Budget Lockdown

I've lost count of how many times I have written this same post. In short, the story goes: Matt and I used to be the kind of people who paid our credit card bill in full every month. Then we had a rough year where several expenses piled up (voluntary and involuntary). Now we have a sizable chunk of credit card debt that we still haven't paid off, despite the fact that we have a budget plan that enables us to pay it off. We simply don't stick to our budget each month, mainly because we love eating out and buying things from Amazon and Target. 

This past week, I had another wave of motivation wash over me. We absolutely need to get out of debt. Sure we could transfer the balance to a 0% credit card for the first 20 months. Or we could do a home equity loan for a lower interest rate. But really we just need to tighten our belts and get the heck out of debt. 

I tried to get Matt to come up with a game plan with me about how to stick to our budget. He wasn't in the mood and wanted to postpone the conversation. It caused a bit of a kerfuffle because I felt so urgent about making a plan. He stormed off and I sat down to make the plan myself. 

Basically, it comes down to a couple areas: we need to absolutely stick to our individual allowances ($115/month). Matt spends his on junk food from the gas station. He then goes over by eating lunch out. We also hemorrhage money by eating out as a family. We budget to eat out on Friday and Saturday night (Matt and I both really hate cooking). However, we've been adding things to our meals (like drinks, appetizers, ice-cream after dinner) that have been causing us to go over our budget. 

Finally, we need to stop buying things just because we want it (like this book I recently ordered off of Amazon). 

When Matt finally cooled off, we decided that we would give him $115 in cash at the start of the month to help him stick to his budget. We also committed to talking to each other before we buy anything. Finally, I looked through our credit card bill to analyze which restaurants help us eat within budget. We also got the boys involved; they know that we have a certain budget for each meal out. If we come in under the amount, then the "extra" goes into a little fund that we can use for extra treats, like trips to the ice-cream store. 

I'm crossing my fingers that it works this time! 

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Getting Our Budget Under Control

I've been sharing that Matt and I have some credit card debt that we want to actively pay down. As part of that, we have been trying to religiously use Mint.com. I've heard great things about You Need a Budget as well, but we are already all set up with Mint.com, so we are sticking with it and trying to maximize our experience with it. 

One of the annoying things about Mint.com is that it won't let you delete the budget categories that you aren't using. When it automatically assigns expenditures to categories, it frequently assigns them to categories that we aren't even using in our budget. When that happens, our budget looks like it's on track, but it isn't really.

While it's frustrating that I can't just delete the categories that we don't have budgets for, I did learn that you can click a button to generate a rule that always assigns certain stores into certain categories. For example, there's a popular restaurant here in Austin called P.Terry's. Mint.com always categorizes it as "Fast Food" (it is fast food), but we don't use the Fast Food Budget. Instead, we code all of our eating out expenses as "Restaurants." I was able to go into Mint and tell it to always code P.Terry's as "Restaurants." 

While that will help with some of our recurring expenses, I came up with a hack to help us with the rest. I printed our list that correlates our Mint categories with which expenses are budgeted there (see an excerpt of the image above). For example, we spend money on parking so infrequently that it doesn't have its own budget category. Instead, we lump it into the Gas & Fuel category (along with tolls, which are also infrequent). Mint automatically codes parking as parking, so we have to reassign the category. It's hard to remember these infrequent things, so having a list for Matt and one for me should be helpful! 

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Credit Card Debt

Oy. Matt and I have quite a bit of credit card debt at the moment. It's been a year of spending beyond our means: first it was expensive doctors appointments (not covered by insurance) related to Henry and Tate's genetic issues with not processing folic acid. Then it was deciding to plan a once-in-a-lifetime trip to Australia. Then it was deciding that we had to replace the temporary wood railings that were crumbling on our front and back decks (we had had them for four years) and deciding that we should install a shade sail at the same time in order to make our back deck more usable. And then our pool pump broke. 

It's time to get back on track. At the end of October, I got our budget ready for next year. We planned to resume tracking our expenses on Mint.com throughout November, but I forgot to reset the budgets (certain budgets accumulate from month-to-month), so it wasn't a tremendously helpful process. 

But now we are all set to start tracking religiously in December. It's crazy to me how much willpower it takes to track daily expenses, even though Mint.com makes it so easy! 

Anyway, thanks for bearing with me as I publicly recommit to getting back on track with our budget! We have to pay property taxes in January (we don't escrow them throughout the year), so it might be a while before we get out of debt. The faster we can hunker down, the faster we will get out of debt! 

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Budget Preparation

Phew! I finished getting our budget ready for 2018. Here's my process:

1. Look at our previous year's budget in Google sheets. (I have one column that specifies what the category is called in Mint.com, what the item is, how much it costs per month, and notes about how I arrived at that cost per month). 
2. Cross check each line item by looking at the past several credit card statements. I need to make sure we are actually spending what we say we are spending. 
3. Pepper Matt with questions about new charges that have been added to the budget over the year (like donations to the ACLU). 
4. Update our income in the same budget document. 
5. Make adjustments to our budget so that the total expenses (including money that goes into specific savings accounts) equals our total income. I budget for every single dollar that comes in. 
6. Use Mint.com to set a budget for each item and each savings goal. This part is tedious if I'm committed to getting it 100% right. This year, I had to print out our budget and manually cross off each item as I checked it on Mint. 

It feels good to have this ready for the 2018 year. We did not do a good job of tracking our expenses this year, but maybe 2018 will be our year! (I don't mean to sound so noncommittal; I'm just trying to set lower expectations so I can exceed them.)

For updates in between blog posts, check out Instagram! 

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Getting Back on Track with Our Finances

Matt and I spent a very long time monitoring every last penny that we had and how we spent it. There was a time when I was on maternity leave and a time when I was only working part-time, so that I could volunteer to get Montessori For All up and running. We were also trying to send Henry to Montessori school and save up money to build a house. It was a stressful period. Once we got through it, we both had full-time jobs, our mortgage was just a little more than our rent, and both our children were at a public school. 

Now that we have more money, it's easy to spend more money. Matt eats out for lunch all the time. I order stuff off Amazon. Matt goes to Target. We still have money for vacations, but we aren't saving money the way we could be.

If we keep spending our money without intention and purpose, we aren't going to maximize our savings potential. We could be investing our money rather than just piddling it away. 

