We’ve posted a lot about our reasons for being “frugal,” or living on less than we could. We want to live purposefully and generously. We want to invest time and money into our family, friends, and community now and as our financial flexibility increases. However, I use quotations around frugal and even hesitate to quote my own blog title anymore, because our thriftiest days are behind us.
I’ve already chronicled my fall from homemade-yogurt-making diva to grocery delivery slacker. Blame it on the third kid, middle age, or financial frivolity as you will, but ain’t nobody got time for my semi-crunchy lifestyle of yore. (Actually, I recently made granola for the first time in years, but only because I was on one of my dreaded anti-sugar crusades.)
I’m also not sure what to call our former so-called “frugality” because much of what is today deemed extreme frugality was standard fare a generation ago. My mom hung laundry, cloth diapered, composted, thrifted, and side-hustled without seeming to think twice about it. Not to mention Neil’s grandparents raising 5 kids in a small bungalow with a postage stamp yard, because that was normal.
And then there’s us. Third kid, we buy a minivan and a bigger house with a bigger yard. Spend $$$ on gymnastics, etc. (but so did my frugal mom for me; it comes full circle). I hung my formerly frugal head in shame while ordering extra Christmas gifts for the third kid she won’t steal the middle kid’s presents.
Looking back over 16 years of adulting (read: marriage), we were frugal for a season. And for a reason: we paid off our first home. We got the investment snowball rolling. Started college funds. Travelled. Gave to charities. All of which would have been a lot harder to do one income had we taken on car payments, consumer debt, or a lot of restaurant dining.
Now I’m left searching for a new term to label our lifestyle. The phrase financially efficient comes to mind. This is, like our title, both subjective and tongue-in-cheek, since there’s absolutely nothing efficient about having 3 children, and in many ways, this choice was the end of all efficiency for us (See “We Hate Money, or We’re Having a Third Kid“). But our growing responsibilities and expenses led us to re-evaluate what is worth saving our pennies over, and what is not.
Now, as the stock market and time have been working their magic on investments, and as our income has grown, and as we’re pulled in more directions than ever, saving dollars in my old crunchy ways seems less worth it. A decade ago we were newly settled into our first home, had recently paid off our student loans, and were enjoying our first Christmas with an infant. Now we’re nailing down the details of Roth conversion ladders because a period of more flexibility is not so very far away.
A few thoughts come to mind as I look over our financial journey, and the many personal finance articles and blogs I’ve read over seven years of blogging. On the debate between growing income versus cutting spending: it’s more about your values and priorities than numbers. I.e., what do you want and need to focus on? How much did hanging laundry and cloth diapering speed our progress? Very moderately. But having chosen to stay home with the babes, I wanted to do what I could. And it’s better for the earth. (Says person who buys paper plates 300 at a time.)
What did help was buying a home we could afford, putting 20% down, and paying it off early. Paying our student loans off early as well. Avoiding car payments and other consumer debt. And with the cushion provided by no debt except a smaller mortgage, we got those investments rolling, because the first $100,000 really is the hardest. A lot of smaller things like cooking at home, camping for some vacations, and buying secondhand didn’t hurt.
I’d also point out that the posts you see about extreme frugality or no-buy challenges usually reflect a very limited period–a season. Sure, many people could live on a limited income for a year or two. You defer home upgrades & large purchases, and not buy clothes for a couple years. There is a real value in breaking needless shopping habits, learning contentment, and rethinking how you consume. Considering how we’re inundated with ads and influencers telling us what we need to improve our “lifestyle,” these frugal challenges have their place. And funds directed toward bigger goals have a lasting impact. Just don’t feel bad if your average spending doesn’t match up to an catchy headline.
More important than the number you spend, save, or even give, is the why behind what you do. Do you have financial goals? Are you happy with how you’re spending? These are topics we like to revisit near the beginning of the year as we look at our budget and plan for the future.
How has your approach to personal finance changed over time? What are your goals this year?
Back in college I always joked about how I couldn’t wait to be a “real person.” You know, someone with a degree, a job, and even a family. I’ve “arrived” at my youthful definition of adulthood and found there’s much more to it than I once thought. It’s impossible to capture the essence of maturity in one blog post, but here are some steps that have been part of my journey.
1. Make a financial spreadsheet. I’ve always been a saver and planner, but for years the numbers were just swirling in my head, or floating around on bits of scrap paper. Then my husband Neil, an engineer and Excel-lover, made an epic spreadsheet that’s tracked and motivated our financial goals for years.
The spreadsheet helped us visualize the progress of short-term goals like saving for a down payment or a baby . It’s also how we budget and track our net worth, retirement accounts,credit card rewards, and more.
Not sure where to start? Plug your numbers into our 9-page sample spreadsheet. (The numbers are fake, the formulas are real.)
2. Give money. It’s all too easy to put off charitable giving until we feel more financially secure. Regular giving will never feel easy, as we’re all prone to increasing our expenses along with our income. If you give a little when you have a little, you’ll be more likely to give more when you have more.
3. Volunteer overseas. We each traveled separately on an international mission trip and found it very worthwhile. We are so grateful for the opportunity, as it truly changed our perspective and deepened our sense of purpose. Of course, you don’t have to cross borders to help out. The step outside my comfort zone wasn’t quite as large during domestic service trips, but they were still profound experiences.
4. Pay off debt. Many people our age are still nursing student loans, while adding credit card debt, car loans, and mortgages. While we can’t control the cost of college or the borrowing choices we made as teenagers, we can move forward by taking debt payoff seriously.
