How We Save For Annual Expenses

I read it all the time in PF blogs, annual expenses aren’t surprises, you know they are coming.  Every year we have to pay homeowner’s insurance, car insurance, property taxes, etc. So why don’t we plan for them?

The Husband and I have developed a system that works pretty well for us.  It began the first time we bought a new car.  We set up a direct deposit of $300 for every paycheck to go into a credit union to make the car payment.  We bought that car in 2001 and we have still kept up the practice of depositing money every pay period. 

For many years, the money had no purpose so it was squandered in many different ways.  But several years ago, we started using that money to pay for our annual expenses. For us, these include our home owner’s insurance, property taxes, car registration for four vehicles, and our car insurance, which we pay twice a year.  We also try to pay baseball and soccer registration fees out of this account and, if there is enough money, some competition fees for our daughter’s dance studio.

Over the course of the year, these bills can really add up. It has really helped us to have at least most of the money readily available

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Our homeowner’s insurance is due in October, so we just paid it.  We had plenty of money in the account so it was paid in full and the account continues to grow.  Coming up in the near future, we will have to pay the first installment on our property taxes as well as our car insurance for the next six months.  These are both hefty bills, well over $1000 for each of them and I’m so happy we will have the money to pay for both of them.

In our household, we have to pay for a car registration once a month from January to April.  Again, these aren’t surprises, but as the old adage says, failing to plan is planning to fail. For many years, every time a car registration was due, it became a pitfall for our budget. In the past, many times, we actually paid our car registrations late because we just didn’t have the money.  Now, we always have the money to pay our car registration, on time and in full.

The reason we are able to do this, is because we automate the deposits.  On our own, we would never set aside $300 per paycheck into a separate account, even though we know we have these expenses due every year. We would still be acting as if these annual (which means yearly y’all) expenses came out of nowhere. We would still be falling farther and farther into debt each month instead of slowing clawing our way out.

This account also acts as a mini-safety net for us.  In a sense, it acts like another emergency fund. The amount of money in this account is always fluctuating, but there is usually at least a few hundred dollars. In a real and true emergency, we have another small cushion to fall back on because of this account.  We haven’t had to use it in such a way, but it gives me some peace of mind just knowing that it is there.

This is actually the only account we automate. We make it work, but we can’t seem to save any more than that a month. Almost all financial advice you get starts with “pay yourself first”. With this account, that’s exactly what we’re doing.

How We Use our the Cash System to Pay our Credit Cards

I talk often about “the card we pay off monthly” so I decided maybe I should talk about how we do that.

We have two credit cards: one that we have carried a balance on for over 4 years and one that had a balance for about 10 years, but we have paid off monthly for the last (about) 5 years.

My last post about how we budget was all about how we use Dave Ramsey’s envelope system and cash; so I get that using credit and paying cash doesn’t really reconcile. I’m going to explain to you how we do that. (PS the say we do it is part of why we can’t get out of debt faster.)

Each pay period, I go to the bank and take out however much cash we have budgeted for the next two weeks.  And then I proceed to charge everything. WHAT? It doesn’t make sense, I know, but let me explain.  We still aren’t disciplined enough to use credit exclusively, so right now, I physically take the cash out of the bank and then when I buy something out of that category, like gas or food, I take that amount of money out of the designated envelope and put it in a jar with a post-it note on it with the date the credit card bill is due.

Pretty complicated sounding, I know. But it keeps us from overspending too much.

Any time there is a shortfall in any category, we make that up with our credit card, hence the reason we can’t get out of debt. Instead of taking any leftover money at the end of the month and putting it towards debt, we are taking any leftover money and paying off the credit card that we pay off monthly.

We don’t budget enough money each month to actually cover many of our costs so we have to make up the difference using credit*; and because we aren’t gazelles we aren’t willing to sacrifice our lifestyle in order to get out of debt faster.  It is a vicious, never ending cycle, but one that is wholly created by us. (*This isn't intentional. We budget in good faith every month and then spend more money than we budgeted."

Clearly the way we budget and use credit is not the most efficient way, but it keeps us from getting too far out of control and has allowed us to slowly decrease our total debt load since we started budgeting this way in December of 2015, nine months ago.

By taking cash out, then putting it in a jar to use to pay a credit card bill, I’m drastically increasing my trips to the bank. I know it doesn’t make the most sense; but we are not responsible enough, yet, to solely use credit cards.  On the flip side we don’t want to throw away all the points we could be gaining if we used credit.  Although not the most practical way to budget, right now, it works for us.

Today, for example, I am heading to the bank to deposit $960 that we “collected” over the course of our last credit card billing dates.  The bill is due soon and I need the money to pay for it.  That is not the whole amount of the bill, but will definitely help towards paying it off.