I'm noticing a trend in my posts this week. It feels like I'm turning over a new leaf! I really want to get this aspect of our lives back under control and move forward really intentionally and purposefully. How should I do that? 

Step One: Evaluate Where We Currently Are

• I need to go back to our budget and update it based on our current reality. I also need to go through our credit card statements with a fine-tooth comb to see 1) if we have any unnecessary recurring expenses that we are not even aware of and 2) if there are places we can cut back. 

Step Two: Revise Our Budget

• Once we take stock of where we are, we can set goals for ourselves. We have to be honest about the fact that if we go on vacation several times a year, we will need to spend less in other areas in order to end up saving money. 

 Step Three: Track Our Progress

• I love Mint.com's capacity to let us track our spending according to our budgets on a daily basis. We need to get back into using it religiously. Maybe I'll get into the habit of using the app before I let myself go on Facebook.

This sounds like the right plan. I'm going to work on this for the next couple weeks and then implement the new plan starting on October 1st!

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Budget Update

I wanted to check back in about how our new budget monitoring is going. Here's the good, the bad, and the downright ugly.

1. I am loving Mint.com. The app is particularly helpful because it is super easy to use on a daily basis to stay on top of our expenses. It doesn't always categorize things the way we want to categorize them (for example, it says P.Terry's is "fast food" and we just want to lump it under our general "Restaurant" expenses). Getting everything into the right category is integral to monitoring our budgets in the right way. 
2. In addition to categorizing certain expenses, I like to look at the bar graphs of where our spending is in relation to our budget for the month. It shows us whether we are over-spending based on where we should be or under-spending. 
3. Closely monitoring our finances is introducing stress into our lives. For example, Matt likes to eat out a lot (and we keep forgetting to turn on our crockpot in the morning), so our "Restaurant" budget is almost blown for the month. So I got frustrated when Matt generously paid for two other people's meals. His response was that budget monitoring was making me a "worse person". Ouch. I tried explaining that I was completely fine with being more generous in our lives, but that we couldn't be generous with money we don't have. Generosity without money to back it up = credit card debt. If we want to be more generous, then we need to allocate more money to particular categories where we want to be more generous (such as "Restaurants" if we want to pay for people's meals or "Miscellaneous" if we want to buy more gifts). I said I was fine being more generous but that we needed to sit down together and decide which category we wanted to take money from in order to be more generous. Do we want to travel less? Save less for retirement? Save less for our children's college educations? This conversation did not go well. It is yet another example of when my hyper-logic is too much for a given situation. Being an INTJ is the source of many strengths and many areas for growth....
4. Now that I'm really getting to a good place with Mint.com, I think I want to go back in and upload our entire budget (right now it just has the pieces that we have the most control over). On second thought, that might create more work for me in terms of needing to correctly code every single expense. I think I'll just leave it as it is for now, since it keeps us focused on the purchases that can easily get out of control: restaurants, trips to Target, groceries at Whole Foods, etc.

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Our New Budget

So my goal to only work one hour a night is not going so well. Perhaps I shouldn't have been so ambitious? Going from 3-4 hours/night to 1 hour/night is kind of unreasonable. At least the work I'm doing finally feels like it's transition from "treading water" to "swimming forward"! 

The other good news is that I have more energy on the weekends. Last Friday, after the kids went to bed, I asked Matt if we could work on our budget. Although it's not his ideal way to spend a Friday night, he agreed to work on it for about 30 minutes. 

First we started with our income. We logged into our bank account and made sure that our incomes were adequately represented within our budget document (since our paychecks take out taxes, retirement, etc.).

Then we entered numbers into our Excel budget. It's set up so that I enter each expense as a negative number and it gets subtracted from our total income. The goal is to get the "net" box to equal 0. In other words, we are assigning our total income to all of our expenses and whatever is leftover is getting assigned to various saving categories, such that we should have $0 left over at the end of the month (it doesn't mean we are spending everything--it means it is either being spent or tucked away into a savings account). 

We feel good about how much we assigned to each category, and we feel great that we are actually able to start saving in certain categories that have been on hold for a while (such as college for the boys and retirement for us). We have a lot of retirement savings from many years ago, but while we were trying to build our house, we weren't able to save much for retirement. 

The biggest question that came up during this process was how we were going to keep ourselves within our budget. The savings part is easy; we can set up automatic transfers into our savings account. The harder part is making sure that we aren't overspending in categories like groceries, eating out, miscellaneous, and home improvement. It's so easy to go to Target and come back with a $150 receipt (ahem, Matt, I'm looking at you). It's also easy to rack up several different $50 Amazon bills (I'm guilty of this one). 

I thought about the possibility of using different credit cards for different things, but we ultimately decided to start using Mint.com again. The trouble with Mint is that it automatically assigns purchases to certain categories. And if they aren't the right categories, then their tracking system becomes useless. I'm going to see if I can get in the habit of logging in regularly and fixing any purchases that have been miscoded. 

Matt and I also talked about the ways in which we waste money. Matt agreed that when he eats out for lunch, he will use his personal allowance (this one is tracked on a different credit card, so it's really easy at the end of the month to see how much was spent). We also routinely overspend our grocery budget because we like to purchase as much organic food as possible. Now that we are both working full-time, we decided to increase the amount we allocate to groceries. 

We've been thinking a lot about our savings goals, and we decided to start saving for the downpayment on our next house. We imagine that we will live in our current home for at least 15 more years, but once we decide to move, we figured it would be nice to have the option to rent out our house rather than have to sell it. Our current mortgage is already lower than rent in Austin, so I can only imagine what it's going to be like in 15 years. Any money we make from rent could be put back into maintaining the house. Then in 15 or so more years, we could sell it and use the money for retirement. At least that's the current plan!

Another one of our financial priorities right now is travel. We want to be able to go on adventures as a family throughout the year. 

It's been interesting to see how our financial priorities and goals have shifted over the years. I remember working really hard to only spend $2,000 on our wedding so that we could afford the downpayment on our first home. Then we worked really hard to live off Matt's income so I could stay home with Henry. Once we wanted to get Henry into a Montessori school, then I took a part-time job to help cover the cost of the daycare and to save for our current home. Now that we are both working full-time and our childcare costs are starting to go down, we have more money than we ever have. I've talked to Matt about whether we should be saving money so that one of us could drop down to part-time work, but we're both really happy with what we're doing right now, so we're going to save for retirement, college, and a future home but then choose to spend the rest on travel, home improvement, and charity. If one of us loses our jobs for some reason, we would just tighten up our budget. Our mortgage is based on one income, not two, which gives us a lot of flexibility. 