Debt is a major source of financial stress, so why add more of it to your life? Get your numbers into our sample budget spreadsheet and explore the possibilities—could you cut from areas like entertainment, travel, or clothing to get out of debt faster? Is there are any way to the lower the top three expenses of housing, transportation, or food?
5. Max out retirement accounts. In your 20s and 30s, retirement feels far away, almost mythical. Perhaps that’s why 40% of millennials don’t have a plan for retirement. Yet it’s so important to temper enjoying the present with planning for the future.
Even before your debt is completely out of the way, it makes great sense to start investing because an early start allows compound interest to work its mathematical magic. We struck a balance of investing 15% of our income while aggressively paying down student debt. After that we increased our rate of investing.
6. Have kids. Raising children is so hard at times, but it’s softened my heart unimaginably. And while most sources say kids cost a pretty penny over the long run, having them also motivated us to get our financial act together more than ever. Read about How Having Kids Has Improved Our Finances.
7. Make time for friends. Often as people marry and have children, friendships fall into the background. As a mom of little ones, I completely understand the draw to hunker down and just try to survive! But there is no time that you need your friends more than as you enter the new roles of spouse and parent. While we don’t go out with friends as much as we did before babies, we continue to see them at church, invite people over for dinner or coffee, and plan fun little outings with other families.
8. Dream big. I can be pragmatic to a fault. Case in point: when a curly-haired cutie asked me out to lunch on the second day of college, I answered dryly, “I already ate.” (We’ve been married ten years now.)
If I just slog through the details of daily life without a bigger purpose in mind, I’m at risk of only doing what others expect of me. And that’s very dangerous for both my finances and my soul. Dreaming big helps you clarify your motivation for any grownup action items. We’re much more likely to follow through on steps that fit into a bigger picture.
We also find ways to incorporate elements of our dreams into life today. That’s why we’re Rocking the Burbstead!
Sometimes I can’t believe the college girl who turned down a lunch date is now a “real person” with a family, an IRA, and a financial spreadsheet. None of those inherently comprise adulthood, but they’ve been part of my journey. What about yours?
What’s on your grownup checklist? What is your next action step toward a bigger goal?
What’s more important: increasing income or decreasing spending? The debate rages on, but unfortunately many answers miss the crux of the matter.
After a year and half of talking a lot of thrift, we recently broached the income side. To be honest, much of our financial progress has been supported by an above-average income. Yet we’re a one-income family living on less than half our take-home pay. We spend less than average and that makes an impact, too.
Many argue that you can increase your income by greater magnitudes than you can slash spending. But people often find their budget feeling tight even after their income grows. If you spend more than you make, it doesn’t matter how much you make. You never get ahead.
So what’s more important—your income side or your spending? Whichever one you need to work on. It depends on the person. I can’t tell you which that is for you, but I hope the case studies and questions below will help.
Consider two case studies of real-life families:
Family 1 was often running low on money despite having a very good income. They cited their house, having a baby, and medical expenses as some of the reasons for having cash flow problems. They were right that their spending was the problem, but were citing reasonable expenses instead of looking to the ones they could decrease.
Over time, resources from Dave Ramsey helped motivate them to reassess. They were eating out multiple times each week. They were paying for gym memberships they didn’t use. They were buying convenience items. One partner was smoking. They had a car payment and student loans. Once they started cutting back in these areas, they were able to pay off their car and student loans early. They built enough equity to stop paying PMI. The smoker quit. They started cooking at home. They identified that the problem was spending, acted accordingly, and have continued to make huge strides toward financial flexibility.
Family 2 was often close to broke, but one spouse’s father would cover what they couldn’t on a monthly basis. He even gifted them a down payment on a house. The only problem was that they couldn’t really afford the monthly mortgage payments. When they had their first child, the wife left her job to stay home. The husband worked in a field with limited earning potential. They still had student loans from his associate’s degree.
While their bills were paid, they had a serious income problem: part of their income was coming in the form of regular gifts. While this was very generous, it was ultimately unhelpful. It didn’t allow the family to attack their finances from the income side, which desperately needed attention. Both partners were capable of earning more but weren’t sure how to make it happen.
See how landing on just income or just spending doesn’t solve the problem for all situations?
Do You Need to Hustle?
If you’re underearning, dissatisfied with your job, or aren’t making enough to get by, you need to work more, harder, and/or smarter. You absolutely need to attack the income side so you can gain flexibility and not have money be the limiting factor in every life decision. You need a raise, a career move, a second job or other side hustle. Here’s how we stopped underearning by overstaying at the same company.
Know when it’s time to move on. Research your value in the market. Negotiate a raise if you’re underpaid. Assess what you’d be willing to do to make more money: would you work overtime, change companies, relocate, change careers, or start a side hustle or small business?
At some point, working more, harder, or sometimes even smarter becomes undesirable as it detracts your time and physical and mental energy from what you’d rather be doing. A common belief states if you could possibly make more money, you should. I disagree. There’s a lot more to life than pushing your earning potential to its outer limits, at any cost to other areas of your life. Always keep your real worth in the balance with your net worth.
Do You Need to Cut Back?
Do you have a good income and still find yourself broke? Do your expenses rise steadily alongside your income? Do you know how much you spend on average in a month? Are impulse purchases, going out, or recreational shopping frequent for you? Look to your spending for solutions.
