Monday, January 5

Financial Peace

Those of you that are non-budgeters may want to steer clear of this post.

We hate debt.  In fact, we have none.  We own both of our vehicles - paid cash for our van.  No schools loans, thanks to tuition free colleges and parents that were willing to help.  The credit card is off limits - except for reimbursable expenses for work.  We don't owe money to friends, family or any financial institutions (minus our house).  But, we do have this measly thing we call a "second mortgage."  You know, that's the creative lending they (meaning the banks) maneuver when you don't have twenty percent down on your home.  It's not much, just enough to drive us crazy.  After months of brainstorming the best way to pay it off quickly - the lottery isn't reliable, fabulous prizes on game shows are overrated, and we can't get a call back on "Deal or No Deal" - we've made the decision to follow Dave Ramsey's Financial Peace University Baby Steps.

I realize that Dave can be a bit controversial.  No debt?  Is that really even possible?  We believe it is.  So much so, that we're taking extreme measures to ensure that we pay off our second mortgage and stay debt-free for the rest of our lives.  Starting January 1st, we've employed the cash envelope system for all of our cash purchases.  Groceries, gas, clothing - and are saving as much money as possible...so far so good.  You can't believe the emotion that cash spending evokes.  Purchasing an item of clothing requires much more thought and purpose.  I bought Annelise a dress at a consignment shop on Saturday - and thought hard and long if I really wanted to spend $6.50 on it.  When I pulled the cash out of my wallet, it was so...freeing. Not the word you expected, right?  I thought to myself...

"How satisfying.  I just purchased something that I had the money to buy and don't have to worry whether or not I've just cut into our grocery budget or worse, gone into debt to have it."

It was a very pleasing experience.  

P.S.  I know that some of you have done the envelope system before.  Would you mind sharing tips on what has worked and what hasn't?  Also, what do you spend on groceries each month.  I feel like our budget is high, but don't have anything to compare it to.

20 comments:

Kimberly said...

Ok, I can tell you right now...keep your receipts and keep track of what you are spending your cash on. We've done Dave Ramsey and it really stopped a lot of fighting and helped us save a TON of money. The ONLY problem we encountered is the envelope system he provided was like a check registry, but it wouldn't allow a breakdown of WHAT you bought from, say, Walmart. Groceries, clothes, household supplies? At the end of the month when you're money is gone you don't just feel like, "Oh, well, it's gone. We'll just wait." You become VERY curious about where it all went. Plus, you can track your spending so much better. I would at least use a spreadsheet or Quicken or Microsoft Money and STILL keep track of all your purchases - just actually buy it in cash. Hope this helps...this is what we hadn't been doing and wish we had the entire time.

Kimberly said...

Also, we have budgeted $260 in groceries a month for us - just Brett and myself.

The Neals said...

thanks for that tid-bit of info! very helpful. we have decided to keep our receipts for the first three months, so we can see where our money is going.

Pam said...

We just did FPU that last fall because we have a second house payment on that dumb house in Ann Arbor we had to take a loss on.
Anyway, we hate debt too!!
I switched to the all cash envelope system in October we don't use credit cards at all, and it has rocked my spending world! I spend so much less. It was so easy just to swipe the debit card. Now I seriously question my own spending just about daily. AND I shop so much less!
I understand the word freeing. I feel so free to do what I need to do with the money and not worry about going over budget because it's all in front of me. When it's gone, it's my fault.
Anyway, I have a budget of $500 a month for groceries, out to eat, paper goods, and baby supplies. So far I've come in under budget.

Oh my, this is getting really long! I'll talk more with you on Saturday.

Paulina said...

Yay for Dave! We've done the envelope thing and are using the debit card more but are thinking about heading back to strictly cash. I also highly recommend keeping a spreadsheet of how much you spend in each category. If we didn't do that, I would have no clue how much I was spending and where it was going.

As far as the grocery thing, what has helped me is planning all of the meals for the week ahead and making sure we keep it to under like $100 for the week or so. I try to make a list of everything I need to buy and estimate how much I think it will be. THat helps me stick to it...though I often still fail! Practice makes perfect though, right?

Pam said...

Oh and I agree with Kimberly, keep your receipts at least the first couple of months just so you know where your money is going.

Kentucky Kate said...

Congratulations! While we didn't do Financial Peace, we operate by the same principles. I love his radio show. We have our house debt only and we are hoping to have that paid off in just a few years. We are slowing down our payment plan a little to finish the attic so we have a little more room, but I'll still be so excited to not have a debt in the world.

We spend $340 on groceries. That sounds high, but that feeds the four of us healthily and we don't go out to eat at all (except if Eric and I go on a date).

I found a little plastic accordian envelope at Target for 50 cents. I labeled that with my clothes, kids expenses, Eric's clothes, food and my miscellaneous. There are some things that aren't regular enough expenses to pay in cash, so I will still use the debit card for those. Medicine and health care expenses is the biggest one I can think of. I don't really mind that though, because I would spend the same at the doctor whether I paid cash or plastic.

The hardest, but also most accomplishing feeling is the months when you use all of your grocery money early and then have to be creative with what you have for the rest of the month.