Image courtesy of my friend's new business, Ami Textiles

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Teaching Children to Save Money

Henry has been really interested in money lately. He really, really wants quarters for candy machines around town. We choose not to give him quarters on the spot and instead tell him that he can remember to bring quarters from his piggy bank (he solves this problem by turning the knobs anyway--it works more often than you think it would!--and finding stray candy on the ground and putting it in his mouth before we can stop him--it builds his immune system, right?). 

His interest in money inspired my idea for his Christmas present this year: a modified piggy bank system that encourages him to save his money for various purposes. It contains five jars:

1. Small Change: to spend on small, quick things (candy, cheap toys, etc.)
2. Saving Up: to put aside for a larger purchase that takes a little time to save for
3. Sharing: to give away
4. Car: to save up for a car when he turns 16 (we will pay for his insurance and maintenance, but he will have to buy the car and pay for gas)
5. College: to go toward his college savings account (we are saving for this, too, but we want him to have the awareness that it takes money)

Whenever Henry gets money, we will divide it into 10 parts. These 10 parts will be divided up into the jars according to the following fraction:

• Small Change = 1 part
• Saving Up = 3 parts
• Sharing = 1 part
• Car = 3 parts
• College = 2 parts

I'm not sure how Henry will actually get money. In a Montessori home, chores are just something that everyone does--it's part of how everyone contributes to the family. But I also see the value in him getting his own money so he can begin to learn really valuable lessons related to spending and saving. 

Perhaps we'll just give him money each week equal to his age. We would refrain from buying him things when we're out and about and instead give him a couple dollars each week so we can sit down and divide it up into the jars. 

We definitely wouldn't be starting this if he wasn't already noticing money and generating an interest in it. It's hard to know what approach to take. On the one hand, I really want to give him authentic practice with delaying gratification by saving for a larger item. Research shows that the ability to delay gratification is a huge indicator of success later in life. On the other hand, I don't want him to generate a scarcity mindset that makes him feel like he needs to hoard his money or I don't want him to feel like he doesn't get new things unless he pays for them himself. It feels like a tricky balance for sure. 

What are your plans for teaching your children about money?

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Yet Another Budget Update

Image courtesy Emily Henderson's blog

The financial discussions (and--let's be honest--occasional shouting matches) continue around these parts. To catch up those of you who have joined us recently, Matt and I have a lot going on right now that impacts our finances (fortunately, it's all by choice):

• I took a year off to stay home with Henry after his birth from 2011-12. I continued with side projects that brought in additional income (I published a book, did a couple consulting jobs for schools, sold our house for a profit without using a realtor, and ran several Purposeful Conception courses), but I still brought in considerably less than when I was working full-time.
• For the past year, I've only been working part-time, so that I can volunteer the rest of my time to pursue my passion of starting Austin's first public Montessori school (and support our family by picking up Henry every day from school at 2:45pm).
• We choose to send Henry to an expensive Montessori daycare because the philosophy resonates with Matt and me, and we both believe that the early years are critical for laying the foundation of Henry's brain development and future personality.
• We're preparing to have another baby at the end of June.
• On top of all this, we are building a house. Although our monthly mortgage payments will be less than what we currently pay for rent, we've had to save up a significant amount in order to buy the land, close on the construction loan, and gear up to close on the permanent loan. 

I know; it's crazy. 

But, honestly, for the most part, it feels really, really good to be putting all of this in place right now. 

The times when it feels the worst are when we have to sacrifice things that we want right now for all the things that we want in the future. We have seriously cut back our spending (for the past seven months--it feels like so much longer!) to live within Matt's income in order to bank my entire part-time income. We've cut way back on eating out, going on vacation, spending money on hobbies, going on date nights, purchasing clothes, etc. 

(As a side note, I know our story doesn't sound like much of a sacrifice for anyone who has been laid off or is searching for a job or can't work due to health concerns, etc. It's just felt like a sacrifice to us compared to how much financial freedom we had when we were both working full-time without paying for daycare and without saving for a house.)

The shouting matches usually come when Matt wants to spend money on something, and I remind him that x, y, or z is not in our current budget. He gets mad and then I get mad because it makes me feel like I'm the bad guy, even though I'm just reminding him of the budget we worked to set for ourselves. I get mad that I have to be the enforcer all the time, and I say things like, "We can't spend money on x, y, and z and build a house, so if you really wanted x, y, and z, then you never should have agreed to building the house." 

Really, he's mad at the fact that we can't have x, y, and z in the immediate and the house in the future.

Anyway, it's definitely been a hard process for our family. I try to stay focused on the end result. Even though it's a bad time for our family to be moving forward with this kind of financial investment, it makes a ton of sense from the perspective of what's going on in the U.S. economy, especially in Austin. We bought our land right before the market really took off again (we bought it for more than $30,000 less than the current market value). Construction prices have started to steeply increase, and they're definitely only going to get worse from here. The housing market in Austin is booming; and supply is scarce. Meanwhile, interest rates are amazingly low, which will allow us to lock in a surprisingly low monthly payment for the next 30 years.

We managed to clear the major hurdle of saving up for the downpayment and closing costs on our permanent loan. We had also started building up other savings accounts, such as the one set aside for appliances and furniture. Unfortunately, our tax bill just wiped out about half of that particular savings account. I'm trying to stay focused on the fact that half of it is still there...

Now is the time to whip out the detailed Excel sheets. I started one to predict our expenses for my 3-month maternity leave (particularly Henry's daycare for the summer, any gear we might need for the new baby, Henry's tuition payments once school starts in August, and any babysitting we'll need to cover professional obligations that pop up). 

I started another tab to predict our expenditures for the things we need/want to get right away: refrigerator, washer/dryer, stove, dishwasher, bed, couch, living room rug, bar stools, and dining room table. The total costs gets summed at the bottom, and then I subtract the amount of predicted revenue we'll be able to generate between now and then. 

