspective, and we’ve decided that redirecting that money to our buying a house savings pot is a much higher priority for us at the moment.
So there’s a look at how we’ve worked out our finances. It’s working very well for us at the moment, but like I said earlier, we will continue to review this periodically, and adjust as needed. Hopefully this was helpful, or at least interesting to you!
Tell me, how often do you and your SO review your budget? Do you have any good savings tips?
* SmartyPig also offers an online savings account that lets you split up your savings into different "pots," similar to how we're doing it on our spreadsheet. However, after looking into using this service, we found out that the interest rate once you have over $50k in savings decreases dramatically. So it's not something that would be worth it for our house buying purposes, but if you're interested in setting up different savings goals/accounts/"pots" it might be something worth looking at for your own needs. Additionally, I've also heard good things about Mint.com for tracking your savings goals, but what can I say, I like being in full control, and updating our savings spreadsheet only takes a couple minutes of my time each month.
* SmartyPig also offers an online savings account that lets you split up your savings into different "pots," similar to how we're doing it on our spreadsheet. However, after looking into using this service, we found out that the interest rate once you have over $50k in savings decreases dramatically. So it's not something that would be worth it for our house buying purposes, but if you're interested in setting up different savings goals/accounts/"pots" it might be something worth looking at for your own needs. Additionally, I've also heard good things about Mint.com for tracking your savings goals, but what can I say, I like being in full control, and updating our savings spreadsheet only takes a couple minutes of my time each month.
