Sunday, July 31, 2011

This Is How We Become Millionaires

This is how our family economy works: Chris brings home the money, I spend the money. A millionaire's wife once said "you can't become a millionaire without a good offense and a good defense." Chris plays offense: he seeks ways to acquire wealth, and I play defense, I seek ways to maintain wealth. Most people are really good at bringing in money, but few people are good at saving and maintaining their wealth. Good defense comes down to two things: vision and budgeting.

What's your vision? Do you want to pay off your school debt in 12 months? Do you want to pay off your credit card debt? Do you want to remodel the kitchen? Do want to retire with ease? Write out your goals and plan how you will meet those goals. Have a conversation like this: "We want to do A, B, and C. First, we will work towards A. We will set aside x dollars every month for the next 12 months to reach goal A. When we reach goal A, we will work towards goal B. We will set aside x dollars every month for the next 36 months to do this." Work towards only one goal at a time, otherwise you will become overwhelmed and may never reach any of your goals. If you need help getting a vision or goals, check out Dave Ramsey's website here for some help. Post these goals on your fridge, and remind yourself of them when you want to purchase something your budget can't handle.

Budgeting is the vehicle that enables you to meet your goals. Make a written budget and follow it. Here's what we do:

A Recipe for a Great Budget:
1 calculator
paper and pencil (or excel spreadsheet)
two envelopes, one marked "recorded receipts" and the other marked "unrecorded receipts"

1. Make a list of all your expenses and their amounts for a month-long period. Some things, such as mortgage/rent and insurance, are the same amount every month. Other things, such as groceries or supplies or baby items, you aren't sure how much you spend on every month. For those items just write down an estimate. These are some of our categories: tithe, mortgage, cell phone, car insurance, utilities, trash, babysitting, netflix, gas, food, supplies, home improvement, baby, gift, automotive, fun, and miscellaneous.

2. Save all evidences that verify your spending. Save all your receipts, bill statements, and check duplicates. On our fridge (underneath our financial goals list) we have a magnetic clip that holds two envelopes. One envelope says "unrecorded receipts." Your receipts, bill statements, and check duplicates go in this envelope. The other envelope says "July 2011: Recorded Receipts," which I will talk about next.

3. Schedule in one hour each week to sit down and do what I call "money management." During this time, I pay any bills that need to be paid, check all bank and credit card statements online (even if your credit cards aren't being used, check them to guard against identity theft), and record our spending through the receipts we have saved. For each week, record how much you have spent in each category. After each receipts has been recorded it goes in the envelope marked "recorded receipts."

4. At the end of the month, get out your calculator and type in this equation: the amount of money that came in this month (total income) MINUS the amount you spent this month EQUALS the amount you put towards your goal! woo-hoo!

5. After each month, review your budget and your spending habits. The first three months of your budget will mostly be monitoring your spending habits. After month three, you will be able to see where you are spending too much, and where you can and should cut back. This is also the time where tell yourself, "Good job! It wasn't easy, but I'm getting closer to my goal!"

To some of you, this might sound like the most tedious and boring thing in the world. It might be. But you know what? It works! Is one hour of boring tediousness worth having greater control over my money and becoming more financially free? YES! Chris and I started following this budgeting plan in May, and started making payments towards my school loans in July. Because of this, we've been able to pay off 34% of our student debt in just two months! That success is what prompted me to write this. I finally feel we are making some major headway in being financially responsible and achieving financial freedom. One more secret about budgeting is, it's FUN! Every month, Chris and I play this game called "Stick to the Budget." Every month is a fun challenge for us to find creative ways to stretch our money further. We try to outdo each other in finding great deals, we find ways to stretch the use of something we own, we find cheap new ways to entertain ourselves and go on dates, etc.

My motivation to be a responsible money manager is much stronger now that I'm a mom. I have dreams to help pay for Ada's college, give her the wedding of her dreams, leave an inheritance, be able to retire and spend lots of time with grandkids..... but most of all, I need to teach my kids how to be good money managers as well. Chris and I can only instill in our kids the importance of good offense and good defense if we teach and lead by example.

1 comment:

  1. Matt and I <3 Dave Ramsey and are so blessed that from day one in our marriage we had a written budget every month--it has definitely helped us!