As we buy things on the list, I change the predicted price to the actual price and watch the difference between our expenditures and revenues change. For example, I had budgeted $500 for dining room chairs but ended up spending $400 for eight of these. When I changed the amount from $500 to $400, I watched the difference between predicted revenues and expenditures change for the better. I look forward to waiting for appliance sales and reading about how to save even more money on big purchases. This kind of system makes the relationship between splurging and saving very clear. For example, if we save money by going with mid-range kitchen appliances, then we will be more able to splurge on a larger washing machine (which will increase our quality of life by reducing the amount of time we spend doing laundry). If we save money on inexpensive furniture (e.g., a couch, bed, and mattress from IKEA), then we might be able to splurge on a hand-crafted dining room table from a local artisan (maybe?). 

If we're going to pull off our crazy financial goals, we're going to have to stick to the rigidity of the Excel sheets until the end of October (when I--fingers crossed--start part-time work again, hopefully at a higher rate than I earn now).

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Selling Gift Cards

Henry received a Toys R Us gift card for his birthday from a family friend. One morning after reading his current favorite book (Big Machines), I asked Henry if he would like to use his birthday money to buy a truck. He is currently very interested in machines and animals. He received an ant farm for his birthday, so I figured a truck would make sense to complement his interests.

First we went to How We Montessori to figure out which brand of trucks Otis and Caspar have. We were elated to find out that the trucks they have--Bruder--are available on Amazon. Henry and I scrolled through all the different options and read many reviews. We also compared prices. We knew that we only had about $25 to spend. 

One we found the truck that fit our budget and had really positive reviews, I searched for it on the Toys R Us site. Sadly, it cost $5 more than Amazon, would have to be picked up at the store, and didn't actually seem to be available. 

That's when I decided to explore my options for selling the gift card in exchange for credit. I found this article which summarizes the main sites for selling back gift cards. I poked around on various sites and realized that Plastic Jungle was going to give me the best return on the card. They took $4 and gave me $21 of Amazon credit nearly instantly. 

After a few very intuitive clicks, I was able to buy the truck on Amazon. I spent $5, which I would have spent at Toys R Us (since the truck was $5 more expensive). I definitely recommend the site, especially if you have gift cards to stores that you don't really want to use.

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Budget Update

Image courtesy of Wexman Trading on Etsy

As I've discussed before, we've been living on a very tight budget since the middle of August. We try to live within Matt's salary, so we can save my entire part-time salary every month. Right now, our savings are going toward 1) the downpayment + closing costs on our permanent loan on the house we're building 2) midwife expenses 3) appliances/fence/furniture for our new home 4) Henry's tuition for one more year of private Montessori school before Austin's first public Montessori school opens (fingers crossed!) and 5) my three months of unpaid maternity leave before I hopefully start working part-time again (for three more months) and then full-time. 

Once October comes (if everything goes well with the charter school and I'm able to create a job for myself), our budget should get a lot less tight. The monthly mortgage payment on our new house (principle + interest) will be about $125 less than our current rent in one of the least expensive parts of Austin. We'll be able to start adding to our retirement accounts again, saving for our boys' college funds, adding things to our house, and going on vacation. 

The way we have been saving money is really pretty simple. Here are some of our strategies:

• We keep our monthly bills to a minimum. We shopped around for the lowest car insurance possible, we shopped around for the cheapest internet plan, and we don't have cable (just Netflix for about $8 a month).
• We limit the number of times we eat out each week. We officially decreased our eating out frequency from three times to two times per week, but we've also been really strict with ourselves about not eating out for breakfast or lunch. If we don't have leftovers for lunch, we have to forage in the pantry or spend our personal allowances to eat out. If we want to get breakfast tacos instead of eating food we have at home or go get dessert, we again use our personal allowances. Being forced to spend our personal allowances in this way makes us much more conscious about what we're spending and why.
• We spend virtually nothing on extraneous things. We aren't buying new clothes right now (although I did have to buy two pairs of maternity pants), we never swing by places like Starbucks (if Matt does, he uses his personal allowance), we avoid places like coffee shops where we feel obligated to spend money, we only get books from the library, and we don't go to Target because we know it will tempt us into buying more and more things that we feel like we can't live without.
• We only buy food we're actually going to eat. We still spend a lot of money buying organic groceries every week, but we plan out all of our meals, so we only buy things that we're actually going to use. Since we only eat out on Friday and Saturday night, all of our food gets used every week and we rarely ever have to compost or throw away something. We also try to avoid buying the nice-to-have items that aren't really necessary (like $5 goat cheese for our salads). 

At first, our restrictive budget caused a lot of fights, but now we're really used to it. In fact, I hope we keep up many aspects of it, even when our income stream strengthens. For example, I'd like to keep our eating out to a minimum. We'll definitely set up automatic transfers into various savings accounts (i.e., retirement, college savings, vacation, etc.) so we don't just see a lot of extra money sitting around in our bank account and get tempted to spend it. 

The other benefit of setting up automatic transfers is that we can save up for things before spending money on them. With vacations, for example, we might decide to set aside $200 a month. We can let that amount build over time and then splurge on a big trip, or we can use it for smaller trips. Either way, saving it and then spending it once we have it will allow us to be really conscious about how much we spend on vacations. If we're tempted to spend money that's not already in the account, we'll have to ask ourselves, "We're already spending $200/month on vacations. Do we really want to spend more than that?" 

The same goes for home beautification. There's a lot of stuff we want to add to our house (a pool, a hobby room in the backyard, landscaping, furniture for the deck, etc.). If we set aside a certain amount every month that can go toward those kinds of things, it will help us rein in our spending and force us to prioritize and save up before spending.

I love thinking about this stuff. I find that it's so easy to spend mindlessly if I'm not conscious about it, and spending frivolously makes me feel like we have a lot less money that we actually do. I like being able to buy things; I just want to do it consciously. I'm excited to design every inch of our house with purpose and aesthetic intention. And I'm also excited to start going on vacation again!

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Budget Update

As many of you know, Matt and I had to kick our saving into high gear in order to move forward with building a house. We revised our monthly budget and have had to work really hard to live within it each month, so that we can bank my entire part-time salary. 

