Not cheap, Fiscally concerned

As promised, I added a page to collect and highlight the relevant posts on how we spend less than we earn. How we implement “Financial responsibility, changing one’s financial path from consuming own savings to growing”.

To reach the page click on the top on Our “Secret” or click here.

In that page you will find links backs to my posts on how we spend less than we earn and how our family has agreed together on our system. You may add comments for the page on this post.

Cheers!

Since starting to post on this blog – about a week ago – my wife’s been frowning at me. I sit too much time in the evening in front of the laptop and I’m not talking enough. I agree honey – and I’m sorry. I believe that communication is the key to a successful marriage. One of the examples given in the book “Dealing with people you can’t stand” is of a mature couple where the husband says nothing and the wife is frustrated. It seems that for many married couples, that situation is at least the perception of reality – if not the reality itself. The book gives a good strategy on how to improve upon the situation by engaging in inquisitive conversation and insisting on getting answers. A conversation has two sides, and if you think your partner is not saying much – be assertive and muscle out some answers. If your partner is drowning in his newspaper, book or laptop and you feel left out, reach out – touch – and stare at his/her face from a short distance. You will get that kiss your face is demanding and it is the right opportunity to talk about something. Don’t hesitate to start the conversation.

At our first years as a couple – finance was a touchy subject. Whenever I raised the issue I came out as a villain and as cheap. I avoided talking about it altogether and I silently observed as our tiny savings account shrunk further and further. We didn’t have a plan, we didn’t agree, we spent on what we thought we needed. It wasn’t selfish; whenever my wife would buy something she would feel guilty and try to explain to me how it is for the family. I struggled for years to reach an understanding between us on our money.

About two years ago I did something very sneaky. We both enjoy going to book stores and browsing through the selection. Our kids scan through their section and we take turns on looking for what might interest us. I picked up two personal finance books – “Smart couples finish rich”, and “The automatic millionaire”. I suggested to my wife that we each read one book, and when we are done we exchange and read the other. The result was stunningly good. We both learned more about managing our money and we finally began thinking together on how we should plan and execute together. My wife came up with the program discussed here in “How to spend less than you earn, in a nut shell” and I added the electronic part to it – “How to spend less than you earn, part II”.

The books introduced us to the idea of setting goals. For me it was always a given that we should save money. Even if we don’t get rich, money would be there for us when we need it. My wife, coming out of Russia and seeing how inflation and political turmoil can render yesterday’s money worthless always assumed that money is there for us to use now. We now have an understanding of why we save and how we will use the money in the future. Money isn’t accumulated so that we could count it greedily – it is there for a purpose and we have already seen the fruits of that strategy. Before – we would charge our credit and I would act frugally. We have begun taking annual vacations with money we save each year and we enjoy it so much more.

Since then, we regularly discuss where we stand on a fiscal basis. My wife no longer feels guilty she buys things when I don’t. We have turned the corner and have begun saving more. As long as our income and health do not change – we know where we are heading financially and are pleased with it.

Communicating about money between couples is key to a happy marriage.
Communication in general and expressing fondness and love is what ties it all together.

On the previous post I discussed the basic rules we keep in our family to spend less than we earn. Here I’ll present the template spread-sheet we use and how.

To recap, when you intend on spending less than you earn:

1. Calculate your “available flexible living sum”.
2. Devote some of this sum to your savings and investments based on your goals.
3. Divide the rest between 3 parts of the month.
4. When spending, spend on whatever you want, but when the 10 days budget is spent – stop spending until the next 10 days.

I created a template in excel, and then I import it into sheet.zoho.com. I find that site to be very similar to excel. Using an online spread-sheet allows me and my wife to track together our spending without worrying about different versions residing on different computers at home or at work. Wherever we are we can log in and update. We can always peek and see if we have enough money to spend.

The best thing about keeping the spread-sheet online is the ability to check up and update from wherever. From work, from home and on the road.

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Some people use Microsoft Money or Quicken to track their spending and balance their checking accounts. I find Microsoft Money to be useful for balancing my checking account and predicting my cash-flow, but as far as budgeting is concerned I find it almost useless. I don’t need a tool to tell me how much I spent on different categories, or that I didn’t categorize something. What matters for the purpose of spending less than you earn is not what you spend your money on, but when.