In an ideal world, we would budget enough money to fund every budget category, every month and we would never exceed our budget. We are in debt so clearly this is not how we have operated in the past.  This one change has helped us to get more of a handle on our finances; and allows us to earn some credit card points without totally blowing our budget out of the water.

How We Budget (Part 2)

In How We Budget Part 1, I laid out how we budget our money each month and break it up into different categories. In this post, I'll explain about the different things each of our envelopes pay for.

Our car repair envelope pays for any necessary (and sometimes unexpected) car repairs, tires, and oil changes. Lately it has been one thing after another with our cars so the envelope only has $50 in it, but we are trying to bulk it back up so there will be enough money to pay for needed repairs in the future. Many times, although there hasn't been enough money in the envelope to cover the entire bill, it's been helpful to have the extra couple or few hundred dollars cash ready to pay for at least part of the repair.

The essentials/miscellaneous category could just as easily be labeled Target/Walmart. We buy toilet paper, dish detergent, laundry detergent, shampoo, face soap, body wash, dog food, cleaning supplies and the like with that envelope. Although I try, I never budget enough money towards this category to fully fund what we need.

Clothes is pretty self explanatory; we buy clothes and shoes with that envelope; this includes undergarments, socks, swimsuits, and pajamas. This envelope mostly funds clothes for the kids but occasionally clothes for The Husband and me come out of this envelope too.  With this envelope especially there's never quite enough money as there is need, so we charge the rest on the card we pay off monthly.

Hair care is specifically for hair cuts. This pays for haircuts for me (I go bi-monthly) and The Kids (The Boy goes about once a month and The Girl only goes about twice a year), The Husband uses clippers and cuts his own hair.

The school envelope pays for all the miscellaneous items we have to pay for throughout the school year. These are things like school pictures, field trips, dance entrance fees, and fundraisers.  This also paid for all The Kids new school supplies (to the tune of $200) this year.  It was depleted and is slowly being built back up.

Our final budget category is kid's activities.  This pays for things for like dance competition fees, things needed for baseball or soccer as well as dance.  I realized that just because I paid registration fees for an activity, it didn't keep hidden fees from popping up.  I felt like I was being nickeled-and-dimed out of all my "extra cash" laying around so we started funding this activity. It's been very helpful, though again, it never covers everything and gets depleted often.

To many people, this is too many categories or too much cash to carry around, but we've found it really works for us.  I mainly handle the finances for our family and by having this many envelopes and funding them, we have slowly begun to dig ourselves out of debt.  We have decreased our debt load every month since December 2015, (when we recommitted to Dave Ramsey and the envelope system) and our envelope system is a big part of why.

No-spend September Final Update

This was by far our biggest No-spend September fail!

The kitchen remodel we are in the middle of threw a wrench in our plans that we were not prepared enough to tackle as far as our no-spend month went.

Our goal is to spend less than $400 on groceries and we far exceeded that. Probably by more than we have ever before in any of our no-spend months.  I was so depressed I stopped actually keeping track. And the worst part of it all, is that it all happened in the last week of our challenge. I think we spent somewhere in the neighborhood of $430 - $445. I'm sad.

In addition to overspending on out grocery budget. we spent money in other areas too.  We ran out of slow-cooker liners about 10 days ago and the store was out of them when we went to buy them. (Because we have no kitchen, we are very dependent upon our slow-cooker, but because we also have no kitchen sink (and therefor no garbage disposal) we are using the liners.) We were unable to make dinner at home a for a few nights and we ran out of frozen meals, so we went out to eat.

If nothing else, I'm going to remember that we did our best. We didn't buy Starbucks (without a gift card) this month. We didn't buy any new clothes or shoes. I didn't get a manicure or pedicure (even though I so badly wanted to). Neither The Husband nor I got a massage this month; and the vast majority of our purchases were either for or because of the kitchen. (I'm not trying to offer an excuse, but rather an explanation.)

This year's no-spend challenge was such an epic fail that it definitely gives us a goal to shoot for next year.

There were some positives that came from the challenge.  Our total debt load during this time decreased and we did increase the number in our savings account.  My goal next year, will continue to be keeping our grocery budget in check, to grow our savings account, and to stay under budget and NOT spend over $1000 at Home Depot during our no-spend challenge.

I'm still proud of us for trying to meet the challenge amid the chaos that is our home and life right now. Isn't there some saying that failure builds character?

Although this post was painful to write, I also wanted to be honest.  There's no point in publishing a blog if I'm not going to tell the truth.

How We Budget (Part 1)

Many years ago The Husband and I took Dave Ramsey's Financial Peace University, FPU, through our church. It was life changing, although for us it didn't stick right away.  Remember, we got out of debt just to get back into debt.  We are doing much better now: still in debt, but working a plan to get out of it; and NOT adding to our debt each month.  I'm not always able to attack our debt with as much vigor as I'd like, because we aren't gazelles, but our debt load decreases (at least a little) every month.