At first, the adjustment was really stressful. I was very bought into the plan. While Matt supported the plan, he had a lot more difficulty implementing the plan (primarily because it meant eating out less). Once we adjusted to the differences, however, it's really been a lot easier. We eat out twice a week (spending less than $20 for all of us at each meal). It's still a lot of money to spend on eating out, but it's a compromise between how much Matt wants to eat versus how much I want to eat out.

I'm happy to report that it's actually working! We've been banking my part-time salary for several months now. Also, when extra money pops up (e.g., Matt's bonus for the year or a reimbursement check from work), we try to put it into other categories (such as Baby #2 and furniture for the new house).

The one area for concern is our personal allowances. Our personal allowances are comprised of Christmas and birthday money from family, as well as monthly deposits (which have ranged from $35-$60 this year). Now that we've essentially cut out all frivolous spending from our budget (except eating out twice a week), it means that we use our personal allowances a lot more. We used them to buy Henry some new things for the kitchen. Matt uses his to buy candy at the convenience store. I sometimes pay for things for the school. 

After tapping into our personal allowances a lot more the past couple months, I am now down to $50, and Matt is at $1 for the rest of November. His birthday is November 22, so hopefully he'll be able to build it up a little! Having the extra cushion of our allowances has been nice to help alleviate the constricted feeling that can come from living within a budget. We'll see how the next couple months go without those extra little cushions!

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On Saving and Spending

I very much enjoyed reading Mr. Money Moustache's post earlier this week. As I've mentioned before, MMM is a married dad in his thirties who retired early. His post on Monday was all about the average middle class person's spending (which actually seems like upper middle class to me) versus his recommended spending amounts. He even includes a handy table, which contrasts the two types of spending side-by-side.

It was super-helpful to open up Matt's and my budget for a comparison. Matt and I have worked with a budget for the past four years. Our budget is always changing, depending on our job situations. When we were both working full-time, we were able to save a lot of extra money. We put some of it into the mortgage on our first house, saved some for vacations, put some away for house improvements and repairs, added to our retirement accounts, paid off one of our cars, and saved up for a baby. When I went on maternity leave for 14 months, we only went to visit family for vacations, stopped adding to our retirement accounts, and seriously reigned in our spending on things like entertainment, groceries, and eating out. Right now--as we get ready to start building the house we want to raise our children in--we are at the tightest point ever. I'm only working part-time, and we pay for Henry's part-time daycare. 

It's fun to look at MMM's list and think about what our budget will look like when we're both working full-time again. I hope that we can keep our frivolous spending down, instead of wasting money on groceries that we don't really need and eating out multiple times a week. If we're able to keep our spending low, then we'll be able to save for bigger and better things, like solar panels, a rain-water harvesting system, garden, orchard, pet pygmy goats, fun vacations, a swimming pool, and a projector and screen for weekly movie nights...

MMM used all of his extra income to retire early. Neither Matt nor I have any interest in retiring early, so it's fun to think all the ways we'll get to save (and spend) the extra money we have coming in (when it's finally coming in).

P.S. I love this post about spending time--rather than money--to be a good parent.

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Flipping a House?

Last week, I mentioned that one of my long-term financial goals is to get into real estate as a hobby and a secondary source of income (since I'll always work primarily in non-profit as my day job). I also mentioned that Matt had no interest in saving up our money for such an endeavor, and it seemed very, very far away since we have about a trillion other things that we need to save for first (the house we're building, a pool, an orchard, raised garden beds, a couch, a washer/dryer--the list goes on and on). 

But then someone I know (hereto referred to as My Potential Business Partner) read that post and  mentioned that they, too, have an interest in real estate. Not only does this person have an interest in real estate, they also have capital to put into such a project! We quickly brainstormed how they could put in the capital and I could put in the work. Then we could divide the profits in a way that makes sense. 

And in some bizarre way, I am over-the-moon excited about this proposition. It's bizarre because all of my interests up until this point have been distinctly non-corporate. I value community and family and wholesome food and the handmade and eco-friendliness. I've worked in non-profit my entire life (even my first job as a 16 year old was at a museum and then I taught swim lessons at the YMCA). 

But there's something incredibly exciting to me about this project--buying a house, renovating it, reselling it, and hopefully making a little profit. I know a reader already cautioned me against the negative effects of gentrification. That's definitely happening on the east side of Austin. And I know that flipping one house on the east side does impact gentrification. I'm not making any excuses about that. But I will say that a lot of young families are looking for affordable housing near the center of town, since they have been priced out of Central Austin. Since we would be flipping a house in the neighborhood where Matt and I are moving, we would essentially be creating a home for a new neighbor. 

Matt and I moved into a flipped house in Houston, and we were extremely thankful to be able to move into a historic home that had been completely updated (without having to do any of the renovations ourselves while also trying to make it a home). 

I'm excited about this idea because 1) this kind of project sounds so stimulating and exciting. I would have to do so much research and learn so many new things in order to pull it off. 2) Any extra income I'm able to earn would be able to support a second maternity leave and help us make our dream house possible.

But then I remind myself that I need to make space in my life for pregnancy. I'm already working part-time as the Director of Operations and Compliance for a new charter school. I'm also working to start my own charter school. I also recently co-authored a book that I need to spend more time publicizing. I also authored a book that's coming out in January that I need to start publicizing. I also run an e-course about preparing your mind, body, and life for pregnancy and am writing a new e-course called Purposeful Parenthood.

So, yeah, when I write that all out, I feel like it's dumb to take on anything new. 

But can I at least think through all the steps involved? Maybe that would bring me to my senses:

Phase One: Research [October, November, December]

• Complete a table that includes the average cost per square foot, average time on market, number of rooms and bathrooms, extra features like garages, etc. for all the homes in our target area that have sold within the last six months.
• Make a prediction about how long it would take us to sell a house and how much we could get for it, per square foot.
• Schedule tours of renovated homes in the target area that are on in our target range.
• Schedule tours of potential houses that we want to renovate. Complete a table that includes the cost per square foot, number of rooms and bathrooms, extra features, and a list of visible renovations that we would want to make, estimates of renovation costs, and an estimate of the resale value. 
• Talk to friends/neighbors/colleagues to generate a list of recommended sub-contractors: flooring, kitchen renovation, bathroom renovation, landscaping, exterior painting, interior painting, roof, A/C, etc.
• Talk to contractors to understand the general costs associated with typical renovations.
• Read books about flipping houses, such as this one and this one.
• Watch TV shows about flipping houses.
• Get recommendations for a good inspector.
• Get a quote from the inspector.

