Wednesday, January 13, 2010

How we budget

So, after I mentioned that we're Dave Ramsey fans and that we use a budget I had a couple of questions about how and why and all that stuff.  I'm going to do my best to answer all of these questions without going too much into my financial situation, or making it sound like I have all the answers, because I don't.  I just read and study a lot if something interests me.

I'm going to walk you through what Dave Ramsey calls the "baby steps."  This is his plan for getting out of debt.

1.  Beginner Emergency Fund- this is $1000 in the bank.  The goal here is to have enough that you can survive a small emergency, but not enough so you feel comfortable in your savings.

2.  Start your debt snowball- list your debts smallest to largest, pay minimum payments on everything, but the smallest and throw all your extra money at it.  Once that is paid off, put the money you were using on the smallest debt and pay it towards the next one.  So on and so forth.

3.  Save an emergency fund of 3-6 months expenses- This is for the emergencies that come up from time to time, my heater broke, I lost my job.  This is not the oh no I spilled on the couch, it's time for a new couch fund.

4.  Start saving for retirement and college- He recommends putting 15% of your income towards retirement.

5.  Pay of your house early

6.  Build wealth-

Now as to actual nuts and bolts.  We're already past the debt snowball part so we're not pinching our pennies as much.  We're probably going to start being more careful soon because we're looking to save some money and there's a friend we want to be able to help out on a regular basis.

I usually withdraw at the beginning of the week my money for: groceries, eating out, and blow money (this is money I can spend however I want; it usually goes to eating out with my Mom, craft stuff, and stuff for kids, and the occasional book).

We spend roughly $200 a week on groceries.  Back when all three kids were in diapers I probably spent almost all of that at the grocery store, because we had a $40 diaper bill each week.  Now, I've been doing this for 4+ years and I've learned a few tricks for saving money and still eating fairly healthy:

1.  watch your local grocery store sales.  I know some people who will watch all of the store flyers and get their meat at this place, and their canned goods here, but that's just not practical for me with three little ones.  So, I watch HEB's sales and will try and plan my menu for the week somewhat around sales.

2.  Plan your menu for the week.  I have a large dry erase calendar in my kitchen where I write down what we're going to eat for the week.  I try to take into account days when we'll be short of time and plan simple meals, and days where I know I have a couple of hours to mess around and make a fancy meal.
** My plans do not always go as I want.  Quite often the opposite, but it helps to know what I have on hand**
You'd be amazed at how much this one step will save you.  If you know you're only planning on serving a salad one time that week, then you don't buy 3 heads of lettuce.

3.  Buy the items to make it, rather than the premade stuff.  There are times the premade is cheaper.  It is cheaper to buy a loaf of bread then it is to make it.  It is often cheaper to buy frozen rolls than it is to make them from scratch.  Figure out for you what it is worth it to buy the premade stuff.  Premade salad kits are 5 times more expensive than buying a head of lettuce and some spinach.

4.  I've figured out to leave one day of meals unplanned.  This allows for something coming up and you not eating as you planned, and it allows for you to have a night to eat leftovers.  We often have leftovers, and it's silly to have them sit there forever until you throw them out (not that, that's ever happened in my house.....).

5.  I also plan ahead for what items I might need to be purchasing.  For instance, in the somewhat near future Princess is going to move out of her toddler bed and into a twin size bed.  So, as I have extra money and see sales or coupons I purchase the items needed for her bed.  Planning ahead helps tremendously for saving money.

Now, if you strictly follow Dave's plan you sit down each month and plan a budget for that month.  Jeff and I have figured out that doesn't work for us.  So we have a bit of a generalized budget and we talk through if there's going to be a random added purchase.  For instance this month I wanted to get a math curriculum, and we agreed that would work in this month's budget, and next month Jeff is going to get the electronic item he wanted.

If you're wanting to know more I'd highly recommend reading Total Money Makeover by Dave Ramsey or listening to his radio show.  He pretty much explains everything you need to know in his show, and it's actually a pretty entertaining show.  He also has a 13 week class called Financial Peace University which goes into even more detail of how to do all of this, including a great explanation of investing and what the different investments are (and he's funny, who'd have thought money could be a funny subject).

Hopefully this answered everyone's questions, and gave you some ideas of how to make this work for you.  I'm linking this up to Works for Me Wednesday because Dave Ramsey totally works for me!
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