I sense that people from relatively affluent homes are more likely to need to work on this side. People with the advantages of the middle and upper-middle class are more likely to earn good incomes. They’re also more likely to be acclimated to a “comfortable” lifestyle that may have taken decades for their parents to build, but they aim for as soon as they land their first job.
Whatever your background, don’t dismiss the expense side of the equation until you have a handle on how much you spend, and on what. It’s easy to say, if I only made as much as her, or if we could just catch a break from special expenses cropping up, then we could get ahead. But if you’re making decent money and not saving it or paying down debt, more money isn’t going to fix the problem.
In summary, my answer to the income vs. expenses debate is that you need to work on the area where you’re weaker until you gain traction. In some cases, you’ll need to work on both. But you simply can’t assess which one it is for you unless you have a good picture of your financial situation. We approach this by tracking our spending and creating an annual budget.
Review the last few months of your income and spending to catch a snapshot of both angles. If you cut, cut, cut, and there’s still not enough income, increase the input. If you earn, earn, earn and never find it to be enough, it’s time to decrease the output. Underearning and overspending are both a waste of precious resources.
A healthy financial situation looks like being happy with both your income and spending, while staying open to improving both sides. Once you reach this point you’re free to focus more on the angle that’s your strength.
What are your financial strengths? How have you improved your weaknesses? Any other takes on the income vs. expense debate?
Everyone has those things they’re willing to spend money. For some people it’s clothing, for others it’s restaurants or concerts or “toys.” We’ve always recognized that for us it’s travel.
Some people call this “values-based spending” and or “intentional budgeting.” Others refer to such spending as “budget failure justification.” I believe values-based spending is a great idea, though I doubt we’ve all thought through our values as much as we might give ourselves credit for. There’s also a common pitfall of saying you value just about everything, as a way to rationalize spending.
That said, it’s 100% legitimate to choose areas of non-essential spending and decide, “I value my health, so I’m going to buy healthy food, even if it costs more.” Or “I value learning so I’m willing to spend on books, or private school.” Whatever your areas are, that’s up to you. I wouldn’t recommend going into debt for most areas, but beyond that it really is a matter of personal preference.
At the same time, values-based spending has a dangerous blind spot: your values.
The Slippery Slope From Values to Invaluable
Once we pick a category and say, “this is valuable to me,” it’s a slippery slope to viewing that thing as invaluable. Meaning you’d spend (just about) any amount on that area that is so important to you.
The danger isn’t that you value a category, it’s that you have a blind spot toward your spending in that area. Let me give you an example from my life: dating my husband. This is non-negotiable to us. We make do with evenings at home together (that’s not most nights for us), but with two little ones and busy schedules, sometimes we just need to get out and have fun together before 9 pm.
So after our second child was old enough to leave with a babysitter, we went out about once a month and spent at least $50 every time. We’d budgeted $50 since we cherished that time together and wanted to have a meal and maybe do something afterwards. When Neil suggested we didn’t have to spend that much every time, I got defensive, made fun of our pre-parenthood Taco Bell or home dates, and basically shut down that suggestion real quick.
Then I realized I had a blind spot. We could choose to spend $50, and that was fine. Nothing wrong with it. We still do sometimes. But we could also enjoy ourselves just as much with cheaper meals or diversions, while upholding our values of date night and our marriage.
My emotional blind spot for this important area leeched my creativity in seeking good alternatives. While this expense wasn’t breaking the bank, the same phenomenon can take hold in many, sometimes more expensive areas.
Another area we value is our involvement in church ministry. We are volunteer leaders in our church and this means we spend money on retreats and social/ministry outings regularly. We are happy to do so, but have found some cheaper solutions. For example, sometimes we “pre-game” a restaurant outing and just order something small, or carpool or ride bikes to events when possible. We also choose to pay a babysitter so we can have less distractions during our home church meetings. So there are ways we’ve found to spend less while maintaining involvement, and there are also facets that we can’t really cut back on, or at least aren’t willing to.
How to Squint Out Your Blind Spots
First try to identify your value areas. And remember–you don’t get to pick everything! Common value areas include family, safety, health, education, faith, travel, adventure, gifts, technology, media, the arts, sports, friends, or experiences.
Now have a little brainstorming session, identifying possible alternatives to your current spending in your high-value areas. Be sure to ask your significant other or friends for ideas because it’s hard to think outside the box sometimes.
Please hear me: you might get creative, do some research, and find there are no better solutions or alternatives to your value areas. Maybe you recognize there are cheaper solutions, but you don’t have the time, inclination, or skills to adopt them. Then you would carry on as before, knowing that thing is really worth the price to you. That’s fine!
But a healthy dose of skepticism about our own values-based budgeting is helpful, because we’re almost inherently emotional about the things we value. And emotional money decisions aren’t always the wisest. It’s unrealistic to think any of us is going to do money perfectly every time, but I’d like the idea of reassessing and become more financially self-aware and solution-seeking over time.
What areas of your budget do you value most? Have you ever identified a blind spot in your values-based spending?
Now that you’ve put those Christmas lights away, we’ll show you how to lower your electricity bill by up to half. In fact, it’s almost wrong we haven’t written about this yet. Neil is an electrical engineer whose specialty is power and energy. And I used to develop curriculum for a green energy education company.
Together, we’re an energy-saving team with an electricity bill of less than half the national average. The average residential US electricity usage is 911 kWh per month; ours was just 371 kWh per month in 2015. We’ve watt-metered a few devices in our day and can show you how to cut your energy use without wasting your life on silly tasks like unplugging your toaster.
