Wednesday, October 01, 2008

Another taboo topic: money

I don't have a lot of real visible or artistic talents, but one talent that has served me well is an ability to manage and organize money well. A few of my sisters-in-law have asked me how I do the family budget, so this is a straight up accounting of how I do the accounting.

When we get a paycheck:

10% tithing right off the top

Then, with the remainder (net minus tithing), I divy it up into percentages and put money into different "funds" -- that I keep track of in the back of my paycheck because I'm old school like that.

Mortgage: I figure out the percentage it will take to cover my mortgage. Usually 29-30%. I think this percentage needs to stay under 35% of take-home after tithing.

Baby steps: 20% goes to meeting financial goals a la Dave Ramsey's baby steps. This means that you focus on one thing at a time, leaving the rest so that your money is not so thinly spread and you can make visible progress. This presupposes that one has abandoned using credit, and is working to get out of debt aggressively. The baby steps are: (1) $1000 in the bank as an emergency fund (so you won't put emergencies on the card) (2) pay off all debts, smallest to largest (3) three to six months' expenses in a liquid, interest-bearing account (4) 15% of income in retirement account such as 401k or Roth IRA (5) kids' college funds (6) pay off the house (7) invest, build wealth, and be generous with it. I choose to put some of our tax refund every year into the kids' college 529 plans, so that takes care of that baby step for us. Currently, we are working on getting our retirement account fully funded at 15%. Whatever percentage we have coming out of our paycheck into 401k, I subtract that amount from the 20% that I put into this fund. For example, right now, we have 10% deducted from paycheck into 401k, so when I am divying up the net paycheck, I take an additional 5% and put it in an IRA for retirement, making for 15% total (and not worrying about whether that money is pre-tax or post-tax), and then I put another 5% extra on the mortgage payment because that is the next baby step we are working on. When we change our 401k allocation to take out 15%, the percentage that I use toward the baby step fund will be 5%, and that money will go toward extra on the house. Does that make one ounce of sense?

Charity: I take 5% of our net after tithing and put it in the "Charity Fund", out of which I can pay fast offerings, donate to the school, buy girl scout cookies, buy groceries for the neighbor in need, etc. This allows me to be generous to such causes, and then when the money is gone, it's gone and I can say no and not have guilt.

House: 5% goes into a fund for home maintenance, repairs, appliances, etc. Mostly for things that will stay with the house when we sell it.

Travel: 5% to fund my need to see the world. All expenses while on vacation come out of this fund.

Car: 10%, or more if I can swing it. Everything car-related comes out of this including insurance, gas, repairs, registration. Any more left over in this fund gets saved up toward paying cash for a new car eventually. Also, Steve's bike repairs come out of this, which is sort of cheating. It's nice to have a car fund because when gas goes up, I know just how much I have to spend and I don't have to stress that it's eating into the grocery budget.

Then, I give a fixed amount to the Steve fund for him to spend on whatever he wants (yes, he gets an "allowance", so to speak). He buys lunches, clothes, books, whatever-- wants, mostly -- with this money and he doesn't have to save receipts for me to balance the checkbook. Steve is always generous with "his" money and when I've spent the monthly budget on various things, he will pull through and take the family out to dinner, "on him". He's awesome. Also, I get a much smaller amount each month to spend on myself for clothes, shoes, makeup, etc.

Usually, about 30-35% of our net income-after-tithing is left over and I just keep that available to pay bills, buy groceries, entertainment, gifts, haircuts, shoes for the kids. Everything else. For some people, it would be helpful to budget specifically for utility bills, groceries, and other expenses, but I just take it all out of the leftover money, after our other "funds" are funded.

I think that covers what I do with each paycheck that comes in. Please ask me to clarify anything that doesn't make sense, or share what works for you!

EDIT: I certainly did not intend for this post to be offensive to anyone, but alas! it has come to my attention that it has done just that. I am not trying to brag that we have money to put aside for things that we want. I am sorry if it comes across that way. There are multitudes of things that we do without because we cannot afford them. I am trying to convey the principle of living within one's means. It is a principle I believe in and one that has brought peace in our lives. Like I said, money is taboo, but I wish it wasn't so much so. I think we ought to be able to help one another, as money is such a pervasive part of our existence, for good or ill.


jennifer said...

Wow, Emily, you ARE talented, and visibly. Managing money is one of the most important things we can do, and yet so few of us do it well (as is painfully obvious by our sad national state right now.) Thanks for sharing the excellent info!

Callie said...

I am equally impressed. If only we could all be like you! I will work on it...

AzĂșcar said...

Have you tried Mint? It's amazing (and free.)

Jocelyn said...

