By Eean Crawford

This post is third of a four-part series:  Finances and Marriage.

For this series, I really wanted to say not just, “Hey it’s important to work out your finances with your spouse.” I do want to say that, but I also want to show HOW to do that.  Like, really, hold your hand through the process of working out your finances together with your spouse.  The only problem is, I don’t know how to do that.

Thank goodness this blog is collaborative.  Eean is a business professor at the University of Iowa.  He’s also a good friend and most definitely an expert on this topic.  He told me that the way to work through financial decisions with your spouse is this funny thing called a budpit? Budgschmit? Budgit?  Something like that.  He’ll explain it.

Seriously though, this post is GREAT.  It’s long, but it’s important, so if you’re in a hurry right now- I want you to pin this post, bookmark it, email it to yourself, whatever.  Then come back when you have more time and start to work out, update or improve your very own budget!  You can do it!  And you can do it with your spouse!  And it will be WORTH it!!  Do it!  (this is now me motivating myself)  – Celeste

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Whenever I talk about budgeting with people, in large groups or small, I poll the audience with this question:

Take the poll yourself right now.  I’ll even give you three minutes with your computer or personal files before you answer.

Whatever you answered, know that in almost every setting I have asked this question, fewer than one third answer “Yes, to the penny.” Of the remainder about half can guess within $25, and the other half have no idea. This doesn’t surprise me at all.

Gallup’s 2013 Economy and Personal Finance survey revealed that only 33% of American households have a budget in which they track their income and expenses. Look at your neighbors on the right of where you live. Look at your neighbors on the left of where you live. Now look at yourselves. Two of the three of you don’t have a budget.

The Discipline to Track Spending is the Difference

I doubt you need to hear it again, but if you want to get your finances under control, you need to have a budget. Of course budgeting is a good idea in theory. So why does it seem to be so hard to put in to practice?

I believe the answer comes down to one thing: the discipline to track your spending. That means every time you spend money, you record the amount and what it was spent on. The discipline to track your spending is what makes budgeting work. The lack of discipline to track your spending is what makes budgeting fail. No matter the budgeting system you use, whether high-tech or low tech, it will only work if you have the discipline to track your spending.

If you have never had that discipline to track your spending, don’t feel bad. You’re in good company. Or should that be in bad company? Or should we say misery loves company? It just means most people aren’t in the disciplined habit of tracking their spending. But that doesn’t mean you have to stay that way.

When we were first married, I had been tracking my own personal spending diligently for over three years. Astyn, in contrast, hadn’t. She didn’t keep track of what she spent. She just kept track of what she had left in the bank and whether it was enough to cover immediate anticipated expenses. In her words, “It only worked because I didn’t spend a lot of money. But it didn’t really help me plan very well. Before we got married no one had even talked to me about budgeting.” I remember Astyn’s surprise (or is shock the better word?) when she learned that I tracked and assigned every single transaction to a budget category. She was less than thrilled when she realized I wanted us to do that in our marriage. And maybe that was a topic we should have talked about more before we were married. But you don’t always come into a marriage with identical attitudes towards finances. We were too busy gazing deeply into each other’s eyes under moonlit skies on the stairwell outside her apartment door (cue mushy romantical music, like Fleetwood Mac’s “I Wanna Be With You Everywhere”).

Astyn gained the discipline to track spending, and today we maintain that discipline together. She balked less at the idea of budgeting and tracking spending when she realized that attaining important goals that she had for herself and that we had for our family (like being able to make it through graduate school debt free and allowing her to stay home after we had children) would only be possible if we actually had a plan in place. The long-term goals of what she (and we) really wanted out of life were the real motivation. The budget and the discipline to track spending were just the method to attain those goals.

So before you launch into budgeting, figure out what is it that’s going to give you the discipline to track your spending? If you can’t come up with anything, let me give you a starter thought in the form of a question:

How much money do you need to make in order to be a millionaire? 

You can interpret millionaire in lots of ways – but for now, define a millionaire as having one million dollars in cash or investments after you subtract out all debt. See the end of this post for the answer.