The Electric Slide
The average American electricity usage slides slowly up each year, even with all the HE options now available. I’m sure expanding home sizes and technology use are partly to blame. We’ve found ways to fight the upward slide without living in the dark or giving up modern conveniences. In the last five years, we’ve doubled our human occupancy but steadily decreased our usage. Mostly our improvement is owed to the power of tracking. We’ve recently made much of why we don’t budget, but we do track our expenses and continually seek ways to reduce them.
In fact, utilities are a prime example of an expense for which tracking is superior to budgeting. Seasonally variable costs and fluctuating rates make utilities a slippery item for budgeting. Paying an average “budgeted” plan lacks precision as you’ll almost certainly over- or underpay. So people are left with two options: guess, or budget what you spent last month. The latter is essentially the same as tracking, but lacks the power to adjust behavior unless it’s compared over time.
Tracking in an organized, graphic fashion where you can watch the trends over time is the best way to fight the upward electric slide. No one needs to read a whole post about turning off the lights or unplugging electronics. The behavior that can actually change your variable utility costs is tracking them.
The “No Impact” Myth
Failure to track electricity use perpetuates the “no impact myth” that turning off a light or two won’t make a dent in your bill. But you’ll never know if your changes are helping if you don’t track your bill month by month. The myth that your behaviors won’t substantially impact your utility costs is not only fatalistic, it’s false. Thus tracking is the first step toward lowered utility bills.
Pricey home meters can be installed to track your usage, but of course we’d never pay for something we can easily accomplish for free ourselves. To slide your electricity bill down instead of inevitably up, help yourself to our free utility tracking spreadsheet. Our data is there for example, but you can easily overwrite it with yours. Check your past usage, available online through many utility companies.
Of course, tracking alone can’t alter your bill; you need some changes to track. In this post we’ll tackle the topic of lighting, going beyond the obvious “turn off the lights” to simple strategies that will save money and improve your quality of light. And Wednesday we’ll share a few other heavy-hitting cost reducers that help us keep our bill below half the national average without sacrificing time or convenience.
Evict the Incandescents
It’s hardly news that indcandescents are becoming obsolete. Even though compact fluorescent bulbs (CFLs) and LED bulbs cost more upfront, they pay for themselves in energy savings. An LED bulb uses 1/6 the amount of energy as a comparable incandescent, and lasts 20 times as long. LEDs have recently dropped in price, making them an affordable and highly efficient option for the average consumer. If you have ANY incandescent bulbs in your house, I urge to replace them with equivalent LED bulbs.
If you’re overwhelmed by switching out every bulb in the house, begin with most-used bulbs in living rooms, kitchens, dining rooms, and entryway chandeliers. Then work your way to bedrooms and bathrooms (which might already have fluorescents). Newer technology in CFLs and LEDs produces a higher quality of light than old-school types; in some studies their light quality has been preferred by consumers to traditional bulbs.
You may be able to score some free bulbs by contacting your local energy provider about promotions or energy savings kits.
Let There Be Light
We use daylighting as much as possible, opening the blinds even when it’s partly cloudy to supplement or replace electric lights. Try turning off lights one at a time to see how much of a difference they actually make during the day. Often it’s negligible.
If this sounds time-consuming, rest assured that it quickly becomes second-nature, especially as you soak in the all the sun’s benefits. Studies have demonstrated that sunlight improves people’s mood, productivity, and health. I don’t know a human who doesn’t feel happier on a sunny day than a gloomy one.
I’ve noticed that in many homes, most lights are left on all the time. But why compete with the most powerful light source in the solar system? We take the opposite approach by turning off all the lights and adding one or two as needed. Kids can complicate the equation as they notoriously forget to shut off light switches, but we’ve noticed that our son has picked up on the habit through our modeling rather than nagging. He even tells us not to waste electricity!
Again, tracking is your first step toward lowered utility bills. Savings across several bills could add up to well over $100 per month. I’d be mad if I lost $100 bill every month, which is why it’s well worth it to me to employ a few simple steps to save that sum. Please check our free utility tracking spreadsheet, enter your numbers, and watch the magic begin. Happy tracking!
Do you track your electricity usage? How do you save on lighting costs?
To budget or not to budget? In my last post I described Why We Don’t Budget except once a year. A slight misunderstanding of budgeting could lead people to spend more out of habit; however, it doesn’t mean budgeting is a useless tool that should be avoided by all. You can’t throw the baby or the budget out with the bathwater. Yet many people “budget” but are always broke or spinning their wheels financially.
So let’s bring some fun to the budgeting dilemma by exploring signs of whether you need a budget or not. Disclaimer: I’m not a certified financial professional or a comedian.
You might not need a budget if…
- You have gum recession from brushing & flossing your teeth too much. (Um, yeah, that’s me.)
- Your idea of a wonderful date is hiking and drinking water.
- Your favorite foods are oatmeal and peanut butter.
- You’ve been called frugal, thrifty, a tightwad, or penny-pincher.
- You spouse throws away your favorite clothing behind your back.
- You’re an engineer who loves optimizing everything.
- Your last impulse purchase was clothespins.
- You hate the mall.
- You check your online accounts every day.
- You can anticipate the answer on every one of Dave Ramsey’s radio show calls.
- Your spouse has to tear you away from Excel to watch Shark Tank.
- You are proud to still be wearing shirts from high school.
- You know how much your average monthly utilities cost.
- You have a natural aversion to spending.
- You have a natural aversion to debt.