Dave who? I think I knew him once, we lost touch though.

Kelly(M&M) said...

I am amazed by your talent. I love the charity and travel funds. I really am going to set something like this up for us. Thanks for the great ideas!

Andrew and Heidi said...

I personally think Steve needs a raise (not from BYU; from YOU!). You can pay me my broker fee later, Steve. --Andrew

Jacob and Tiffany said...

You are brilliant! I'm going to have to steal some of your ideas!

whit said...

I like that the percentage goes to everything else category. Bills such as electricity, water, and groceries fluctuate from month to month. The solution: allotting a percentage. Thanks.

Anonymous said...

Does Dave Ramsey need an assistant? AG

Jord said...

Oh, I have been waiting a long time for this! Thanks for sharing Emily, and know that this comes at just the right time. Percentages are for me.

Andrew and Heidi said...

Such great ideas Emily - thanks for sharing. One thing we started doing recently is using cash for our grocery budget. I'm a visual person so when I see that money start to dwindle, I know I've got to make it stretch to last the whole month!!
These separate 'funds' you have, like for travel and charity - are they separate bank accounts from your normal checking account? How do you keep track of them?

Emily said...

Azucar, thanks for the link. I really ought to join the 21st century.

Jocelyn, I do believe you introduced me to the man!

Jordan, you and I are so much alike.

Heidi, cash is a good idea. I literally just keep running totals for each fund in the back of my checkbook. I subtract the funds money from the balance in my checkbook, and add it to each category in the back of my checkbook. I am confident that there are spreadsheets and sites like Mint which could do it more efficiently, but I like to carry the totals with me when I shop, so I know how much is available to spend for each category.

Everyone else, you are very nice.

steve said...

Well if you don't have talent, then marry it. It really is a great thing that Emily runs things so well for us.

Andrew, I'm afraid that if I asked for a raise, my money manager would ask for one too; and although I feel blessed with where we're at,there's not a lot of upward mobility. Perhaps Emily could start a financial collumn, then give me a bigger allowance with the royalties.

Emil: So, you've covered race, religion, politics, and money. I think the remaining taboos are intimacy and inlaws. Maybe we could talk about it before you post on those?

Emily said...

Steve, I don't think I've covered religion yet. Perhaps I'll wait to do that until after General Conference. Also, my blog is a scandalous blog: you can use the word sex.

Andrew and Heidi said...

You guys crack me up! --Andrew

Abby said...

emily, you are maybe the least braggy person i know. and your budget boggles my mind and it is my new goal in life to accomplish something similar. is it difficult if your monthly income fluctuates greatly?

Emily said...

Abby, you are a dear and the answer is no, not with percentages. However, on leaner months, you for sure would want to adjust the percentages to cover rent and also to put enough to live on in the "everything else" category, because I don't care who thinks you owe them money (you generally, not you you), food and lights for the family come first. If some months there is nothing extra to put aside for vacation or home improvements, or whatever your categories would be, that's okay too.

Jen F. said...

Ooh, I vote for in-laws next. I need a few lessons there too. I've been catch-up reading today. Great posts. Love the food pics. Love Nicole too. She's awesome!

Doug said...

I like the idea of your percentages as they seem to be in close harmony with what the church teaches.

Here is what I got when I started using your percentages and real world for a person making $50k, median US salary:

$50,000.00 income
$5,000.00 tithing
$5,000.00 Taxes fed and state
$12,000.00 Home mortgage, insurance, taxes 30%, home loan must be for less than $150K or else this will not happen even with perfect credit!
$2,600.00 401K less than 10% or budget goes negative!
$6,000.00 Food
$3,500.00 Gas, oil changes, tires, maintenance
$1,400.00 Car Insurance
$4,200.00 1 car payment
$6,200.00 Health insurance, dental, eye
$1,560.00 Student loans
$380.00 Phone
$2,100.00 Electric
$60.00 All the leftovers to fill the other holes! Can see what I missed here? Maybe cloths, extras, date nites, unforseen troubles, home improvements, college funds etc.

Suppose everyone should chose to be a doctor or a lawyer so budget could be so much more open ended huh?!

Thanks for the look at your point of view Emily!

I agree the in laws would be a fun topic Jen F! Mine are normal so it would just be fun to hear about others.....

Emily said...

Doug, you make a good point that when money is tight, it more important then ever to have a budget! In the scenario you showed, my advice is to delay paying into 401k until the first three baby steps are taken care of: $1000 in bank, completely debt-free, and then emergency fund of 3 to 6 months' expenses in the bank. The health insurance numbers look a little high, and I would look into getting those expenses reduced somehow. If possible, I would sell the car that has a payment and buy a junker to drive around until I could afford to move up. And finally, I would do whatever I could to get some extra income to afford all the extras, including date nights and Christmas. Possible ideas include having a garage sale, taking on an additional part-time job (paper route? delivering pizza?), or selling something of value.