Creating a Budget

Okay, so I’m assuming that by now you have found your motivation to track your spending. Peter Pan wasn’t kidding about needing the happy thought in order to fly. You either have your budgeting happy thought, or you are at least committed to finding one. Either way, at least commit to being willing to track your spending for the next 90 days. That’s all I’m asking.

And here’s why: first you have to create a budget. To create a budget, you need a realistic picture of what you are spending your money on. How do you create a realistic picture if you have no idea what you’ve been spending on stuff? So before you actually create your budget, you just have to track what you’re spending on stuff for a little while. Tracking your spending for one month isn’t really enough to give you an idea of what you’re consistently spending, because month to month you might have irregular expenses.

Tracking your spending for at least three months is usually enough to give you a decent picture of what you’re spending your money on. Six months is even better. But for now, just commit to three months. Don’t worry about sticking to any certain  amounts just yet. You just want an idea of what you’re spending. We found that 3-6 months of tracking our spending was necessary before we had a realistic idea of what we spent on stuff. Before that 3-6 months, our budget was total guesswork. After a year of tracking spending, your budget will be pretty dang accurate. It’s pretty incredible how your spending averages out over an annual cycle.

What systems to people use to track their spending? Here are some:

1. A piece of paper. That is all. Divide it into squares. Put a category in each square. Put it on the fridge. When you make a purchase, bring home the receipt. Write the amount in the appropriate category. Add it up at the end of the month. This is how I started back in the day before smartphones (yes, can you believe that was as recently as 2001?).
2. A check register. You know, the paper ones that come with checkbooks? Use one page for each category. Follow the same strategy as with the piece of paper on the fridge. The pages are already divided for you. And it fits in your pocket and goes with you.
3. A white board. Follow the same strategy as the piece of paper. It’s bigger and writing with dry-erase markers is intrinsically fun. Unless your kids find them. And erase your expense tracking.
4. An excel spreadsheet. If you are moderately computer literate and know how to use Excel, this is a very popular choice. I have several Excel budget templates that I’m happy to share with you via Celeste.  PLEASE shoot her an email at athingcalledloveblog{at}gmail.com if you are at all interested and she’ll send them along.
5. Mint.com – it’s a free online expense tracker. It securely links to your online banking institutions and downloads your transactions to be categorized. I’ve heard mixed reviews about it’s accuracy in automatically categorizing transactions, however. But it’s free.
6. YNAB.com – You Need A Budget – can try it free for 34 days. After that it’s a one-time $60 purchase. You manually enter your transactions on a computer, tablet or smartphone. It’s the high-tech version of the piece of paper or whiteboard. It adds the convenience of being able to sync your expense tracking across all your devices.
7. Mvelopes.com – free; links securely to all your electronic transactions for up to four accounts, limited to 25 budget categories; paid version unlimited accounts & budget categories plus bill pay and debt center. Automatically downloads all your transactions so you don’t have to manually enter them. All you do is drag and drop the transactions to the category you want to assign them. Allows you to split transactions into different categories. Syncs across smartphone, tablet, and computer apps.

What do I recommend people use? I suggest they start with the old fashioned piece of paper. Don’t let the technology get in the way of you learning the discipline to track your spending. Do the piece of paper, or the check register, or the white-board. But keep it low-tech for the first three months. All you want to focus on initially is having the discipline to track your spending. No high-tech solution will make you budget if you don’t have the discipline to track your spending. Have I said that enough already?

We personally have used Mvelopes.com for the last 10 years. We like that we don’t have to manually enter transactions, and we have confidence in the encryption that links securely to our online bank accounts. We do very few cash transactions, but when we do we can manually enter those. Full disclosure: my brother-in-law co-founded Mvelopes.com and I am an investor, so your using this service could technically benefit me personally to the 0.0007% of shares that I own in the company).

For those that don’t want to link their online banking institutions, Excel or YNAB are a good choice. You manually enter all your transactions (and Astyn’s sister who uses YNAB has found the personal accountability for inputting transactions to be motivating).

The real takeaways here are find the discipline to track your spending. That means for every transaction, record the amount and assign it to a category; total the category at the end of the month. Do this for three months. Now you have a decent idea of what your starting budget should be.