- You “pay yourself first.” Savings, investments, and giving are automatically deducted from your checking account or paycheck at aggressive rates.
You might need a budget if…
- You floss once a month, whether you need it or not.
- You have consumer debt.
- You need a good excuse to tell your spendy friends no.
- You don’t have a peanut butter sandwich in your bag at all times.
- You have a hard time remembering prices.
- You were born with a case of wanderlust.
- Your last impulse purchase was a piece of clothing or technology.
- You don’t know how much you spend on groceries or gas.
- You love the mall (or Target).
- You’re excited to get a big tax return so you can pay some bills.
- You are proud to be wearing clothes from the consignment shop.
- You’re pretending to be frugal by finding discounted ways to increase your lifestyle.
- You’re not investing at least 15% of your income.
- You’re experiencing lifestyle inflation, where your expenses always seem to outpace your income.
- You have emergency savings, but not enough to weather a 3-6 month unemployment.
- You want to be more generous (don’t we all?).
You definitely need a budget if…
- No amount of dentists are ever going to get you to floss. (J/k this is not relevant.)
- You think your Starbucks Rewards card is saving you money.
- Your consumer debt is growing.
- You live paycheck to paycheck.
- Your plan for emergencies is your credit card.
- You don’t naturally have a memory for numbers, beyond your age and phone number.
- Your last impulse purchase was a car.
- You don’t know how much your monthly rent or mortgage payment is.
- You are proud to still be wearing clothes from last year’s trends.
- You are not investing enough to receive your full employer match.
- You never have any money left to give.
There’s no shame in needing a budget. In fact, we should probably be ashamed of writing a financial blog while not budgeting. Or of being so naturally uptight that we don’t need one. You have to find out what works for you. Just remember these cautions when it comes to budgeting:
- A budget is more than a list of expenses. It should include “paying yourself first” by saving and investing. Actually, we prefer to “pay God first” by giving a percentage of our income to our church and some charities. But next we immediately send money on its way to our index fund and early debt payoff. You might put money in savings for emergencies, your next car, a vacation, next Christmas, or any other special expense that you can (or can’t) anticipate.
- A budget is not a license to spend. Do you have blow money budget lines (a.k.a. Ugly Christmas Sweaters)? Do you really need all that blow money, entertainment spending, or clothing every month? If you budget it, you’ll likely spend it. Why not try to see how little you can spend, instead of asking how much you’re allowed to spend?
- The goal of budgeting is not to avoid “going over budget.” Sometimes those BS lines exist because people don’t want to go over budget. Their solution is to overestimate and over-itemize. Keep it simple and budget as few categories as you can, so you can actually keep track, and so that you don’t give yourself reasons to spend when you don’t need to. The goal of budgeting is to get your money where you want it, not to avoid going over. Rules, like budgets, are made to be broken. Life happens, you meet unexpected expenses, but if you’re meeting bigger financial goals you’ll be better equipped to weather these blows.
- Remember to plan NOT to spend. Pick a category in your budget and look at it through this new lens, asking how to optimize that expense. Challenge everything, as J. Money suggests. Just because you’re always paid XXX for food or electricity or your cell phone doesn’t mean you always have to. For example, we used to budget for firewood, but now we’ve found ways to stock up for free, and this also reduces our winter gas bill. Decide if there is a step you can take to reduce expenses. Take it one line at a time so that you don’t get overwhelmed or quit. We’ll share some tips on areas like utilities, entertainment, and more in upcoming posts.
Lastly, choose a spending strategy. We prefer to automate as much as possible, using “frugal autopilot” a la the Frugalwoods. Others prefer the hands-on regulation of cash envelopes recommended by Dave Ramsey. Whatever you decide, be sure to track your progress for an objective assessment of how effective the method is for you.
For more on our philosophy of budgeting, check out Why We Don’t Budget.
What other questions or caveats would you add to help someone decide whether they need a budget?
The personal finance blogosphere is bound to be abuzz with New Year’s posts centered on goals and budgeting this week. I’ll spare you another piece on goal-setting, but since starting this blog I’ve been meaning to share why we don’t follow a monthly budget. Anathema, I know! Don’t tell Dave Ramsey our dirty little secret, okay?
Despite this apparent negligence, we live on less than half of our one (five-figure) income. Not budgeting is clearly working for us, and while this approach may not be for everyone, we believe it illustrates much about our financial philosophy and practices. Most people’s definition of budgeting is doing their money a grave disservice. We hope to shed some light and help you get your money where you want it this year.
Don’t Eat All the Leftover Christmas Cookies (or Money)
Despite our irreverent financial customs, we do create an annual budget around this time of year to determine ahead of time where we want money to go. But this exercise is about bigger picture goals like investing, accelerated debt payoff, travel, Christmas, other gifts, and charitable giving. We don’t want to fall prey to the strange phenomenon where you never have anything left to invest or share if you wait to use what’s leftover.
Money is kind of like all the Christmas cookies and candy still lurking in my house after the holidays. If I waited till I had my fill of sugary delights, I’d eat every last confection. Instead I evacuate it from my home ASAP so I don’t develop diabetes or have little people whining at me all day about treats. Though these reasons are a bit more selfish, the same principle applies to investing, saving, debt payoff, or giving. Get it out of checking and into its destination without delay.
Once our annual aims are clear, we list our living expenses and estimate costs based on the previous year. While we track our spending in Mint.com and Neil’s custom utilities spreadsheet, we don’t tally every single dollar we spend. Instead we focus on those big-picture goals. Many are automatically withdrawn at the beginning of the month. As with cookies, the less will-power involved, the better. Let EFT substitute for will-power.
