Payneful Money Management

I wanted to share with you how we manage money at our house. We have been using this system for 9 months now. It's a system we kinda made up on our own, so it probably won't seem verbatim from any of the plans I mentioned yesterday. But, hey, it works for us!

Here's the lowdown on our financial situation. We currently have two sources of income: Ed's salary and money from babysitting (we watch a little boy 4 days/week). We have a mortgage on our home. We do not have any credit card debt, student loans, or car payments. We have an interest-free loan from Ed's dad (part of the down payment on the house) that we are paying back in equal installments over a ten year period. And we received the interest-free loan from the gov't when we bought our house that we will start paying back next year with our tax return. Oh, we also owe about $1000 in medical bills that we are paying month by month on a 12-month payment plan (that didn't cost us any extra). Praise God for good health insurance! (My bills without insurance totalled in the neighborhood of $200,000!!).

Here's how we spend our money:

1. Cash Envelopes. At the beginning of each month, Ed withdraws $600 cash. I divide this money into three envelopes: Groceries, Entertainment, and Other. I know many of you are probably laughing right now because we only have three envelopes and they are very vague! I would guess that most people who use an envelope system have many more envelopes with more specific categories. But again, this is what works for us! I put an equal $200 in each envelope. This is my money to spend througout the month. This includes: groceries, diapers, household goods, clothes, dining, entertainment, gifts. Pretty much anything and everything I need to spend money on as a Stay at Home Mom.

2. Credit Card. We have a Starbucks Visa that earns 1% rewards (for every $1 we charge, we earn a penny worth of Starbucks money). There are lots of reward cards out there, but we've stuck with this one b/c Ed goes to Starbucks almost every day. (Note: you may also laugh here b/c buying coffee from a coffee shop is usually number one on the things you can cut out to save money!) We basically charge two things every month: gas and Starbucks. We also charge on-line purchases to this card - but that's usually books from Amazon and this happens maybe once every three months. And Ed has been known to charge things to the card (a burrito from Chipotle, etc) every now and again. This is pretty much our gas card and Ed's "treat card". Since we've agreed on this and Ed doesn't really spend THAT much on it, it's totally fine by both of us.

3. Debit Card. We still carry our debit cards, mostly as a back-up. If, for example, I forget to bring cash to the grocery store and don't realize it until I am standing at the checkout lane, I just use my debit card. When I get home, I take out the cash from my grocery envelope and give it to Ed. He'll go deposit it into the checking account. Or, if it's close to the end of the month, he'll just give me less cash at the start of the next month. For this reason, we leave a "cash pad" in our checking account so we don't ever overdraft.

4. Mortgage and Bills. Ed pays all the bills on-line. Each month we owe the usual suspects: mortgage, gas, electric, water, phone, and cable/internet. Ed is in charge of paying each of these bills. He does it through the bill pay with our bank.

5. Savings. We have a savings account with ING Direct. It's great b/c it has a higher interest rate than a brick and mortar bank. It is linked to our checking account and Ed can move money to and fro. We have a set amount of money that we save each month. But then Ed also puts in any money that is left over in our checking account at the end of the month. We also deposit all of our babysitting money into our savings account.

6. Retirement Savings and Flex Spending Account. These two items are taken out of Ed's paycheck before taxes. We chose a percentage of Ed's salary to go into the company 401K and also into a FSA that we then use to pay for our co-pays and doctor's bills.

7. Giving. We give a set amount of money with each paycheck. We also contribute to things with our extra money from the month to things at church or other people who are asking for financial support.

So that's basically where our money goes. My husband is a great saver, so I have him to thank for setting us on this path and making it work.

And speaking of savings, I need to say a couple of things here. One, we keep 3-months worth of Ed's salary untouched in savings as a safety net. Two, we keep goals in mind of big ticket items we want to buy (vacations, home renovation, minivan). Once we reach our savings goal, we buy the item (example - we just bought a minivan last week! And after our tax refund, we will have reached our goal to do some work on our upstairs).

This system has been great for us for a number of reasons:

1. We are saving money. Switching to cash has helped me curb some of my spending habits. And we just plain aren't spending as much when we restrict ourselves to a certain amount a month. Also, as some of you might now, I like to shop grocery deals and stockpile food. This budget has helped me step back and evaluate a "deal" before I jump in. There's only $200 in that grocery envelope, so I can't go spending a big chunk of it on soup and pasta sauce week after week. I'm much more discerning now in the deals I shop week to week.

2. We are getting along better as a couple. We used to fight a lot more about money. I would spend money on things and not write them down in the checkbook, which would drive Ed crazy. Ed would check our accounts on-line and see that I was spending money and get upset b/c he thought I was spending too much, which would drive me crazy. We would argue about how much was "too much". We would argue about having to agree before we spent money. I hated having to ask before I spent money on everything. He hated me spending money wihtout a consensus. (Does any of this sound like your house? Please tell me we aren't the only ones!). Having a monthly allotment of cash has definitely helped in this area. We have decided together how much is "enough" and now I am free to spend out of my envelopes each month. We still have to discuss big items and things that go outside of our envelopes. But this system has definitely relieved some major stress.

3. We can challenge ourselves. A few months I've asked Ed to give me less money. I've tried to live on less for that month and it's worked. (Before I pat myself on the back too much, and in the interest of full disclosure, we overspent in December on silly things that added up - so it's give and take).

Here's a quick review of our money management system:

+Babysitting money--> straight to Savings
+Ed's salary
-401K & FSA (& those lovely taxes)
=Ed's take-home pay

-->Set amount to Savings
-->Set amount to Church

-Mortgage & Utilities
-$600 Cash for Leah
-Gas & Coffee on Credit Card
=Monthly Expenses
-->Everything leftover goes to Savings

Savings account incl'ds Safety Net & Sinking Funds for Big Ticket Items

So, do you have any questions for me? Please feel free to ask.