Money, money, money, money. Money!
August 4, 2014, 12:03 pm
Filed under: Uncategorized

Per the request of a friend, I am going to briefly detail how Kevin and I handle finances in our household.

ED: it turns out I am not brief. Not sorry

My parents lived and behaved in such a way when I was growing up that I came to the conclusion early on that we were very poor and only steps away from complete ruin. I may have had a little more anxiety about this than was necessary. However, that along with my German ancestry formed a severe aversion to spending money. I sweat over it, in fact. This is good for being motivated to save a lot of money, but is bad for anxiety levels.

So our primary goals are:

1. Spend less than we earn in general, to avoid complete financial ruin and homelessness.

2. Try to avoid Katrina laying awake at night worrying about complete financial ruin and homelessness.

We achieve the first by spending less than we earn. We also have figured out how to divvy up financial tasks in such a way that I worry less. I can’t handle being the one responsible for paying the bills, remembering to pay the bill, checking that the bills have been paid, or figuring out how much money we need to have to pay the bills. I also can’t handle doing what I consider extreme budgeting. I can’t dictate in advance how much we’re going to spend on food, clothes or utilities. The idea of even trying makes me nauseous, and then when we inevitably fail, I get even more anxious that we are clearly failing and doomed to complete financial ruin and homelessness.

I never said I was SANE about money.

I tried using Quicken and Mint, but found that that just encouraged my particular brand of crazy. I would obsess over every cent, every budget category, and then despair when we “failed”. It was crazy making! I am not capable of doing that.

So. Kevin is in charge of handling all bills. He sets up auto-pay, he knows when everything is due, he keeps track of how much we owe each month, he makes sure everything gets paid correctly. If something looks funky, he is in charge of figuring out what the issue is.

What the heck do I do, you ask? I am much like a house cat. I sit around admiring myself and basking in the sunlight.

No, no, that’s only partly true. Kevin is the Chief Financial Officer, while I am the Chief Executive Officer. He handles the regular finances, I handle looking at larger trends and proposing plans, changes, and objectives. Basically, he does all the work, I get to sit on my butt and admire myself in the sunlight.

More specifically: we don’t budget, not in the traditional sense. Some people can handle saying “We will spend $200 a month on groceries”. I cannot handle that because then every trip to the store is fraught with anxiety about whether this unnecessary purchase will result in Budgetary Failure. And since I am the Chief Grocery Procurer, that is no good. I do not want to think about financial ruin every time I want to buy some chocolate.

Instead, we determine our “absolutely must get paid and are always exactly the same” bills/payments/withdrawals. These include: mortgage, student loan and car payments, regular bills like cable/internet/phones, insurance for various things, charitable giving. They also include our automatic savings: retirement savings, college savings for baby, mutual fund savings, vacation savings, and allowances to each of us for ‘frivolous spending’. Everything else that changes from month to month is in the miscellaneous category, and is generally paid with our credit card, which we pay off every month come hell or high water. We do not ever carry a balance.

We keep all of our regular bills as absolutely low as possible, so that we have as much wiggle room with the rest of our budget as possible, allowing us to do as much saving with the difference as possible.

Then, once a month on the last day of the month, we do some data entry in a shared spreadsheet we call “the state of the household”. It goes back years at this point. Every column is a month, every row is a different account. We only keep track of balances in our accounts, not balances on debt (see: stress, sweaty anxiety, etc). I know we are paying down our debt at a good rate, I don’t need to see how much each month because then I have to see how much we have which is no good.

Finances are really psychological. You trick yourself. As long as you’re tricking yourself into moving in the right direction with saving, you’re doing great.

We have two types of accounts that we track, and organize accordingly: cash and savings. Cash is our regular checking account, our daycare flex spending account, our emergency fund (which we consider complete at this point and have rarely touched), and our short terms savings. The emergency fund and short term savings are in a “high interest” account, which is laughable these days, but what can you do? The amount that we have in cash generally doesn’t change dramatically. If it starts to trend one way or another, we have a meeting to talk about it.

Savings is everything else. Kevin’s 401k, our IRAs, Lee’s 529, our mutual fund. We automatically put money into these every month. These tend to move up in predictable ways, as long as the market doesn’t have a hissy fit.

We tally up how much we have in cash and savings. We also keep track of our monthly credit card statement in the same spreadsheet, so we can see how we’re doing with miscellaneous spending month over month. I periodically look at how we’re doing over the previous year, what direction things are moving in (usually up). As long as our credit card statements are within a reasonable amount of our average, and as long as our checking account doesn’t fluctuate too much, I consider us to be in a good place. And that’s what keeps me from being awake at night, fretting.