Also, admittedly it is easier to not stress about money when the income is higher. However, I know plenty of doctors and lawyers who still have stress because they don't live within their means.

Also, I grew up in an area in Glendale that is plenty nice enough, and where one could probably buy a house today for $150K. It is no fun to be house-poor, so I would strongly suggest that staying within the doable budget for housing is worth it.

Doug said...

Thanks for the advice.

FYI, this isn't my budget, only a few parts of it are nor is it my annual income. It is relatively close though!

The 401K wouldn't be able to work with a 15% number so I tried a smaller one....not small enough as it obvious!

Regarding a junker, I have had so many experiences with them costing more lost work time, (job at risk) repair bills and troubles than they save! Unless one is blessed with only the normal oil changes - the odds are not in the middle income persons favor! Simply because if anything goes wrong the job is at risk, the family cuts are strenuous and come from non-existent frivolous spending areas of that budget.....maybe that is why we have the church system in place.

Not to mention one must have more than the $1000 backup already that really needs to be at least $5000 in savings to pay cash for the junker or the payment will be about $300 per month as the max is a 3 year loan on anything over 7 years old! A good used car like mine costs $340 per month and has low maintenance and no reliability issues yet! Cheaper than $5000 cash as the last year was only $3500 and no maintenance costs.

Does it sound like I have had that happen!? I have only a few years ago and it was no fun! During that time I never knew if the car would start in the morning, make it to work or back home! I have found that many people were willing to share their philosophy of how much better I should be doing with my money in the first place and try their better budgets when you are already figuratively hanging off the edge of the cliff! So many just won't throw a rope and get you out. Rather they watch to see how you will manage to get yourself back up to safety or to see how amazing it is to watch you fall just so they can tell others how amazing the sounds you made were as you fell! Does that sound anything like any scripture stories you have ever heard? Ok, maybe there isn't a cliff one but think you know of stories in the book of Mormon where the wealthy didn't impart of their substance which is not theirs.

Of course I realize that there is wisdom and order in all things but this blog is getting way to long.

The health insurance is the only available plan at my work for a family. I did research on other plans but the coverage is so much less that it would cost me about $2000+ per year out of pocket after saving only $50 per month on the premiums! Wow! Not really an option! Do you know a health insurance agent that has better family rates that cover families of 7 or larger? I would be willing to reduce the $450 per month premium for equal coverage indeed!

The low house price in Glendale area you grew up in actually is $280K for a REAL fixer upper North of Olive. The only ones in the 150K range are in the trailer park(s) and are less than 1100sq feet. The crime rate is way high and gang graffiti is prevalent so that might not be a good place to raise the children.

With much searching we have found, foreclosures and bankruptcy homes are available in the Phoenix valley area for about 190K at the low end but you are competing with investors who are paying cash. Had this happen 4 times last month alone! The investors all won, we still rent.

Then of course you need 5% minimum down and a credit score above 693 or the banks won't even look at you for a loan. For some reason they are all waiting on the "bailout" too!? Oh, they will look at you for a loan under the 693 but you will be properly punished with a higher cost loan rate and that should learn ya to wait till your credit is better indeed!

Emily, I realize that struggles aren't your fault so try not to take this personal. Rather consider the irony of what I am sharing from my experiences on the taboo topic of money!
For anyone that might have read this, it is possible for those struggling and you shouldn't give up hope regardless of what others say or do or don't do! Maybe I can post again another time.

Austin said...

I'm trying to muster the discipline to live my life this way.

my mudda' calls me jack said...

It's amazing to me how well we are taken care of when we follow the prophet's counsel to get out of debt and have food storage. It's certainly been a blessing for us. And all this other stuff... we're working on it as well. Todd (hubby) has such a strong testimony of being prepared to serve our mission or missionS that it helps us to stay within our means and not get too house greedy.

Doug said...

Thanks for the thoughtful advise and the other small innuendos "Jack!"


Bryce and Candice Blood Family said...

Hmmm...I just found you because I wondered who CJane's neighbor was. Odd I know. I loved this post. I am anal about our budget and since we've spent the last 10 years in undergrad, grad, and dvm school it is a strange experience for me to actually have money in our budget. Thank you for being open and frank about your finances, it drives me nuts when people are so secretive about their budget. Anyway, people who criticize you are lame, you are entitled to an opinion...let it roll everyone else if you don't agree. You are writing posts not scripture right? Anywhoo, thanks for taking the time, I like it.