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Big Picture Approach to Finances

April 22nd, 2010 at 03:16 pm

Quicken helps me micro-manage my money in just minutes a week. I know the impression is that I am overly anal about my finances, and is probably true to a point in lower income years where I tend to have more financial goals than means to cover. When I need to make every penny scream! (& that would by most of my adulthood - we only were a 2-income family for a couple of years - lived on minimum wage before that).

BUT, for the most part, I don't really have an elaborate financial plan. Most of our frugal habits are just that - lifelong habits. Don't think about most of them, most of the time.

I can attest that it is pretty simple to manage your finances, by just setting a few big picture goals. You don't have to track every penny or have a budget to do the following:

1 - Make savings goals your first priority (pay yourself first). Manage goals around tax planning.

2 - Limit regular/recurring spending/contracts, etc. to x dollars

3 - Don't borrow for anything

4 - Strive for balance

If I could sum up my financial philosophy, that would be it. & it works.

#1 I was thinking about because someone asked in the forums how you decide how much to save. Something along those lines. Well, we sit down and figure how much money we need in the future, for x, y, and z, and save accordingly. Right now we need about $1200/month for short-term savings goals (property taxes, insurance, car repairs, vacation, dental visits, and EVERYTHING within the year that is not a regular monthly bill). We need about $5k per year for long term savings goals (car replacements and home maintenance being the biggies). 10% minimum to retirement. More is better, of course.

How we decide to save, what and where, is often influenced by tax law. I had to add that to #1. One day while discussing 529s, HSAs, IRAs, etc., my spouse tells me, "Why do you have to make things so complicated?!?" Ain't that the truth? Don't blame me for tax policy, but I will certainly take advantage. These days we try to put most of our savings into our ROTHs, due to our current income, retirement, and tax situation.

2 - #2 can be summed up as "don't live beyond your means." WE avoid contracts and limit our regular monthly expenses as much as possible. We consciously keep our spending low so that we don't base purchase decisions on our income. Due to low inflation, we have barely increased our spending over the years. Our health insurance used to cost about $1000 per year and now costs about $15k. We used to live on $45k per year before having kids, and now it is about $60k. We haven't really changed our spending, overall. (Not much we can do about the healthcare). In the interim we did buy things like daycare/preschool. Thing is we didn't *need* it, were not locked into any contracts, and would drop in a minute if we had to. Temporary expenses like that are always open for discussion. This year my kids will both be in school and our expenses are mostly same as they were a decade ago. We haven't increased our means for the long-term. That is just an example. Dh's future income would go to savings and one-time expenses. (Maybe nicer things, or a vacation here and there, but nothing that needs additional money to keep or maintain).

I suppose I bring up the healthcare thing because thank goodness we weren't buying a lot of other stuff - who knew it would get so expensive in a very short time. & literally, the rest of our spending has been rather stagnant over the years.

3 - Don't borrow for anything. Don't get me wrong. I am not saying I have never borrowed a dime for anything. But it is a rare day when dh and I borrow money. At this point in our lives, I don't see ever borrowing another dime, again. (0% offers, credit card arbitrage and paying off cards monthly for rewards are fine by me. I just refuse to pay any interest on anything - or to borrow any money that I don't already have in the bank). Exception for us was first car in the $1k range, and our home because owning is way cheaper than renting around here. These are the reasons why. I would have borrowed a very small amount for college if I had to. I figured out other options instead, though. We are pretty debt adverse, which goes a long way to helping with #2 - keeping our expenses down. We don't have any payments in our budget. We buy what we have the cash for - that's about it. Makes it easy not to bite off more than we can chew. To make it work we have just bought a lot of really used things over the years.

Correction: We have a mortgage payment. Hardly count it because it is cheaper than renting. Don't get me wrong - don't plan to keep it forever, either.

P.S. The first car I bought (for $1500?) lasted 7 years, and my $10k public college education (yes - $10k for 4 years - if even that much) gives me the exact same career that a six-figure private degree would have. On the cars, we can afford a little more with every purchase. $1k, $5k, $10k, has been the progression. Cash paid for each one after the first.

4 - Balance is so important. I think this one comes easy to dh and I because we grew up in very balanced families. I think most people really struggle with this, but I feel grateful that we don't struggle with it too much.

An example? I completely agree that it is humanly possible to have a paid off house, very quickly and young. Even with the high cost of real estate here. Dh and I could have put our entire life on hold, he could have worked another 5-7 years, and we could have paid off our home before we had children.

Why would we do this? Where is the balance? Neither of us saw the point. When my dh found out he had a brain tumor at the end of 2009, he told me he had no regrets. If it was his time, it was his time. All he ever really wanted was a family. & he has his nice, little family. He has dedicated the last 8 years of his life to his kids, which is all he ever really wanted to do.

I couldn't help but think about what if we had just paid off our house and were about to start our family? What if we had a newborn? I think my dh would be facing this whole thing with a lot of deep regrets, personally. It's not as simple as "being debt free is the best thing ever." Every financial decision is about sacrifices. You just have to figure out which sacrifices you can live with and are worthwhile. Everyone has their own priorities to sort through. Though I think most our friends and relative would describe us overly-cautious, financially, they also have to admit that we have never put off anything that was truly important to us. We have both significantly put work on hold to spend time with our young kids. We bought our dream home when we were like 25. My spouse has all the time in the world to pursue his passions, without a job. (I just happen to get paid well for my passions). & so it goes.

Of course, the irony is that the more you manage your money, the less you ever have to think about it. Wink

5 Responses to “Big Picture Approach to Finances”

  1. Joan.of.the.Arch Says:

    ***** (five stars for this entry)

  2. Frugaltexan75 Says:

    Like Smile

  3. sweetmama Says:

    Wonderful post! Smile Perfectly put for 7 am. (How early do you get up in the morning to write?)

  4. ceejay74 Says:

    I've always admired the fact that you DON'T plan your budget down to the penny yet live well on a relatively low income (from what you've said about it compared with your friends').

    I might let my family get to that "big-picture" point someday, but I don't know that I trust our newly born restraint to work as well without the close monitoring. Smile Maybe in a few more years...I enjoy a high level of involvement in our finances, but maybe I could eventually put it toward something more constructive, such as retirement investing and planning.

  5. MonkeyMama Says:

    sweetmama - I am an early bird - I like to wake up at 5am. Big Grin (But I Can't keep my eyes open past 9pm - is the flip side - I'll never be a midnight blogger).

    ceejay - compared to our friends who have massive debt payments, yeah, it's a lot easier to stretch our dollars. I don't think a lot of them understand how much money my spouse saves by not working, either. You know, no insane taxes, no daycare, not a lot of convenience purchases. As you move to a debt-free lifestyle, I am sure you see the difference it is making in your life. But, to be clear, we are a lot more penny pinching these days. I suppose the flip side is our savings. We have savings from when my spouse last worked, which most people don't *get.* The income doesn't matter so much when you have savings in place, etc.

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