Budget Categories

What should your budget categories be? They can be as simple or complex as you want. We started off pretty simple, and the categories have changed over time as our needs and income have changed. Below are our budget categories as they stand today, approaching our 10-year anniversary with Eean working full-time and Astyn at home with five kids ages eight and under and having purchased our first home four years ago. I’ve only listed the categories, but no amounts. I have also added some notes next to most categories to explain our thinking or how we use them.

Auto

• Fuel. We probably over-budget fuel costs because you never know when gas will be $4.00/gallon again. But because this category overfloweth with funds, it’s paid for our last three road trips across the country. See? Budgeting lets you do fun stuff guilt free.
• Insurance. We take our annual insurance premium, divide it by 12, and then save that amount each month until the payment is due.
• Maintenance. We put a monthly amount into this; when we need to fix our cars – the money is there.
• Purchase. We make a $300/mo payment to the Bank of Eean and Astyn; in four years we’ll have over $14,000 cash ready to purchase our next car; of course, I’m hoping my 1997 Corolla with 180,000 miles lasts forever!

Food

• Groceries. This includes eating out, which we could separate out if we wanted to.
• Work Lunches. This didn’t exist when we were in graduate school, but now this allows me to go to lunch at work or to take people to lunch on once-a-week basis.

Home

• Cable & Internet. We have basic, so basic, like local channels only cable; and Netflix; we’re set.
• Clothing
• Electricity & Gas
• Furnishings
• Home & Cell Phones
• Incidentals. This is like cleaning supplies, shampoo, shaving cream, etc. And diapers and wipes. Oh my how many diapers and wipes. My rough estimate is that with our five kids in the last eight years we have changed over 15,000 diapers.
• Insurance
• Mortgage
• Repairs
• Water/Sewer/Trash/Recycling

Medical

• Health Insurance. This is actually deducted from our paycheck, but we have a category in the budget to recognize it’s there
• Out of Pocket Expenses. For co-pays, deductibles, prescriptions, etc.
• Life Insurance. We didn’t obtain term life insurance until just last year, after nine years of marriage; I only point this out to reiterate that not everything in your budget comes all at once. Budget categories have grown for us over time as needs and income change. I suspect we waited a little too long to get life insurance, but I’m glad we finally have it.

Gifts

• Tithes & Offerings. We have always paid tithing to our church along with a monthly offering that can be used to help provide food, shelter, clothing to the less fortunate.
• Birthday. For our own family birthdays as well as for the extended family or kids’ friends birthday parties.
• Holiday. We take the total amount we’re willing to spend on Christmas, divide it by 12, and then put that amount into this category each month through the year.
• Just Because. Wedding presents, baby showers.
• To Do Good. This is a new budget category for us this year inspired by none other than Rich and Celeste! We save a certain amount each month that we just have waiting to help someone in need. We then pray for opportunities to use it where we can do someone good.

Real Estate 
Note: Real Estate is currently our least-used category – meaning the purchase of new real estate isn’t something we’re planning in the immediate future; it’s more here as a place-holder for longer-term goals

• Down Payment. Includes savings for our next home purchase.
• Major Improvements. Beyond regular repairs, this is for making substantial renovations or doing serious remodeling.
• Transaction Costs. You know, all those extras like closing costs, inspections, title fees, and on and on… gotta save up for those too.

Savings

• Emergency Fund. Following Dave Ramsey, our initial goal for this was to save $1,000 fast. After that, our next goal was to save 3-6 months of expenses, which we did after about 1-2 years of employment.
• Retirement. Big credit is due to Astyn, who had firm impressions that we should start saving for retirement even while we were poor graduate students. So we did. We put 15% of our graduate student income into retirement savings. After graduation the habit was easy to continue. So now we save at least 15% of our real-job income into retirement.

