An ambitious plan for our money in the new year
When I embarked on a journey to be more mindful about money, I had a simple and short-sighted plan: Break my bad spending habits. Even when my spending choices weren't leading to additional debt (although they often were), the way my money was being spent didn't align with the things that were important to me or bring me joy. In fact, I often felt ashamed about my spending, and I made a habit of never studying it too closely.
It has been hugely rewarding to look my spending in the eye and follow a plan to use my money in ways I can be proud of. There have been many wins (big and small) that have come from this process, including paying off hundreds of dollars of debt and being able to have intimate conversations with my husband about our finances (ooh la la!). But the more I connected to the vast community of personal finance bloggers (because Holy Moses there are a lot of us!), the more I have felt pushed (and encouraged!) to do something more.
Paying off debt and controlling daily spending are amazing things on their own. Many Americans do not have these skills, and many others lack the basic amount income needed to put food on the table (much less pay off their debts) no matter how frugal their lifestyle. Acknowledging that some parts of personal finance are a privilege, there are people doing exceptional things to create great financial freedom for themselves and their family: Paying off mortgages and massive student loans, embracing Spartan lifestyles to fund extensive traveling, and creating passive income for themselves so they do not feel trapped in soul-sucking jobs.
The world is not a stable and secure place. While I am lucky to be incredibly passionate about the paid work I'm doing, I recognize that traditional employment could be replaced by the "gig economy" to some extent in our lifetime. To survive a less predictable job market or even just a Plain-Jane economic downturn, our family needs a more substantial savings account that could support us if we lost our jobs. To avoid a string of unfunded home improvements, we need to save proactively to replace and repair our plumbing, roof, or appliances as needed. To someday retire comfortably, we will need additional investments. If we choose to have a child in the future... well, let's not even go into those costs. In short, our family needs to do more than just live within our means. Having long-term financial security (and someday maybe financial independence) requires us to live on much less than our paychecks.
In 2017, we'll be making some radical changes to our budget to give us pay down our debt more quickly and give us greater stability (and allow us to repair our leaking gutters!). These changes will ease some of our biggest points of worry:
- We'll begin saving $245 per month for household repairs/replacement
I hope to write more soon about how I came up with this figure, but I'll add right now that we have a fairly small home (less than 800 square feet) which makes our costs much lower than average when we have to paint, re-roof, replace plumbing, refinish floors, replace an aging appliance, etc.
- We'll bring our grocery budget back down to $650 per month
With a teenage boy in the house, we've been buying more food in general and definitely more prepared foods. We have also been purchasing more alcohol for get-togethers with friends/home consumption since we are going out less often. Our household includes a vegetarian (yay, thrifty!) and someone (it's me) diagnosed with extensive food allergies (boo, costly!). In 2017, we'll work on bringing these costs back in check. (Side note for those who like to get way into the details of the numbers: This budget includes all household supplies as well as food - e.g., printer toner, toilet paper, cleaning products, pet food, over the counter medicines...)
- We'll raise our monthly payment towards credit card debt by 50%
We're paying roughly double our minimum payment already, but we want to expedite how quickly we get things paid off. When we're down to a zero balance, this same monthly payment amount will start going the final item on this list.
- Pay off our existing car loan.
Between our tax return and some additional income this month, we hope to make this happen sooner than later. We are currently a two car household. Our second car will be a decade old in January and is in need of repairs that cost more than the value of the car itself. We'll be making some choices about replacing it in the spring or early-summer.
- We'll begin creating an emergency fund equal to three months of our normal income
Because stability, yo.
How are we funding all these changes you ask? We already decreased our monthly internet bill and reduced our monthly student loan payments. We will be eliminating a car payment soon, and we don't have cable, a home phone, or many extraneous monthly expenses. In this next round of budget change, we will realize some monthly savings from refinancing our mortgage (although we plan to continue paying more than the minimum), reduce grocery costs, reduce the amount we save toward the holidays and birthdays, cut our spending money significantly (it's gonna be tight folks), eliminate our credit card debt, and cut our gym membership if necessary.
The ridiculous-sounding cost we won't be cutting: doggie daycare. Our budget remains a values-based one. Before we adopted our fellow, he had always lived with other dogs. The $20/week we spend on our four-legged friend brings him incredible happiness and great exercise. Also, as a bully breed (he's an 85 pound American Bulldog/Pitbull mix), we want to ensure that he remains well-socialized and able to help his bully brothers develop a better reputation in the world.
These changes are being made not just with 2017 in mind. They are part of a larger plan. Once our consumer debt is eliminated and our nest egg is saved, we'll take a look at where we are and see where we want to direct our dollars next. When we get to that moment, we get to start talking about previously far-fetched, foreign sounding, and semi-intimidating ideas: Do we want to find a way to make our current home a rental property? Act more aggressively to pay off our student loans? Maximize pretax investments?
While we don't have answers to these questions right now, I do know that none of this would have seemed possible without the baby steps that I took at the beginning, the wise words of so many other bloggers, and Vicki Robin's book "Your Money or Your Life." When I started this journey just three months ago, I never imagined how quickly some bravery and baby steps would change our finances and our life.