I consider the day I graduated from college to be the day I officially became an adult. Until then I had lived in my parents’ house or dorm rooms and had never been financially responsible for all aspects of my life. Sure, I’d had summer jobs and learned about spending and saving. I’d heard “Thou shalt save money,” “Saving for retirement is especially effective when you’re young,” and “Don’t spend more than you earn,” but I had yet to see any of it in action or apply it to my own life.
The year I graduated, Matt and I moved into an apartment together in Charlotte – just south of where we went to school in Davidson. After a lot of job searching and a little luck, I landed my first job as assistant editor at Charlotte’s hospitality magazine: TRIP.
I think my starting salary was less than $20,000 (luckily I got a raise later that year!) Matt had had a harder time networking for a job and was commuting back up to Davidson to continue at the restaurant where he worked in college. He eventually got a job selling different kinds of insurance to seniors, which he kept for a few years. But his income was never steady.
Back in those days, I really don’t even remember how we managed our money. Luckily our apartment’s rent was only about $600 a month, and we didn’t have cable (or even a TV for a long time!), smart phones, furniture (hello frat couch!), a beer brewing hobby or any of the other little luxuries that we’ve accumulated over the years, so our expenses were very low. We paid our bills and monitored our cash flow, but I don’t remember ever really having a plan. I just knew I wasn’t allowed to spend more than I earned.
The following year, I transitioned into a job in public relations with a higher salary, better benefits and more potential to move up.
[Side note: I used to do PR for Bojangles and made biscuits there one morning for an event!]
Matt continued to work in sales. We saved. Eventually we got married..
.. and we bought a house (I’ll disclose here that we did have help with the down payment – we did not save it all ourselves).
We never spent more than we earned, so we didn’t have much of a need to set up a strict budget. I remember a few spreadsheets I created and a phase I went through with Quicken, but both attempts at money management were too tedious to maintain.
It wasn’t until I went back to school and Matt lost his job that we really had a need to buckle down and budget.
Times were tight and we had to get serious about our cash flow. We’d been successful saving, but our spending was out of control. Around this time I started KERF and a bit later had a small stream of [unpredictable] advertising income. Matt also started working at Great Harvest and EarthFare grocery store – working 80 hours a week and one time 35 days straight without a day off. He was happy though, finally doing something he really enjoyed. There were moments during this time when I really didn’t know what was going on with our cash flow – and that really scared me. It was time to get serious and create a system. Something I could rely on and something simple.
It’s taken me many versions tweaking our budget to really make it work for us, but during this time we’ve been able to save and save and save. I finally feel like I’ve become a responsible adult who knows exactly where, when, why and how all our money goes where it goes. Organizing our finances has been so liberating!
We have three tiers that we use to manage our money: a website, a spreadsheet and a smartphone app. Each is equally as important to making the system work.
Tier I: Mint.com
Mint.com is my dollar savior and saver! We have been using it since 2008 and as a result, I can see in a snapshot where we spend our money. Mint is linked to our checking, savings, retirement and investment accounts so I can always know in a second where everything stands. [Mint is super safe and secure so I have no qualms using it.]
The key to making Mint work for me was to SIMPLIFY (there’s that Home Neat Home theme word again!) the categories. Who cares if you spend money on bars or coffees hops or books or clothes – I need to know if my money is going to something we WANT verses something we NEED. That’s really all that matters to me. There is some gray area, but in general, I just like to see living expenses, need expenses and want expenses. Therefore, my Mint pie only has the following categories that I force all transactions to fit into: Rent, Bills, Auto, Groceries, and Entertainment.
Easy as pie!
These match the categories in my budget spreadsheet below for easy comparison and reconciliation! Sometimes I do have an extra category for special occasions, like my biannual dentist appointment as you see in the pie above as “Health And Fitness”, but I just add those in as necessary and they are easy to manage and spot.
Tier II: The Spreadsheet
[Please note all the numbers in this post are completely made up!]
I spend hours looking at our spreadsheet, tweaking things, changing the colors, creating formulas. It’s so fun! And it’s really not all that complicated to create.
There are 3 main categories: income, expenses, savings.
The income section goes on top and it calculates how much income we have. Everything from paychecks to freelance work to reimbursements. In our freelance-based house, this number is variable, so it’s very important for me to project what we think we’re going to bring in each month here. Sometimes it’s less, sometimes more, so I do always try to guess conservatively. At the end of the section there’s a simple sum formula to total income.
