Family and Finances: Episode 3, Part 1

And today we're going to talk about budgeting, and it's an area where many, many couples have pain. I read a survey recently that 60% of all people say they want to have a budget, but only 20% actually do. So 80% of people are flying blind. And I know up front, you want to be sure everybody knows that you and I are experts on this area of managing money. I thought you were going to say we were in the 80%. We were for a long time. We were for a long time, primarily because I thought my plan would work, which is always make just a little bit more than you spend. And I didn't want to write down anything. I didn't want to have to keep track of receipts. That sort of cramped my style. So you had to live in fear and uncertainty because we just didn't know where we were going. So ultimately, the pain got to us, and we realized we have to start a budget. So today, let's go through sort of the steps of how to do that, some of the benefits of it, and give people some groundwork for how to make that happen. When I think about the benefits of budgeting, the first one I think of is that you can figure out how to live beneath your means. If you don't have that in place, you'll never know where you are. And so you'll just model along. You will live with uncertainty. And the key to managing money is to spend less than you earn. And a budget tells you if you're being successful or not. Remember the couple that told you they didn't make enough money to have a budget? Yeah, we were talking to them about establishing a budget, and they said, oh, we just don't make enough to have a budget. And what they meant was they didn't think they could put money in every one of the budgeting

categories, so a budget wouldn't work for them. And I remember telling them, reality is, you don't make enough money not to have a budget. Everybody needs a budget, whether you make a lot of money or a little amount of money, because it reduces your stress. I think that's the second biggest benefit, is you just get rid of stress. You tell the money where it's going in advance, so you know you're going to make it through the month. And then finally, you start to make financial progress. In our first 21 years, we didn't achieve any of our goals, because we were constantly trying to just bail out of the problems that we had. And so we had two decades of no progress, and I'm sure there's people who are listening now and saying, that's where we are. So many people today just can't seem to get ahead. So let's go through some of the ways you start a budget, some of the practical tips for how you do it. I would say there's really three models. One model is to do it through bank accounts. And we have friends who basically have automated everything. They have different bank accounts for everything in their budget. For instance, they automatically deposit money into an account that's for savings, but they also have one that's for spending and one that's for investing. So it's done up front for them, and they just track their account balances. And they say it's very, very easy and simple for them, but it takes time to set that up in advance. You have to determine how much are we going to put into the savings account each month or each pay period. How much are we going to put in our spending? How much are we going to put in our investing? And of course, giving would come out of your spending or savings account, whichever one you prefer.

But some people automate it that way. For you and I, we did it the old-fashioned way, which was just get a spreadsheet and write down everything we were spending. We started tracking, saving receipts. And where we had a little difficulty is we were using the same bank account and the same credit card at the time, but I wouldn't save the receipts and just turn them in to you. So you were keeping track of the receipts. You were showing us where we were each month. And that simple process, sort of the old-fashioned way of writing it on a sheet of paper, helped us to finally start making progress. And if you remember, we went to the envelope system. We started basically a cash budget where we would allocate to what we needed for the things that we knew we were going to have to spend on that month. And that brought us into alignment. Well, it's so much easier today with computers and phones and apps. People can track where they're spending. Well, that's sort of the modern way is to use an app. And there are a lot of great apps out there. There are a lot of great programs to help you. Track what you're spending and the main thing I think is to be sure that you you're not doing something That's going to surprise you at the end of the month Because if you're using a credit card as so many couples do you can get to the point where you've run up so much on that monthly Charges that you can't pay it off that month and suddenly you're in trouble Well, or or if you have a quarterly payment you have to set aside money On the other months so that you're able to make that payment when it's due thinking of maybe insurance or You know some of those kind of expenses well, we had to figure out a way to work through that and we set some goals and developed a plan and The big change for us is you said our first financial goal was to begin to tithe

And we're going to talk about giving later on but Really that was that was the beginning point of our agreement that that would be our first and highest priority Mm-hmm, and I remember looking at you and saying well, what decade would you like to start? You know, I thought it would take us ten years To run up to that amount because we were starting very small well for me paying God first made me realize that it all is his it's just a reminder that it's all his and Everything we spend the rest of the month we have to we we are stewarding it You know, we we better manage it. Well, well, I ask you that question What decade do you want to start like, you know in 10 years or 20 years from now? And you said I want to start right now and I remember looking at you and you said well, I Said and if we if we take 10% right off the top of our gross income and start giving it do you understand? That's going to change everything in our budget and you looked at me and said Exactly. Well, and I had a friend tell me that when they gave She felt like they were blessed In ways that they had not anticipated Like they had expected they might have to replace a car in five years where their car Lasted much longer than five years her washing machine lasted two decades Two decades, of course that was back when they made them really well, but It was like they they didn't really have to worry about other things When they got their priorities, right? So our simple plan was we're going to put God first in our budget We're going to save second We also have to have an allocation for taxes and that left us with what's called net spendable income In the past we didn't know what our net spendable income was because we were just guessing and and we would give from our leftovers So we reversed the whole budgeting process. We made God first saving second obviously had to plan for taxes and Then we had money that we could allocate for whatever we needed to spend Mm-hmm, and in those categories they can be divided into you and I have sort of different ways of expressing that But the fixed expenses and the variable expenses We were doing some research on where most people go wrong in their budget and it's not in the variable The variable are the day-to-day things running to the grocery store

eating out Entertainment travel Miscellaneous most people think that's where they're going to really control their budget But you know and I know from doing this so long and talking to so many people it's the things that you lock into that you're committed to that are Usually the things that break most people's budget. Mm-hmm. That would be your mortgage your car payments the debt you accumulate your insurance costs all of those sort of big items the things that Consume most the American budget. In fact, the number one highest Expense in an American budget today is interest payments When you look at interest on your mortgage interest on your cars interest on your consumer debts That's where most of our money is going into student loans. And so if people will start by dividing into those two categories first of all, you get to your net spendable income and And you know if you do what we did which was 10% in giving 10% in saving at that point in our life and Then taxes usually are going to average around 14% or more for most people you're talking about 65% left to spend and if you don't do that calculation and you just assume You know when you get your check I have a hundred percent You're not aware of all the other things that really need to come out of that check. So we started to do that first. And then we took, now what do we have to spend, and we can allocate that into our fixed cost as well as into our variable cost. Right. And that kept variable costs down so that we didn't have consumer debt and interest to pay.