Phase Two: Purchase [January, February]

• Once we find a house that works out well in our predictive model (potential resale price minus the cost + renovations + mortgage payments while on the market), we would put an offer on it.
• During the 10-day option period, we would pay for an inspection. If anything major came up in the inspection (like the need for a new roof), we would get two contractors out to give us bids and then negotiate to subtract that cost from the sales price.
• During the 10-day option period, we would get contractors out to give us bids on all the renovations we want to do (at least two different contractors per job for competitive pricing).
• If the sales price + cost of renovations still made sense in our predictive model, then we would move forward with the purchase. If not, we would lose our option money and the cost of the inspection.

Phase Three: Renovation [March, April, May, June]

• The sub-contractors would complete their individual projects. We would DIY small projects as feasible.
• We would be preparing to put the house on the market: finding an MLS listing agent, securing a lockbox, making flyers, and creating a website.

Phase Four: Resale [July, August, September, November, December, January]

• We would work to sell the house: e-mailing neighbors to ask them to spread the word and holding an open house for realtors (providing food and drinks).

I guess this idea appeals to me on many levels because 1) it seems like a lot of fun to tackle something so new and difficult 2) it's amazing to have a friend who is willing to take on all the financial risk if I do all the work 3) it seems like a potentially awesome way to raise a good chunk of change. Our non-profit salaries are not going to increase any time soon. It already feels like we are doing as much as we can to reduce our spending. This might be a way to help us work toward some of our financial goals. 

Thinking, thinking...

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Budget Update

Phew! September is here. Our monthly budget resets, and we don't have to scrape by (at least for the first part of the month). 

We reinstated our strict budget halfway through August. It was a particularly rough month because we spent $100 a week on Henry's swimming lessons, and we essentially paid double in childcare costs. Henry's authentic Montessori school is now in session (which we had to pay for in May), but they phase in the new children one by one, so he doesn't start until September 10. 

I know I sound whiny when I talk about our budget. We are extremely fortunate to be able to send our son to our top-choice school and provide him with expensive swim instruction. And we eat primarily organic food. Tightening our spending is a choice. It's not due to a job loss or illness--we are very lucky and fortunate. 

We're choosing to really tighten our belts right now because we want to continue to send Henry to private school until Austin has a free public Montessori option, I want to take another maternity leave if/when we have a second child, we want to continue eating food that is as healthy as possible, and we want to build our dream house while interest rates are amazingly low (and because I want to feel settled and put down deep roots into the neighborhood and community where I'm working to build a school).

But wanting to save for all those things doesn't make the act of doing it any easier. I feel like The Enforcer, always saying things like, "Well, if we're going to eat out tonight then one of us will have to pay with our personal allowance because we have no money left in our general account for the month." I want to buy Henry a balance bike because he's so interested in bikes right now, but we don't have that kind of disposable income. I find myself accidentally not purchasing as many fruits and vegetables in an attempt to keep our grocery bill in check, which affected Henry's regularity this week. Awful!

According to my estimates, we have more than a year left of living like this. I'm trying to figure out how to a) make living within a strict budget more enjoyable and b) keep up our strict budget for the next 12+ months. First, I went back to our monthly budget (which is based on this Excel document). Then we started a Mint.com account to look at our actual spending (instead of trying to sift through credit card and bank statements manually). I had to increase a couple of the categories based on what we were actually spending, but I managed to find an extra $100 in the end (primarily because I was rounding down my income initially). Matt suggested that we add $50 to our general monthly fund and $25 each to our personal allowances for the month (bringing us up to $60 each for the month). 

I'm hoping that the extra little padding + swim lessons only once per month through the winter = a more sustainable and enjoyable life within a strict budget. I'll let you know how it goes!

Piggy bank available on Etsy

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Hanging My Head in Shame

 Okay, that title is a bit melodramatic, but I am seriously embarrassed to admit how much money we have been wasting on car insurance. No, this is not a paid, sponsored post. This is me finally getting around to something that has been on my to-do list for ages: finding cheaper car insurance.

Years ago, I was with GEICO and loved them. They saw me through a stolen car and an accident that left my car and me in a ditch (in the middle of the night in rural Louisiana to be rescued by volunteer firefighters). 

When we bought our house in 2008, Matt found us new insurance with Nationwide that would combine our house and cars for a discounted rate. We also got good service from Nationwide (they saw us through two stolen cars--seriously*).

But when we sold our house in January, I knew that we were paying too much for just car insurance from Nationwide. I had it on my to-do list to look into new insurance. I asked around and got some recommendations but never made the call. Then I shifted the action item over to Matt and asked him to call. He never got around to it either. 

Finally, finally, I took 15 minutes to call GEICO. We had been paying $560 for Matt's car and $652 for my car (every six months). GEICO quoted me $406 for six months. Combined. Seriously, that's our total for both Matt and me. We will be saving $1,654 a year (which means that we wasted more than $800 by not switching our insurance when we sold our house). 

Oh, the embarrassment! 

But that's what blogging is for, right? To share the good and the bad?

I immediately went to our monthly budget tracking sheet (it's set up like this one with numbers populated) and changed our monthly insurance rate from $200 to $70. I added a $100 back into our grocery budget (I really like all the organic food we can buy at Whole Foods). I'm going to set up an automatic transfer so the remaining money goes straight into savings and can't be spent. 

It's frustrating when procrastination prevents me from doing 15 minutes of work that significantly impacts my life. I talked about it here in this post about shifting around the top of a bookcase that had been bothering me. Sheesh!

But instead of spiraling into self-flagellation, I need to be more proactive. What else in my life requires 15 minutes of attention to make a huge impact? Hmm...probably each of the home organization projects listed on my whiteboard (referenced in my monthly goals post).

And how else can I save more money? Cell phone bill? 

Onwards and upwards!

* I promise that we always lock our cars (mine even has an alarm), but I guess we tend to park in high-crime areas.

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Trying to Save More Money

Matt and I are in the final stretch of finalizing our house design and the construction budget. With a construction loan, we will have to pay a down payment + closing costs on the total cost of the house. Then, at the end of construction, we will have to pay closing costs again to covert the construction loan into a 30-year fixed loan. 