The Neals said...

wow - thanks for all of your wonderful suggestions. our grocery budget is actually $300 a month - but that also includes toiletries and cleaning supplies. i guess we're a little lighter on that than most. but we have a little larger eating out budget - because our schedules often require us to eat on the go. we just started the envelope system and i can already tell we are saving money. its so much harder to spend cash than it is to swipe a card.

Elly'sMommy said...

I've done the cash/envelope system for years and years and I love it. I have three tips:

Tip #1) I don't "borrow" from other envelopes until the end of the month. Because we have savings, it's not necessary for me to save the money. HOWEVER, until that month is completely up and the cash for the next month is there I don't spend any "leftover." Just the way I roll. Some people re-adjust so that they don't have any leftover money. I do that if it's extreme, but for the most part the amounts stay the same and I just get the cash.

Tip #2) Give yourself plenty of "discretionary" money. You'll need more than you think. I get $70 a month and that fits it just about perfect. If it were up to me I would have taken $20 and then resented my husband for restricting me!

Tip #3) If you date, work in your date money. Otherwise you end up angry at one another because there's not enough money to go around. Remember that the budgeting is to give you both more freedom... not to trap you in resentment!!

We don't have any debt except our mortage (we put 20% down) so from one debt-hater to another, I know you can be debt-free! Go, baby, go!!!

Jessica said...

Thanks for posting!!! We are in the same boat as you guys, its great to hear so many people are "almost" debt free! We aren't on a "strict" budget right now, we just don't spend any extra money on unnecessary things, but both of us see the benefit of it! I also would love to get our mortgage paid quicker and not pay all that interest!!! (who wants to give that much money to the banks anyways) I'll have to look into Ramsey, I know I have herd good things about his money program before.

Eric said...

Thanks for the great post, and I love all the comments so far. Congratulations on the wise decisions so far and the decision to take extreme measures to pay off the second.

Just wanted to offer a slightly alternative perspective on the subject of keeping receipts to track the categories. I think it's a good idea initially so that you can figure out how much to assign to each category, but after that I'm not sure it helps that much as long as you have enough envelopes. For example, don't have one envelope for groceries, eating out, dates, and gas - have 4 envelopes. That way at the end of the month, you know how much you spent on each category. Don't get me wrong, I'm the type of person who likes to be able to go back and tell that In October of 2002 I spent a total of $87.43 on 3 trips to Applebees, but I'm not sure what the real value of that is.

Kara, just to confirm on your tip #1, you're saying that the money carries over, right? If you have $50 in an envelope in Jan but only spend $25, you still put another $50 in that envelope for Feb. Did I hear you right?

The Neals said...

eric - much agreed! we have separate envelopes for groceries, eating out, gas, etc. i even separate out items that might be confusing - like annelise' diaper fund vs. her food fund. this might be overkill, but to start, i want to be sure we're spending out of the right categories. and we record every transaction so we know where it was spent. and yes, we're planning to refill the envelopes with the same amount of cash, whether there's any left over or not. at the end of 3 months, we'll re-evaluate to see if there are categories that need more money or less money. its really a lot of fun!

MikeandJen said...

i surf to your blog occassionally through liz and noahs', and my husband and i have been doing FPU for almost a year now. We have paid off both of our vehicles,some other here and there things we owed on, and currently just owe on our school loans... darn that college!
anyway, i just wanted to encourage you in the envelope world. it can be overwhelming, but yes FREEING! I still get crazy looks from people when I pull out our trusty brown case with yellow envelopes, but we have spent SIGNIFICANTLY less than we did before. We budget roughly $350 for groceries,(there is 2 of us and one due anyday) toiletries, cleaning supplies etc. I cook a ton from scratch, we gardened over the summer and I canned and froze everything I could to save up for winter.
I find that the spot on the envelope is enough for us to keep track. We just write in the store we spend it at... meijer, etc.
we each have a blow envelope with $20 for the month to just buy those random items or to cover an oops from somewhere else, that has saved us a lot of hassle...
my i'm rambling on and i don't even know you....
good luck on your dave adventure! :)

Amanda said...

Nice post I am going to read more!
Hi! By the way. I am a freind of kara's and pam's.

Amanda said...

My answer was sooo long I posted it for you. My blog is closed so I hope you got the invite I sent.

Start writing down those $ now! Its a chore if you wait even until weeks end. I am sooo excited for you!

The Neals said...

Amanda -

thanks for your post! we are following all of those same rules and are finding it very freeing. honestly, we really weren't bad with money before, just not very GOOD with it. now, we know how much we have to live on - and its not as much as we were spending before.

rach

krissy said...

question- how do you keep track? excel spread sheet?

Laura said...

Hello, saw a link to your blog on a friend's sight and enjoyed your post. We have done the cash thing, but without envelopes. Our grocery budget is super high for a family of four, at least compared to the others, we spend $550 a month! For us that includes all purchases made at a Walmart-type store. I can't even imagine how to spend less. We eat lots of fresh produce and my little girl has food allergies so we buy a fair amount of natural and organic food so we can get gluten- and dairy- free foods. Good luck with your budget.

Amanda said...

I look forward to reading more about your money adventure!! Good luck!!

Jerry and Katie said...

Can you email me your address? I want to send you a baby announcement! Miss you! jkisaak@hotmail.com