Let Goals, Not Receipts, Be Your Guide
This approach simply allows us to hone in on our money’s important destinations, instead of nit-picking minor fluctuations in the mundane areas. For example, while I’m mindful of our variables like groceries and household items, I know I’m on track for those when we’re meeting those big goals, rather than meticulously categorizing each and every output.
For example, I can’t tell you offhand precisely how much we spent on household items in 2015. What I can tell you is exactly to what extent we met our goals for debt payoff, investing, and giving. And that’s way more telling than how much we spent on toothpaste and toilet paper last year.
Our big-picture focus is doubly powerful because it not only tells us if our spending is on track, it motivates us to avoid over-spending. We’d be in big trouble if we didn’t pay attention to our living expenses, only to realize we were falling far behind on our goals. Being sold on our objectives clarifies the purchasing choices we’re confronted with throughout the year. This is a large part of the reason Why I’ve Banned Shopping Bans.
What is a Budget, Anyway?
In common parlance, people use budget to mean a plan about how to spend money. It’s considered a list of expenses. And too often when it’s written down, it’s accepted as an inexorable reality. Electricity costs $80. We need light. No questions asked. Used this way, a budget becomes a license to spend. No one wants to “go over budget,” so people feel compelled to write down every possible expense for every month, even though many expenses don’t necessarily occur on a monthly basis, such as clothing. Over-estimating is also tempting under this paradigm.
So many financial gurus exalt the discipline of monthly budget meetings. Some even depict it as a sultry date night topic. Faced with so much hype (SULTRY!?), we tried the exercise for 3 consecutive months. We even found ourselves accounting for extra areas like blow money and ministry expenses, “just in case.” The verdict? BORING, not sultry. And more relevantly, we found that our monthly budgeting led us to spend MORE money or made no difference. We thereby declared it a waste of time, much to my joy.
Instead of viewing the budget as a spending plan, we think of our annual budget as a plan for what we want to accomplish with our money. Where do we want that money—in the stock market, early debt pay-off, a car fund, other savings, or the pocket of a nonprofit? Then we get it there ASAP. And financial progress is as exciting as budget meetings are boring.
If normal budgeting is deciding how to spend money, we prefer to decide how to NOT spend money! Of course we’ve got nonnegotiable monthly expenses, but instead of accepting with carefully budgeted resignation that electricity has to cost $80 a month, or groceries have to cost $600 per month, we find ways to optimize, and thereby minimize, those expenses. Just think about how many people are proud to stick to their monthly food budget of $600 when we have no problem sticking to about half that amount for a family of four. I’m not trying to boast or get into a debate over how much to pay for groceries; I just want to illustrate the point that budgets can be used as a license to spend. As the Frugalwoods have so aptly expressed, “budgeting asks how much one can spend; we like to ask how little we can spend.”
This monthly license to spend is akin to pretending to be frugal rather than pretending to be poor. We’re not looking for permission to maintain our lifestyle; we’re looking to actively deflate in order to inflate our usefulness, instead.
At the same time, we recognize our laissez faire approach isn’t for everyone. It depends on many factors including your financial personality. We hope our definition of a budget helps you align your money with your goals this year. We also plan to provide some useful tools, such as an upcoming post to help you think through what budgeting strategy is best for you, and an epic spreadsheet share.
What do you think about this definition of budgeting? What is your approach to budgeting? Don’t worry, I won’t tell Dave Ramsey, either 🙂
The Advent of the Ugly Christmas Sweater
When did you attend your first Ugly Christmas Sweater party? And how much did you spend on that embroidered, bedazzled beauty (or beast)?
Back in 2004, one of my hipper college roommates (they were all hipper than me) suggested we throw an Ugly Sweater party. It’s been so long I don’t remember how much my ugly sweater cost, but it was definitely less than $5. Neil also snagged one for a few bucks and still proudly sports it through the holiday season and beyond.
During a recent visit to the thrift store, I noticed that the Ugly Sweaters were displayed prominently, and over-priced compared to their Regular Sweater counterparts. There was no shortage of discounted jolly jumpers cast off by retired elementary school teachers when my roommates and I shopped for such treasures. Twelve years later, Ugly Sweaters are sold by just about all major clothing retailers, and you can even buy “designer” ones for $40-65 in horrifying prints such as:
Perhaps my fashion sense is a bit outdated, but I’m fairly certain that NO MAN SHOULD EVER LET THAT MONSTROSITY TOUCH HIS BODY! Or woman, for that matter. Neil’s opinion of Santa Centaur sweater: “It’s funny, but not $40 funny.”
But I suppose tastes will vary, so I’ll get to my actual points:
- Trends are stupid.
- Marketers can get people to spend money on anything.
- Fashion is futile.
- Value is relative, but sometimes it shouldn’t be.
The Ugly Sweater In Your Budget
I don’t think I even need to elaborate on those. So let’s end with some application: There is probably an Ugly Sweater in your spending. I’m talking about that line of your budget that owes its existence to a marketing ploy, a cultural myth, or an old habit that’s gone too long unchallenged. Maybe the line item itself is legitimate, but the amount is just nutty, and you can’t see it because Ugly Sweaters have become the norm. You’ve become inoculated against their ugliness and re-conditioned to view them as hip, or at least passable.