We haven't yet filled out the bank paperwork to see what we can qualify for. I'm terrified that we won't have enough money. I'm so eager to get settled and to take advantage of the amazingly low interest rates right now, but it's not the best time for us since I'm only working part-time. 

If we can get through the initial chunk of change required for the down payment + closing costs, then we need to work really hard to save money for the rest of the construction process. We're going to need money for the final closing costs + we'll need to pay midwife costs if I'm able to get pregnant again + we'll need money to cover my maternity leave when we drop back down to one income. 

I feel like we've been in save-save-save mode ever since Henry was born and we dropped down to one income. It's a hard place to be. I hate scrutinizing every single purchase, but I know it will be worth it in the long-term. I'm eager to get through this final saving stretch. I estimate that I will have a full-time income again in April 2014, if all goes well with my school. Shoot; that's still 1.5 years away! 

Oh, well. In the meantime, we really need to focus on living on Matt's full-time income and banking my part-time income. To get us back on track, I returned to our list of budget categories and made sure they were updated. We've recently started subscribing to Netflix again. Also, since we purchased a 1/2-acre of land, we have to pay a small mortgage payment every month. With those two additions, we were spending more than Matt was bringing in. I adjusted our allowance for groceries to account for the difference. Now the numbers match up; we can technically live within one income. 

I added up all the things we purchase with our credit card (groceries, entertainment, eating out, etc.) and came up with our total allowance for the month. I entered that number into an app on my phone called Spend Free. When we're out and we spend money, I simply subtract it from the total in that app. When we get to the end of the month and start to run out of money, it forces us to be even more conscious with our spending (such as not shopping at Whole Foods).

I know I've written a handful of posts about this process because we start doing it for a while, it works really well, and then we drop the habit because it's just not fun to live within a strict budget.

But here we are again. It's time to really prioritize saving and make it through this particular stretch in our lives. It will be so worth it once we get to the other side. We'll have a home in which we want to raise our family, we'll have a mortgage that we can afford even if we're living on one income, and we'll be up to two incomes again (so we can save more for retirement and trips and a swimming pool). 

A participant in the current round of Purposeful Conception recommended the book Start Late, Finish Rich. I got it from the library (free!) and have read the first chapter. The first chapter is about identifying the little ways in which we waste money (called the "Latte Factor" after the habit of daily trips to Starbucks). Those little bits of spending every day can add up to quite a bit over a week, month, and year, especially if you take that money and invest it in a retirement account where it will accrue compound interest. 

The book seems a little outdated (I'm not sure the stock market is doing as well as his projections from more than seven years ago), but I'm definitely getting something out of it. It's already inspired me to track every purchase with Spend Free, which will keep us very conscious.

As tedious as it is to track all of our spending when we're out, it's also a very empowering process. It helps me feel like our finances are within our control. We're choosing what we want to prioritize as a family right now and taking concrete steps toward our goals. 

I hope we stick with it this time!

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How and Why I Took an Extended Maternity Leave

Last week, M.S. left a comment on this post that said: "I'd love to know more about how you and your husband budgeted the amount of money you would need to save to transition into a family and work less than full-time for a while after Henry was born. There is surprisingly little information out there for couples on this topic."

For as long as I can remember, I knew that I either wanted my partner or me to stay home with our child in the early years. It just seemed like it would be natural and healthy for their development. At one point several years ago, Matt said he might want to be the person who stayed home. 

When it actually came time to welcome Henry into our lives, it made the most sense for me to stay home. I was finishing up my time as a Montessori teacher, and I was gearing up to follow my big dream of starting a national network of high-performing, authentic, dual-language, public Montessori schools in diverse communities nationwide. Matt was working as the Director of Knowledge Management for KIPP Houston. KIPP is a national network of college-prep schools for economically-disadvantaged children. He was/is happy with his job and wanted to continue with it full-time. 

When Matt and I were preparing for conception, we started a separate savings account called "Lima Bean". I set up an automatic transfer every month, and I also contributed extra money whenever we had it. Further, I started an account called "The Dream." (I use INGDirect, and it's really easy to set up sub-accounts). I put all of the money I earned from separate projects into that account (e.g., revenue from Purposeful Conception, my book advance, educational consulting, etc.). 

When Henry arrived at the end of February, I took three months of unpaid maternity leave under FMLA (the Family Medical Leave Act). At the end of those three months, I went back to work for the last three days of school. Then it was my summer vacation. The school district took a huge chunk of my summer pay (to cover other stuff that's not entirely clear to me), but I did get a little pay over the summer. Then we started living entirely on Matt's salary. Matt makes a decent amount, but he works for a non-profit organization, so what we consider to be "decent" is significantly less than our Houston friends who work in oil. I explain how we live within a budget here.

In order to make it work, we had to stop contributing to our retirement account (I know, I know, it's a terrible thing to do but we didn't have much choice). We also stopped contributing to all our other savings accounts (Vacation, Future Cars, etc.). We also cut our personal allowance from $70 to $35 each per month. 

The initial plan was for me to stay home with Henry for the first three years of his life and to set up some kind of co-op system where I traded babysitting with friends in order to carve out time to work on my school. However, when I learned that Montessori recommends that children enter a community around the one-year mark, we changed our plans and decided to enroll him in part-time care at that point. It coincided perfectly with my growing itch to get out of the house and back into the working world. In April (when Henry was 14 months), I started working part-time. Matt took Henry to daycare in the morning, and I picked him up at 12:15. He slept from 2-4pm every day, so I would work on starting my school then (as well as on Friday mornings when Henry was at school and I didn't have to work). 

In the beginning of my maternity leave, we had trouble living off Matt's income, and we had to dip into "The Dream" savings account. Then, Matt got a slight raise, and it was easier to live within one income again. 

In January, we sold our house for $20,000 more than we purchased it for. We sold it ourselves, in order to save the $7,000 realtor fee. That was a huge boon. We were able to start paying for Henry's part-time daycare ($675 a month) and pay for a year of private Montessori school (which starts this August and will replace his daycare) for $10,900.