[I also have a fancy formula to then calculate a percentage to deduct for taxes and finally come up with a net income that I’ve removed from this to make it easier to understand, but don’t worry about that if you’re not self employed!]
Out totals expenses. Nifty, huh?
Our line items include the same pie charts in Mint (simplify!) Rent, Bills (which breaks down into about 15 items), Retirement (a non-negotiable expense! This isn’t included in the Mint pie chart it’s technically a transfer not an expense), Auto, Groceries, and 3 spending allowances, His, Hers and Ours. At the end of the month I compare Mint to my spreadsheet. Hopefully we come in under, but if we’re over on something I adjust it and then adjust the amount to transfer to savings.
For the His + Hers spending allowances, we decide on a dollar amount to give ourselves each month for frivolous spending, aka accessories and beer equipment. The number goes up or down depending on how much income we have and savings goals. If savings is not over 20%, we lose our frivolous spending money. If savings are well over 20%, we might get a “raise.” In the above example, I set the allowance at $150/mo.
In our household we each have a personal checking account that is 100% our own. We transfer our allowances into these accounts and can save or spend them individually with no strings attached. This has made money + marriage conflict free! I never care when Matt buys beer supplies because I know he has “earned” the money. Same with me and a pedicure or new outfit. It’s spending we don’t ever feel guilty about.
Lastly we have the “Entertainment” allowance (= Ours), which is everything unexpected as well as everything we do together as a couple. Dining out in restaurants is given the same priority as a new bath mat for the bathroom and toilet paper which is the same priority as a wedding gift for friends. A really big unexpected purchase might bypass the monthly budget or come out of savings or get its own category in mint, so Entertainment is really for more normal things.
At the very bottom, the leftovers are the savings. But they really aren’t just “leftovers” since I adjust the expenses to make sure this number is high enough. I have formulas that calculate percentages and try to stay above 20% – sometimes we’re more, other months with something unexpected we might be less. But the average percent is what we look to keep as high as possible. The Savings Total should match the balance we have in our savings account. I have this on the spreadsheet because it’s so motivating to see it go up if I make our OUT section go down or IN section go up!
Tier III: Loot + Spend Apps
We manager our His, Hers and Ours allowances using our smart phones! You really could just use a little notebook or keep track of receipts and enter them into another part of your spreadsheet, but I find that entering them on the spot when I’m out spending is most effective.
There are two apps that we use to do this. At the beginning of each month, we enter our allowances into the app and enter transactions as they occur. I’m in charge of Hers and Ours because I’m the more organized nerd of the two of us and usually the one buying things like toilet paper too. I also have an allowance for Groceries in my phone – which I set to$250 each month. My favorite of the two apps is for iPhone only (or at least it was when I got my Droid last summer). It’s called Spend. It’s got a cleaner look and I like the way you can have it show either the amount spent or the amount left in any budget.
The Droid app I like the most (and trust me – I tested a LOT of them!) is called Loot. I bought the premium version for $3 or so to be able to customize the colors and a few more things It essentially works the same as spend – you set a budget and enter in transactions. It’s a bit more advanced, but advanced is often the opposite of simplify and I prefer Spend’s simplified look.
Entering in a transaction in Groceries:
Both are great though! At the end of the month I reconcile the allowances with what we’ve spent in Mint.
One more thing to note: when I get out cash from the bank, I consider it spent. So I’ll put a line in my allowance called “cash for FL trip” and if I spend the $40 cash while I’m there I really don’t care how I spent it – I know that it was pretty much all non-essential spending, which is the only detail I care about! Another small mental thing I love about the way I do cash is that when I eventually do spend it it feels like free money. Maybe the experts would like that, but it’s a little perk in my day to buy a coffee guilt free because I have some cash and it’s already been accounted for.
A Penny For Your Thoughts
So once you have everything all organized and set up, the only daily/weekly maintenance this whole system requires is at the smart phone level – keeping track of purchases as they come through. So long as you have a cooperative partner, you can make this work. At the end of the month I transfer out our savings, retirement, taxes and upcoming month’s allowances and make sure the upcoming month’s budget looks like an accurate prediction.
I’m always tweaking how I do things. You can watch a whole video of a previous version of the NERD KERF Budget demo in this video. I only changed the order of operations in allowances vs. savings from then to now, but the basics are the same.
I definitely don’t have all of the answer>s. What’s most important is that you know where your money goes. Having an organized budget won’t fix problems and it won’t always make you happy when you realize you have no discretionary spending for the upcoming month. But it will allow you to make adjustments and hopefully build your nest egg with better awareness of dollars and dimes.