Before explaining our recent change in budgeting that I mentioned in our last income report, I want to give a short overview of our budgeting history and background. Later this month I will go into detail about the specifics of our budgeting system.
Growing up, I don’t recall ever learning any concrete budgeting skills, though I was born with a frugal gene and the sense not to spend more than I earned. Over the years, my understanding and implementation of budgeting has evolved. Our budget, now at its best, is helping us pay off over $100,000 in student debt.
BUDGETING IN MY HEAD
Before I was married, I kept close tabs on my bank account, lived frugally, and stayed out of debt. I paid for my college education without ever having a written budget. A frugal lifestyle, part-time job during school, and general awareness of my cash flow kept me afloat.
My husband was eager to put together a spreadsheet to keep track of our finances after we were married. Together we have tracked our spending ever since I can remember. He turned me into a receipt-saver. Both of us have a frugal, low-maintenance lifestyle, so living within our means was fairly easy. We kept a mental budget and always discussed possible purchases in advance so we were always on the same page financially.
Soon life got busy, babies were born, and all those saved receipts just stacked up and never made it into our spreadsheet. We continued to live frugally and save money, both for retirement and to eventually buy a house, but we didn’t make time for budgeting.
A WRENCH IN THE BUDGET
When my husband felt strongly that he needed to go back to school, we knew we would have to take out some student loans since I would be staying home with our young daughter (and two sons who were born during the four years of his JD/MBA program). It was time to crack down and start keeping a budget again.
Through law school, we tried to spend as little as possible. Not having a real income made budgeting tricky. Still, we outlined a budget and followed it closely. Looking back now, we would have done some things differently, but at the time we felt we were doing the best we could.
BUDGETING WITH PURPOSE
After graduating nearly two years ago, my husband joined a small law firm. Having a real income, albeit modest, made budgeting much more exciting. In addition to budgeting our own money (rather than borrowed money), we were budgeting with a purpose: to save for a down payment on a house.
Our budget outlined how we planned to spend our money. We tracked our expenses and made sure we stayed within our limits. Periodically we would transfer whatever money was left in our checking account into our house fund.
In May 2013, I happened upon Dave Ramsey’s Total Money Makeover at the thrift store. As a longtime reader of Money Saving Mom, I had heard great things about Dave’s books. I read it through it in a few days and then my husband read it too.
Even though our income-based student loan repayment plan does not require us to pay anything yet (our income is low for a family of five), we knew that paying our student loans first and fast was the right thing to do. The purpose of our budget changed from saving for a house to paying off our student loans as quickly as possible.
BUDGETING WITH A GOAL
Even better than budgeting with a general purpose, is budgeting with a specific goal. We decided to set a specific, measurable goal that would stretch us. We crunched some numbers and set a date for when we would be debt-free.
We set an goal amount to pay toward our debt each month. Our audacious goal not only keeps us strictly on our budget, but motivates us to work hard at increasing our income. Our income isn’t quite to the point that we can reach our monthly loan payment goal, but we are doing what we can to increase our income and are optimistic about the future.
From casual budgeting in our heads, to focused, consistent budgeting with a goal, we have come a long way. Challenged and motivated by our goal, we have paid over $40,000 toward our student loans in just over a year. By the end of 2016 we hope to have paid the remaining $99,000, saving tens of thousands of dollars in interest and making us debt-free (and ready to save for a house)!
In the past couple of months we’ve revamped how we budget. It makes such a difference and is solving all of the problems that our past budgets have had. I am excited to talk about the details of what we were doing and why and how we changed. UPDATE: You can read about our awesome changes here.
- How has your budgeting style evolved over the years?
- Has there been a certain impetus for budgeting or is it something you’ve always done?