Now that I'm back at work part-time, it's much easier to make ends meet. Our financial stress right now comes from the fact that we bought a 1/2 acre of land (in the cheapest part of Austin) and are trying to build a house while interest rates are at an amazing low. We're also gearing up to try and conceive again, so we have to think how I can stay home with another baby and still make ends meet.

Every family has to figure out what works for them and what they can afford. Our situation has been absolutely perfect for us. That's not to say that it hasn't been stressful and difficult (honestly, I'm much happier working than I am staying home with an infant), but it's been just right for our family. I feel like Henry has benefited so much from having a family member as a primary care giver at home with him for an entire year, and I feel like he continues to benefit from spending half a day in daycare and half a day with me. 

Matt and I have had plenty of fights (er, difficult conversations) about how hard it is to live so frugally. He gets frustrated that we can't be as generous with our friends as he would like, and we both get frustrated that we can't go on extravagant vacations. Honestly, we try not to even get new towels. I try to keep us both focused on the fact that this is a very short chapter in our lives. If everything goes according to plan, I will be working full-time again by January 2014, and we will be in a mortgage that costs just slightly more than our rent right now. 

For those of you who are thinking through this kind of stuff, too, my advice is this:

• Start with the End in Mind: What is your ideal situation? Whom do you want to stay home with your child? For how long? What's the right balance between what your child needs and what you need? What can you make work?
• Do the Math: Once you know what the ideal is, put a pencil to paper and start playing with the numbers. How much do you need to get by every month? Enter the numbers into a budget tracking tool, compare your expenses to your income, and see what the discrepancy is. 
• Stick to the Plan: Once you have a plan that will help you get to your end goal, you have to stick to it (even when it's hard and your towels are eight years old).

Each of us can shape our lives into what we want it to be. We can even move to Paris if we want to! (As I write those words of encouragement, I recognize that they are coming from a very privileged place. Honestly, not everyone has the ability to pull themselves up by their bootstraps and carve out the exact life they want--that's why I devote my life to education. I want to help all people have choice and access in their lives.). 

But don't let the usual culprits hold you back from living the life you imagine. It's so easy to let fear scare us into following the trodden path.

If you want something for yourself, envision it, backwards plan the smaller steps that align with the end goal, and make it happen! 

And then be prepared to make adjustments along the way if you realize what you thought you wanted was slightly different from what you actually wanted.

Now, please share links to other places that talk about the difficult issues of staying home and budgeting for maternity leave. I'd love to read more!

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Budget Schmudget

Vintage piggy bank from Etsy

Living on one income is no fun at all (I apologize to those of you who are living on no income; I can only begin to imagine how whiny I sound!). Although Henry pays me daily with smiles and coos, we're still hemorrhaging money.

We'll it's not as bad as it sounds. We have money in savings that we can use to cover our expenses while I'm on maternity leave and work to start a public Montessori charter school, but we don't really want to spend that money, since we also want to build a house in a pocket neighborhood.

Hmm...I'm realizing that I need to do more thinking about what I'm doing right now, what I enjoy doing, and what I want to be doing to figure out how to generate more revenue in those areas.

In the meantime, Matt and I need to go back into budget mode. Back in 2008, we were able to plan a super-budget wedding and save five digits for a down payment on our house. It was stressful (like imagine us pulling up to the bank in Houston in our U-Haul truck from Denver 45 minutes before our closing meeting at the title company, depositing our wedding gift checks, and withdrawing just barely enough money to pay for our house). But we got it done.

Over the years, we've had many different versions of a budget. When we're making a lot of money (well, for two people who work in the non-profit sector!), we try to deposit a lot of money in our Roth IRA for retirement. We also set aside a lot of money for travel and then go on fun, fun vacations (like a sailing trip around the Greek Islands).

When we're pinching pennies, I keep track of every single purchase and make us pay for dinner out of our personal allowances when we've already spent all our grocery money for the month.

I feel like we need to get back into Pinching Pennies Mode.

Here's the plan:

1. I read through every budget category and updated it by looking at our most recent payments. For example, our car insurance has gone up since the last time I did our budget, so I changed that number. Also, we gave up our Netflix account, so I changed that row to $0.
   
2. I added some of the rows together to figure out our "spending money" for the month. Those rows include groceries, eating out, entertainment, and some miscellaneous expenses.
   
3. I'm going to enter that number into an app on my iPhone called Spend Free (thankfully, that app didn't cost me anything!).
   
4. Every time Matt and I eat out, buy groceries, order something off Amazon, etc., I'm going to subtract the cost from our budget for the month. That way, we can make more conscious choices about how we're spending our money.

For example, our preferred grocery store is Whole Foods, but if we're running out of money, then we need to make a different choice. Also, Matt is addicted to a new frozen yogurt store in our neighborhood (confession: I'm more than happy to tag along!), so we need to be more aware of how much we're spending there each month.

We could use something like Mint.com to track our spending more automatically and analyze it more deeply, but, at this point, I'm happy with the budget and then our concrete number that tells me what we can spend each month on all the major things we purchase: groceries, meals out, entertainment, and random things on Amazon.

I'm looking forward to getting back on track!

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Saving for College: 529s

I've had it on my to-do list since Henry was born to start a tax-free 529 savings plan to begin squirreling away money for his college tuition (and to allow the magic of compounding interest to help us out). We're opting for a 529 rather than pre-paying in-state tuition because we have no idea where Henry will end up (we really don't even know if he'll go to college).

But here we are, seven months later, and we haven't done it yet. I really don't know how to compare all the plans (every state has a different one, and you can invest in any state's plan). Matt's dad is recommending that we invest in the Indiana plan, since they could receive a tax break for investing in Henry's plan. There's also a plan available through Matt's work. I'm tempted just to go with Vanguard, since we already have retirement savings there.

Here are some of the things I've learned to ask about during the research process:

• What is the expense ratio?
  
• What is the minimum initial investment?
• What is the total contribution limit?
  
• Are there any enrollment, transfer, or commission fees?
  
• Are there any account maintenance fees?

Although I like budgeting and mortgages and stuff, I don't really like doing research about this kind of stuff. I just want someone (not a salesperson) to say, "I've done all the research; here's the plan you should invest in." Anyone in that boat?

Also, I really hope that we can convince family members to donate to his college fund instead of getting him crazy amounts of presents for his first Christmas and birthday. I imagine the kid will just be happy with boxes and paper!

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