We time our spendings, not limit it. The spreadsheet allows us to do so dynamically enough - without over-reaching and complicating things with software like Microsoft Money. If our plan changes, if we modify the way we budget, it’s a spreadsheet and it is easy enough to change.

I hope this was useful for you and your family, let me know. Do comment and share with your friends
Cheers!

We’ve all heard about getting rich slowly techniques. The key point in trying to do so is spending less than you earn. Once you have achieved that, you can start eliminating debt, growing your savings, start investing and possibly someday get rich.

Without delving into my personal story, before generalizing my spread sheets, I thought it might be proper to lay out in the shortest and simplest way what it is we do to spend less than we earn – and thus meet our goals and live richly.

Before you plan and implement what I suggest here, imagine spending a couple of days a month living like the poorest man in your neighborhood. Imagine you have no money for the next couple of days and you need to spend the last 100$ you have in your pocket to stock up for basic things you and your family can survive on. For us, this means always having piles of the cheapest rice and pasta. If we don’t have enough money to buy a thing, we can still cook some white rice. Like the title says, I’m fiscally concerned.

Now start asking yourself some questions about what you earn, and how it is spent:

1. Write down all of the expected annual income your family makes, and divide it by 12 regardless of the month to month fluctuations due to number of working days or other variables. This sum should include the amounts you get after tax deductions.
2. Write down all of the recurring expenses you cannot control. Including monthly-quarterly-yearly bills. This includes home (mortgage or rent),cars’ license plate renewals, average cash withdraws from ATM, loan payments, existing credit debt payments (above minimum – enough to pay off someday). This does not including any items for which you go to a store for, or which you can choose to skip for months. Again, reach a yearly sum and divide it by 12.
3. Subtracting the monthly recurring expenses from the average monthly expected income - the remainder should be considered the living expenses you still have some control over. This is the sum where we will exercise our flexibility. I will refer to this sum as “available flexible living sum”, or “the living sum”.

I’ll pause here and stress something out, you have to be honest with yourself and write real numbers. If the sum you reach at item 3 is less than 900$ then I think you should consider ways to reduce your “uncontrollable expenses”. This is your food and gasoline money and you have to be able to pay for it. Cancel some home services, relocate to a cheaper place, get another job or a raise – because whatever you do, you need to have enough to get by – and that money must be earned, not borrowed.

Only from here can we start cutting the income pie:

1. Dedicate a fixed amount into your deferred goals. Take some percentage off the living sum and put it into some savings. I’ll leave the discussion of such saving to some other time… for us, it goes into a high yielding money market – and we spend a fixed amount of it annually to vacate. We also allocate it for other goals… again, I’ll discuss this elsewhere. On our long term plan we plan on increasing this amount and have detailed why such an increase will happen (raise, stop some fixed payment, buckle down).
2. Split the remainder into 3 sums, and allocate those sums to 3 parts of the month, typically 10 days each, except the last third of the month which could be longer. Be strict with yourself, you can buy or spend that third of the flexible living sum however way you want, but when that 10 days budget is used up enforce virtual abstinence and don’t buy a thing.
3. We use a single credit card we pay in full each month. Every purchase me or my wife makes we record on an online excel sheet, and compare it to the card’s online records so we can’t really miss out and lie to ourselves.

What?! Wait – what did I just say? Well, that’s the point – you need to think of your money like cell-phone minutes, you can carry them over, but over usage should be considered very punishing.

You need to prepare yourself as a family to a situation where there could be 3 to 7 days where you “virtually” don’t have any money – even if the bank statement says you do. Use canned food – store bulk products and live like a cheap bastard. For only a short number of days, it can definitely be done.

And that’s the “secret”. We do and buy whatever we want. It’s not a question of “if”, it is a question of when. We don’t buy when we can’t, but only a few days away we assure ourselves that we can.

Notice I didn’t budget for expense types. It doesn’t matter if we go to a theater and dine out every night, if we can – it’s our privilege to enjoy what we earn. If we want to buy a sewing machine, we can – but if it takes away from the 10 days budget – we have to limit our selves after the purchase and wait until our self placed budgetary restrictions are met. No money means no money, even if the bank says otherwise.

Wow – that’s a shell of a nut that’s a bit bigger than I thought it will be. I’ll try to summarize this and post again as a standalone page on this website at some point.

Please comment, it’ll be much appreciated

Cheers