Miss the start of this series? Catch up here!
As I mentioned at the end of the second installment of Let’s Talk Money, this third post will summarize how we manage + organize our finances and the plan we’re using to pay off the student loan. I’ve also included an update on our progress so far in defeating the Debt Monster!
So basically this is how it all breaks down:
Mr.C & I have 3 shared bank accounts.
One checking (used to pay bills and house any money that will be “outgoing” soon) and two savings accounts. The first savings account holds our emergency fund to cover those unexpected life events like job loss, car accident, etc (a fully funded emergency fund should be 3-6 months of living+personal expenses). The second is used as our regular savings account where we store any money that will be put toward future purchases/activities (ie: new car, vacation, couch, oil changes/car repair/tires, gifts for birthday/Christmas/anniversary, etc).
Per Coach Dave’s suggestion we put away our credit card and now use the envelope system instead for most of our purchases. Research has shown that people spend more when they use plastic (be it debit or credit) because you register no emotional pain or distress when you spend with plastic. Obviously in this day and age, you still want to have a debit card but keep your use of it to a minimum – only for online purchases, hotel reservations, car rentals, air travel, etc. We’ve found it to be a great way to curb spending, especially in “problem categories” – which for us, is eating out!
Every month we follow this process…
I get paid the 1st of the month while Mr.C gets paid every 2 weeks.
A week or so before the end of the month – we sit down and come up with a budget for the upcoming month.
We divide our spending + savings into categories (ie: groceries, rent, eating out, entertainment money, new car savings, student loan payment, etc) and then label each categories with a “C” for checking, “S” for savings, or “E” for envelope.
It’s an easy way for us to calculate how much to keep in our checking (our paychecks get auto deposited there), how much to transfer into savings, and how much we’ll need to withdraw from the bank in cash for our envelopes.
How do we know what to label each category? Well it all depends on personal preference! Since we pay our utilities, Netflix, cell phone, student loan payments, etc online we mark those “C” and keep it all in checking. We also keep our gas money in checking and use a debit card for purchases because although we have a rough budget in mind for gas each month, you never want to be without gas money or rely solely on cash!
For things like Christmas gifts, new car tires, vacations, annual changes/fees (ie: Costco membership), etc we mark those “S” and transfer that money into our savings (when it comes time to spend it, we move it back into checking). This is great because (for example) instead of December arriving and us scrambling to scrap together $300 to cover Christmas gifts and gas money to get home for the holidays, we are able to simply reach into our savings for the full amount without worry since we’ve been putting $25 aside each month in anticipation for these very expenses.
We mark grocery and entertainment with an “E”, fill our envelopes with that allotted cash, and once it’s gone it’s gone. If we happen to have money left over in an envelope we put that extra towards a saving’s goal or the student loan.
Other things we do…
We do keep some extra money in our checking account to serve as padding for bank or bill mistakes.
We do save up for known, annual expenses over time so instead of being hit in December with the need to scramble for $300 for Christmas gifts + gas money to travel home for the holidays, we can relax because we’ve been squirreling away $25/mo just for this reason.
We do each receive a monthly allowance also. It keeps us sane. Seriously! We can spend it or save it how we please. We put this money directly in our wallets and make sure to keep it separate when we’re carrying money from another envelope. When our spending money is gone, it’s gone until the next month. This method is fantastic because it helps you figure out and prioritize what’s important to you. Want to eat out every day? Great, go for it, but that might be mean you won’t have as much money to go shopping or get drinks at the bar. To use a stereotypical example, let’s say wife doesn’t get why the husband needs a new video game each month while the husband just can’t wrap his mind around his wife’s clothing purchases. Well problem solved! Rather than being petty+judgemental and arguing about the details, each has an allowance to spend however they like, no questions asked, as long as the amount of the allowance is set to accommodate the shared household expenses, debt payments, and savings goals.
creating a budget and sticking to it,
setting goals and saving ahead for known future expenses,
and identifying areas of overspending,
we’ve been able to live comfortably, pay the bills, save for the future, still have fun, AND manage to pay extra on our student loan debt!
In fact, after just a month and a half of working with Coach Dave and implementing the system outlined above, we argue less + talk maturely more when it comes to finances, know exactly where are hard-earned cash is going & when, and have a clear goal/path plan for paying off that $43K of student loan debt in 2.5-3 years instead of the 10 like that evil witch Sallie Mae was suggesting.
And, with my unexpected Christmas bonus from work and the extra money we found through budgeting/saving/being more frugal, we’ve been able to pay off 2 of the 14 student loans that make up that grand $43K number!
So, we’re definitely off to a good start but are always open to adding new budgeting and money saving tips to our arsenal!
Have any to suggest? What’s worked for you?
Do you use cash for anymore? If so, what kind of system do you use to track of it? I’d love to hear all about it.
p.s. Thinking of trying the envelope system or already started but having doubts? Then here are a few tips (courtesy of About.com):
- Tweak your category allocations over the first few months until you arrive at numbers that work for you.
- If you’re not used to paying for your purchases with cash, it may take a few months to adjust to the envelope system. Don’t beat yourself up if you run out of money before the month is over. Just try harder to stay on budget the next month.
- If a monthly envelope system doesn’t work for you, try a weekly or bi-weekly envelope system. The goal is to create a system that works for you.
- Does the idea of carrying cash make you nervous? No problem. You can use your debit card and still use the envelope system. Just subtract each purchase on the back of the appropriate envelope, and stop spending when you get to zero.