I have no idea what your Ugly Sweater is, but I urge you to find and unravel it. One likely culprit is consumer debt. By which I mean anything outside of student loans or a mortgage. Especially a car payment. A lifestyle of continuous consumer debt has only become an acceptable norm recently. Borrowing money all the time used to be as tacky as a Santa Centaur shirt. Living on less you than you make is precisely what we meant by pretending to be poor, and it’s a reasonable but often overlooked financial option with loads of benefits like financial flexibility.
Here are some Ugly Sweaters we’ve discovered in our budget:
- Haircuts for Neil. He’s growing his hair to his knees instead. Just kidding, I learned how to cut it.
- Haircuts for our boy. Neil’s job.
- $50 dates. Since we don’t get out often, we would budget (and spend) $50 every time. While we’re willing to splurge sometimes, we’re trying to get out more and spend less when we do with options like splitting entrees, going to our favorite less expensive restaurants, and buying ice cream at the grocery store. (Also, we visit places like parks, thrift stores, libraries, and coffee shops.) More on why you can’t afford not to date your spouse soon.
- Buying wine by the bottle. Unless there’s an amazing rebate, we’ve found less expensive ways to imbibe the occasion adult beverage. We are not ashamed of buying box wine.
- Christmas Lights. We’ve gone all out on outdoor lighting in the past, and probably will again, but we’ve reigned it in the last two years in order to focus on some big short-term financial goals.
- Buying all-new Christmas gifts. Last year my wonderful mother suggested Goodwill was a perfectly legitimate place to buy thoughtful, useful Christmas presents, and we heartily agreed. We only buy for a select few people this way, but we save a lot buying our kids and each other certain pre-owned gifts. For example, the two-year-old’s Christmas tricycle is totally coming from Craiglist.
- Hang-drying laundry. We started saving about $25 per month in electricity when we stopped using our dryer so much.
- Wearing jeans with holes. I used to throw out jeans as soon as they wore holes in the knees, because that was “not my style.” Then I realized I could keep wearing them for some time before they actually qualified for scrap bag status.
- Cloth diapering. Though we are currently using disposables until (hopefully) potty-training soon, we saved thousands by using cloth diapers. More on this in an upcoming post I wrote for another site.
- Buying boneless, skinless chicken breast. Now I buy whole or bone-in chicken pieces and it saves a ton.
What do you think of the Ugly Sweater phenomenon (literally and figuratively)? Any idea what your Ugly Sweater spending might be?
Many news stories are featuring families that follow shopping bans for a year or more. I applaud anyone who makes a major change to improve their finances, and the sentiment has strengthened my resolve to resist needless spending. I’ve encouraged those looking to break a recreational or therapeutic shopping habit to try this tool. That said, I’ve refused to jump on the shopping ban bandwagon. Shopping bans are banned from the Pretend to Be Poor household. Here’s why they aren’t for me:
- Rules are made to be broken. The very nature of the human heart rebels against rules, and imposing extra, unnecessary rules might not be the best way to stimulate financial self-improvement. As soon as I’m not allowed to have lattes, what am I thinking about? LATTE LATTE LATTE LATTE! But if you need to, ban lattes till the cows come home.
- Goals are more motivating than rules. Finding a positive motivation, like focusing on specific financial goals like debt payoff, saving for a major purchase, investing more aggressively, or giving to a charity can be a lot more effective than a big fat NO that ultimately incites rebellion.
- I want purpose and principles to order my life. I’m not interested in reducing spontaneity or socializing because I’m so controlled by an artificial constraint. For example, one of the principles that separates effective from faux frugality is counter-intuitive: instead of budgeting how much we should spend, we strive to see how little we can spend. We don’t follow this to a tight-wad extreme, but make sure we meet our family’s needs, practice generosity, and prioritize relationships. To be ordered by purpose and principles means I’m not going to spend $4 a day on coffee because I know what that $4 a day could do in the stock market, or for an impoverished kid in a developing nation.
- The personality factor. I firmly believe there is an element of personality that affects our finances profoundly. I’m a saver, married a saver, and if anything, my tendency is to resist buying things when I should. For example, Neil has been threatening to throw out my beat-up shoes for six months now, and tries to find excuses, like the fact that I wore them when the toilet overflowed, as reasons to do so. (I sanitized them.) Small children and pets all seem drawn to my jeans’ growing knee holes, and Neil suggested I might be taking the PTBP thing a little too far. (I’m just protecting my nicer jeans from the harsh effects of motherhood.) I realize shopping bans allow for purchasing needs, but I’d rather decide what I need as I go than trying to make an all-inclusive list ahead of time. That’s just my personality though. For other temperaments, if the shoe fits, have a shoe-shopping ban.
- Having children inflicted an involuntary shopping ban on me. I remember rushing to the store to secure a “mom” bathing suit the day of a family pool party, since the (hand-me-down) string bikini top seemed downright dangerous with a nursing babe in arms. Bathing suit shopping with kids is a very relaxing experience. My son detached all the bikini straps and threw them in the aisle while yelling made-up words. Then he sneaked behind a mirror into a forbidden nook, and returned only to push said babe around in the stroller at breakneck speed.
- I’ve automated my spending to a large extent. People often imagine being frugal is super hard work. Sometimes it is (ask my husband who’s been fixing our cars), but mostly it’s easier to simply not go to stores and not buy things.
- Like certain forms of minimalism, shopping rules can be as materialistically focused as over-spending. For example, if I spend too much time thinking, talking, or writing about why I’m going to keep wearing my holey jeans till they rip right off my body, I might be just as focused on material goods or money as if I went out and shopped for new—even (gasp!) brand name—ones. I’m not saying all shopping bans are ill-focused; I’m just recognizing the extreme I’d be tempted toward.