Now that we are back on the payoff-debt-wagon, we have gone back to Dave Ramsey's envelope system; in fact, I actually use the Dave Ramsey FPU wallet. (PS I love it! It has 6 envelopes, a coin pouch, and several extra tracking sheets for when the envelopes run out of room.) It's actually this one! And I love it! It works great for my purposes and is small and light enough to fit in my small purse, but plenty big enough to hold everything I need. (PPS This is not an affiliate link. I just really like the wallet!)

As a public school teacher, I get paid once a month on the last working day of the month. The Husband gets paid every other Friday.  My paycheck pays our mortgage, usually our cable bill (yes, I'm into personal finance and we still have cable,) my daughter's dance tuition, and anything left over usually goes towards the credit card that we pay off monthly.

The Husband's paychecks cover everything else: internet service, utilities, cell phones, (at least) the minimum due on our credit card that still has a balance, and it funds all of our budget categories.

Our budget categories are: food/groceries, gas, car repair, essentials/miscellaneous, clothes, hair care, school, and kid's activities.  For many people, that's too many, but for us it works.  Some of these are sinking funds where the money continues to add up and others start over every pay period. (I'll write a later post about what we do with that money. Also, you might have noticed, there is nothing there about home repair, home owner's insurance, or car insurance, we handle these a little differently too. Again, another post for another time.)

We only have a couple of budget categories that start over every pay period, those are food and gas. We budget $250 for food every two weeks and $300 for gas for the same amount of time.  Sometimes we use it all, sometimes we go way over and charge the difference, and sometimes we have "left over money". The rest of our budget categories are sinking funds. Their balances continue to grow. None of these envelopes ever get too full because, in all honesty, I don't fund all of the categories with enough money they need over the course of the year, but usually it's enough to get us through.

Many people think we have "too many" budget categories, but they work for us.  Each category we have, except maybe with the exception of food and gas, was created because when I looked at what was really busting our budget every month I realized it was something we were always having to pay for.  The most recently added categories are school and kids activities.  One way or another we were always having to pay money towards those things. Now that we have them in our budget, we are more prepared each month to pay for the things we need.

As I was writing this post, it became more and more long winded so I decided to break it up into two posts.  This being part 1 where I explain a little bit about how we budget. In my next post, I will explain exactly what we pay for out of each envelope.

Debt Payment

September 23, 2016

Today I am going to the bank to pay my credit card.  The minimum payment on the card this month is $172. I am going to pay $435 on a balance of $5706.  I am paying about 7.5% of the balance today.  Originally, I had hoped to pay more, $585 or just over 10% of the total balance, but because the credit card we pay off monthly was so high this month (stupid kitchen) I had to allocate some of the money there. (Actually, it wasn’t all the kitchen. We bought tickets to some shows for ourselves and 4 other couples and they owe us the money for those to the tune of over $600! YIKES!)

Although the minimum payment on the card keeps decreasing, going forward I’m hoping to pay a minimum of $300, but hopefully more each month.  According to the chart on my statement, if I pay only the minimum payment, I will be paying this card off for the next TEN YEARS!!!! That’s crazy, folks!!!! Ten years to pay off purchases I made 1, 2, 3, or 4 years ago! I don’t want to still be paying off my Hawaii trip from the summer of 2012 in ten years. It was a great trip, but no trip could be that great! In fact, I don’t want to still be paying my Hawaii trip off now!

I will be very excited to get the balance of that card under $5000. Right now, I’m just trying to keep my head up and remember that with every payment I make, more and more of it is going to the principle balance and less and less of it is going to pay interest. I can’t wait until I have more space left on the card than I owe. That’s a milestone I haven’t crossed in over four years. I’m hoping that will give me a little boost to keep our debt payoff momentum going.

My original goal was to have this credit card paid off by the end of the year, but now it’s really looking like a stretch goal.  We only have 3 months left in the year and I have over $5000 left to pay.  As far as debt payoff goes, the kitchen has really put a cramp in my style.  Instead of sending any extra money each month towards debt, I’m socking it away to help pay for things in the kitchen. Most importantly, the balance keeps going down. And I haven’t charged on the card since December of last year.  With Christmas coming up, I definitely want to continue that trend.

I am a little discouraged by the credit card bill of the card we pay off monthly because only 8 days into our new billing cycle and our balance is already at $1000, and that’s in the middle of No-spend September. We have about $200 cash towards that, but that’s still a much larger balance than I want.  The kitchen is killing us. It’s very expensive and we haven’t even gotten to the finishes yet. 

Generally, any money we have left over in our food or gas envelope at the end of a budget period, goes towards paying off extra debt, but lately, we haven’t been able to do that. All extra money is going to pay off our credit card that we pay off monthly. I guess the bonus here is that we can still afford to pay it off monthly; but the negative is we aren’t able to throw any extra money at debt.