Other

• Children’s Recreation. Kids sports and activities, now including piano lessons which our kids started a year ago; this budget category did not exist until the kids were about four years old.
• Dates. If we went on dates as regularly as we should, this category would be drained; but since we’ve been terrible at going out lately, this category is flush – just waiting for a romantic extravaganza.
• Education. This was once used to pay my graduate school tuition/fees; now we use it to pay for the kids’ elementary school fees/PTA/college savings.
• Her Spending. His and Her Spending are our fun money, yahoo! These also didn’t exist in graduate school, but now that we’re gainfully employed, we each have a small monthly budget with which we can do whatever the heck we want. Astyn had saved up hers long enough that she just used it to go to Mexico!
• His Spending
• Vacation. Since we live nowhere near family, we ball-parked how much we thought we’d spend on airfare and rental cars every two years to visit family, divided it by 24, and this is the monthly amount we save for vacations. Maybe one day we’ll actually take a vacation that isn’t to visit family. That’s a novel thought. Haven’t yet done it in 10 years of marriage.

Sticking to Your Budget

The easiest thing I can say about sticking to your budget is this. Don’t start a category at zero and add up to a total as the month goes on. Start with a total amount in the category and subtract down to zero as the month goes on. Any leftover you get to carry over to a new month (or transfer it to some other category if you want).

So let’s say after your three months of tracking you realize that you spend about $500 per month on food, $200 on gas, and $600 on rent (simplified example with made up numbers).

On August 1, you put up a fresh sheet of paper on the fridge. In the “FOOD” square, you write “$500”. In the “GAS” square you write “$200”, and in the “RENT” square you write “$600”.
On August 3 you go grocery shopping. You spend $125. You come home, put the groceries in the fridge, and then you notice your handy budget staring at you on the fridge door. You pull out your receipt, and right underneath the $500 in the FOOD square you write “8/3 – Food 4 Less – $125” and beneath that you write your new total: $375. You instantly know that for the rest of the month, you can spend $375 more on groceries.

On August 7 you fill up the car with gas. You spend $40. You come home, walk past the fridge, see your handy budget beckoning to you from the fridge door. You pull out your receipt, and right underneath the $200 in the GAS square you write “8/7 – Quik Trip – $40” and beneath that you write your new total: $160. You instantly know that for the rest of the month, you can spend $160 more on gas.

On August 8, you pay your rent. You pay $600. Right after you cut that rent check you think, “Ugh, I need a refreshing beverage.” You go to the fridge and see your handy budget welcoming you like a loving friend. Under the $600 in the RENT square you write “8/8 – Landlord Aug. Rent – $600” and beneath that you write your new total: $0. Luckily you don’t have to pay any more rent in August.

The month goes on. You are diligent and disciplined. You’ve tracked every expense that month. On August 31, you notice that in the FOOD square there is still $23 leftover. In the GAS square there is $15 leftover. You can decide what you want to do with that extra (save it in the same category for next month, go spend it on something fun, transfer it to some other category where you accidentally overspent, save it up toward some other category like a vacation, the possibilities!). You decide to just carry it over in the category for the next month.

So on Sept. 1, you put a new sheet of paper on the fridge. In the “FOOD” square you write $523″. In the “GAS” square you write “$215”, and in the “RENT” square you again write “$600”. And then off you go to track your expenses for the month of September.

Once you have the discipline to track your expenses, then you just need the discipline to not buy stuff if you don’t have the money in a category. For some motivation with that, enjoy this bit of wisdom from Saturday Night Live.

We have found that sticking to our budget isn’t restraining. It’s freeing. It frees us to spend guilt free on things we need and want because we have saved up the money for them. We just don’t worry if we have the money for something anymore. We know if we have the money.

Last thought: How much money do you need to make to be a millionaire?

Don’t be shocked. It’s only $35,000 a year.

(Go to this website, and plug in these numbers: Current age – 35; Current annual income – $35,000; Expected inflation – 3%; Desired retirement age – 70; Income replacement – 90%; Pre-retirement investment return – 8%; Post-retirement investment return – 8%; Social Security Benefits – No. Leave everything else at it’s default value.  Click Submit. Be amazed.)

When you retire, you will be a millionaire. If you save just 13% of your yearly income, you will have $1,085,803 in the bank.

Quoting from the website:

That’s my happy budgeting thought. Nearly anyone, on any income, with a little budget discipline and saving, can be a millionaire. I’m glad Astyn was inspired when we were 26 and 24 to start us saving for retirement. She knows more about budgeting and finance than she gives herself credit for.