People I have told about our monthly tracking think it seems like a lot of work, but it isn’t. I do the cash stuff, Kevin does the daycare and 401k, and when the statements for the other stuff come in, we add it in. It takes each of us maybe 5 minutes once a month. We usually have everything ready to discuss, if necessary, by the middle of the next month.

If we notice changes, like our checking account is continually slipping below our (somewhat arbitrary) amount, or we’re building up cash faster than usual, or a big change is coming like having a baby, we have a meeting and discuss changes we need to make. Maybe it’s changing the amount we put into savings, maybe it’s changing where we’re putting money away. Maybe we’ve reached a goal for something short term and ready to start planning how to spend it. We regularly tweak and adjust as our budgets and needs change.

This is where the spreadsheet comes in handy: we can see where we’ve been, what has changed, and what our trends are. If we’re spending too much, we look at our credit card bill and figure out why. I find that to be a lot more informative than trying to micromanage how much I spend at the grocery store each week.

An example of how we’ve used the spreadsheets to make changes to strategy:

For a long time, we had one credit card, and we put everything we could on it. That included personal stuff, like if I wanted to go buy some new clothes or Kevin wanted to buy a video game, or if one of us went out to lunch during the week. Then, if we had a particularly high credit card bill, we tended to point fingers. “Why did you buy those video games? you didn’t need THOSE!” “well you didn’t need new shoes! How many shoes does one person need?” Is not healthy for a marriage. Too much stress. Too much finger pointing.

So! We switched to an allowance system. Twice a month, we each get an automatic transfer of the same amount of money into our separate checking accounts that are linked to the main account. We each have our own debit card attached to our own account. Any time one of us wants to make a purchase that is not explicitly for the household, like new shoes, a new game, or a lunch out, we pay for it with our allowance debit card, NOT the household credit card. What is nice about that is that if you don’t do a lot of spending one month, you still get your allowance, and it can add up so if you want to splurge another month on something, it doesn’t blow the budget out at all. We no longer have conversations every month trying to figure out why our credit card bill is higher than usual and whose fault it is. Good for our finances, even better for our marriage. I know other people do this with cash in envelopes, but neither of us like having a lot of cash in the house or our wallets.

It is worth noting that even though there is a rather dramatic difference in our respective incomes (he makes over twice what I do each month, as I am a lowly graduate student), we each get exactly the same amount in discretionary spending. I think that’s fair, because even though we are not even remotely equal in terms of income, we are equal in terms of the marriage and our value, and we both deserve to spend the same amount on ourselves. I obviously get the better end of this deal, but Kevin is in full agreement. If the tables turn one day, the equality will not change.

Other things we do: our credit card has a cash back rewards program. We get a certain % of our spending and additional for special things. We let it build up all year, and then use that amount to pay for Christmas. Because we put pretty much our whole lives on the credit card, and then pay the card off every month, we can build up a decent amount that covers a generous Christmas without blowing the budget that month.

We have an emergency fund. I consider them vital. Recommendations vary for how much to keep in it, but we generally have 6 months of bare minimum expenses saved. We’ve occasionally tapped into it, like if an unexpected vet bill or car repair pops up. That way we don’t have to worry about carrying a credit card balance or not having enough cash to handle it. Then, we redirect some savings the next month or two until the fund is replenished. It’s worked pretty well for us. Keeps the stress at bay.

We also think it is important to save in advance for vacations. I can’t tell you how much to save, but if you automatically put a certain amount away, you can eventually have a nice vacation that doesn’t blow your budget. Vacations are important, even if you don’t have an expensive one. Plan for it, just like you plan for retirement.

When we hit certain milestones (paying off a loan, crossing a certain amount in savings, etc) we celebrate. Usually by going out for a nice dinner. Hey, it’s an achievement to hit these goals. Celebrate it.

I also follow some financial blogs. My favorite by far is He gives a lot of great advice about ways to both decrease your spending and increase your income. Some of his frugal tips have been particularly helpful.

Anyway, this is what we do. In general, I have found it successful. We are well on target for retiring comfortably at 65, Lee will have a partly funded 529 to cover a portion of his college expense (we have no intention of paying for it in full), we have had nice but modest vacations every few years, we are paying off debt and saving for future things like a new house, a new car, and Montessori. I have very few opportunities to lay awake at night fretting about money.

What about you? What do you do the same or differently?