To wrap up, I wouldn’t inflict my shopping-ban ban on anyone who needs a habit-breaking hiatus. Here are some questions to help you determine if this tool would help you:
- Do you know where your money goes each month? (I.e. do you follow a budget?)
- Do you shop or drive-thru when you’re emotional or bored? Is shopping or stopping for food/drink a hobby or habit for you?
- Have you tried to break the habit before, without much success?
- Are you saving and giving away money on a regular basis?
- Are you able to window shop or go to stores without buying anything?
- Are you able to enter a store and buy only what’s on your list?
- Do you have way more things than you need in a particular area (clothes, shoes, accessories, electronics, movies, books, tools, etc.)?
- Is your entertainment or restaurant spending significantly more than you want it to be?
If you answered yes to some of these questions, you might consider a shopping ban. If you’re not ready to go all in, here are some other ideas to try first:
- Automate errands with Amazon Subscribe & Save.
- Limit frequency of shopping trips.
- Use cash envelopes for problem budget categories.
- Budget a small amount of fun money for splurges.
- Develop a Healthy Aversion to Spending.
- Try pre-gaming restaurant dining.
- Write down your financial goals and why you want to reach them.
My next post will reveal one of my best hacks for spending less when I do shop.
Have you tried a shopping ban? How did it help? Have you banned shopping bans? Why?
Whatever you may think about President Obama’s call against mindless austerity in government spending, it doesn’t seem like such a bad idea when it comes to personal finance. Mindless austerity refers to cutting spending without thinking too hard about the implications. Austerity as it relates to finance means a strict economy, extreme simplicity, severity, or asceticism. Sounds like pretending to be poor on steroids. I associate the word austerity with the Puritan Pilgrims. They came here for the original American dream—freedom and opportunity with a goal of spiritual helpfulness rather than get-mine materialism.
But I digress. Mindless austerity for personal finance may not be entirely mindless, but once you’ve thought through certain expenses and developed a healthy aversion to spending, you need not continue budgeting every penny or even thinking about most money-saving measures. When you start packing lunch you don’t need to fight the urge to go out midday. When you are in the habit of fixing things, buying used clothes, grocery shopping with a list at discount stores, setting back your thermostat, and generally pretending to be poor, you’re not wrestling with yourself every day about whether to stop for Starbucks on the way to buy your zillionth pair of shoes.
Developing a healthy aversion to spending, or mindless austerity, could take you further toward financial flexibility than budgeting ever will. Making a budget helps you see where your money goes and think about where you want it to go. It can point out obvious areas to cut back. But what you really want is to get in the habit of not spending beyond basic areas of need. (I recognize our modern definition of need is not very austere at all.) The secret to this habit, as we already talked about, is contentment. When you don’t feel deprived, you can spend lots of time and mental energy normally devoted to acquiring Stuff on more fulfilling endeavors.
How can you cut from your budget mindlessly? There may be some degree of thought involved but it’s primarily a matter of changing your mindset. Becoming content and spending-averse brings you under a whole new paradigm that will automatically change your spending. At this point the nitty-gritty details of every day spending are simplified by the “strict economy” of austerity.
Instead of thinking about all the Stuff you could buy or not buy, consider this: not only does lifestyle inflation cost you hours and effort at work, it also undermines your ability to build wealth that works for you. I didn’t realize this until recently, but if you make a decent amount of money (and it can be five figures) and you are decent with your money, you will be a millionaire. If you avoid consumer debt, pay your mortgage off early, live on about half your income, and max out your 401(k), etc., you will reach a point where your investments make more income than you do. And you can do this decades before a traditional retirement age. So every non-essential purchase you make detracts from investing funds, which grow exponentially. I know that sounds like mathematical magic but the exponential growth of compounding interest is what builds wealth fastest. It’s not hard and it’s not just for rich people. It’s for smart people. It isn’t for people who love spending, though, because they never seem to have anything left. (I’m not promoting a quest to become wealthy, but handling our funds with wisdom while maintaining a modest lifestyle and generosity.)
In the same way that depending on fast food for sustenance is a sign you’re doing something wrong, if buying Stuff has become a pastime, you need to find some better hobbies! Shopping for recreation on a regular basis is simply not a good recipe for financial flexibility. I can say, as one who is able to window shop without buying, that I don’t buy window shopping anymore, mainly because it’s a waste of time. (I’d make an exception for some social settings.) And window shopping, even if you don’t spend a dime, opens a window of temptation. Advertising and marketing exists to make you feel dissatisfied with what you have. Look at this beautiful shirt. You have probably 30 or 40 shirts in your possession already but you don’t have this one. You deserve it, it’ll make you more attractive, and it’s “on sale” (i.e. marked down from some ridiculous value that it’s never been worth). Most people designing these ads are just doing their jobs. But not buying and better yet, not shopping, is like flashing a triumphant, metaphorical middle finger to the overarching system of Materialism.
People often feel overwhelmed at the thought of trying to cut back financially. Changing your mindset will allow you to set personal austerity measures on autopilot and stay the course toward financial flexibility. Then you can begin giving and saving/investing like never before. Call it mindless, mindful, or renewing your mind. A healthy aversion to spending goes far in pretending to be poor. Next we’ll delve into some practical ways to develop this type of thinking.
What do you think of mindless austerity for personal finance? What are some areas where you could apply mindless austerity with no ill effects?