I know I’m not a gazelle, but I can’t wait to be credit card debt free! 

No-spend September Updates 4 and 5

September 19, 2016

This was another spendy weekend for No-spend September.

Tracy had an antique fair which I attended with my mom.  I only bought one thing. It was $32.  Because it was an antique fair, and generally not available, I felt it was okay to attend. I bought a vintage credit register. I’m going to use it in my kitchen to hold pictures and recipes. 

The next day, I attended the Harvest Festival with my mom and sister.  I only bought one non-food item. It was an old Gone with the Wind movie cell. It’s for my mom for Christmas. It cost $90, and my dad is actually going to pay for it.  Both The Husband and I agree that gift buying is an exception to our No-spend rules. Other than that, I only bought food items. I bought 5 different loaves of breakfast breads. (The Kids are sick of only having cereal, toast, and fruit for breakfast, so I wanted to get them something different.) The breads were $4 each, leaving me $178.04. I also bought 11 different crock-pot spice mixes which will be great since our kitchen is still under major construction. Those were $4 each and well worth the money. (They are delicious! I bought them last year and loved them!) 11 times $4 equals $44, so for the rest of the month, we are down to $134.04.

There are only 10 days left in the month so that’s not too bad.  We do need another Costco trip. We need bread, milk, sliced cheese, and some fruits and vegetables.  I also need to buy meat.  We have chicken but I need to buy a pork loin (and have The Husband butcher it), a couple roasts, and a brisket. I will get the meat at both Costco and Winco. Also at Winco I need to buy instant mashed potatoes. By the time I’m done with all of this, I will probably be very close to our $400 budget.  We’ll have to wait and see.

In some ways, I’m ready for September to be over! I want a pedicure so badly… my poor feet are awful. I have lost 3 toe nails since the first weekend in August and now that they are starting to grow back I’m ready to have someone make my feet look pretty! On the flip side, I haven’t missed Starbucks this month.  I won a $5 gift card through The Husband’s insurance last month to Starbucks and I saved it for September. I also had a free drink from using my Starbucks gold card that I saved to use until September.  My best friend also bought me a drink one day because she knows about my No-spend months, so I haven’t had a chance to really miss Starbucks.

As I read personal finance blogs, many of them “bash” No-spend months.  They talk about that because you are paying for things: bills, gas, food, it’s not really a No-spend month or because you buy things, in October, that you ran out of in September, it’s not really a No-spend month. I disagree.  Though I may buy things in October, that I ran out of in September, having a No-spend month forces me to make do. This month, we have run out of liquid hand soap (except we found some later, but it forced me to figure something out) so I used a bar of soap I had.  I also ran out of a hair product I use. I had planned to buy some product in August, but I never got to the store so for the month of September, I have been using some product I have.  It’s not my favorite product, but I have it and it has been sitting under my bathroom sink for over a year.  Now, I’m using it up. I also ran out of soap this week. Instead of going out to buy my favorite shower gel, I opened up another soap we had in the cupboard. I also ran out of lotion this month. I went to the bathroom cabinet to see what I could find. I found a pot of lotion and started using it… and I love it! It was buried in the back of a drawer and I don’t even know where it came from, but I pulled it out and started to use it and it’s one of the best lotions I have used in a long time! If it weren’t for a No-spend month I wouldn’t have used products I already had, I would have made a list and gone to Target to buy what was on it (and probably $100 more worth of stuff). So although it’s not technically a No-spend month, it’s forcing me to use what I have on hand; and that is worthwhile!

September 22, 2016

I went shopping last night at Save Mart (I never shop there, it was very expensive so I only bought what I needed) and spent $26.37, that leaves me $107.67 for the rest of the month.  On my way to pick up The Girl from her dance class, I stopped at Save Mart and bought what I would need for tonight’s dinner (which is already in the crock-pot) and some things we needed and weren’t sure when we would be able to get them.

I picked up some pasta sauce, instant mashed potatoes, sliced cheese, biscuits, and bananas just because we needed them.  For tonight’s dinner, I picked up some shredded cheese, a head of lettuce, and some salsa. For dinner tonight, I am making Tex-Mex Chicken. It’s one of the slow cooker meals I purchased over the weekend.

Tonight, I will go to Costco to buy milk, bread, more sliced cheese, lunch meat, and meat (pork loin and 2 roasts). The whole trip will probably run me right around $100, which means I will be right at my goal for the month of September. It will be interesting to see if I can refrain from buying anything else for the rest of the month.

Remodeling the kitchen has made this a very interesting No-spend September.  We have had to be very planned with our food, and for the most part, have done a really good job, but it’s been hard and expensive. For the remaining 8 days of the month, we only $107 to spend to spend on food. Wish us luck!