One of my favorite things to do on my YouTube channel is to share what works for me in regards to managing money. I am no personal finance expert, and certainly not a professional, but I have a system that works for me. If other people can learn from my experience (including the mistakes), I am all for it.
My approach to money management has evolved over the years. And this is a good thing. I don’t like the idea of being stagnant, especially when it comes to money. I’m a huge nerd who loves to learn, so I am always reading a new book or blog or listening to a podcast and trying out new strategies with my finances.
I am minimalist in many areas of my life, but personal finance is not one of them.
I have way more accounts than a normal, sane person.
My system is certainly not the least complicated one out there but it works for me. At least for now. I hope that you gain inspiration from how I manage money, but as always I recommend that you do what’s best for you and your family.
Personal finance is exactly that…personal.
So, as my grandmother would say, “Chew the meat, and spit out the bones”. In other words, glean what you can from it and ignore whatever you feel isn’t useful.
In this post, I will attempt to give you a broad overview of my approach to managing money.
Here goes nothing…
Advance warning- this will probably be a long post. If you don’t mind, then keep reading!
Who exactly manages the money
In my household, I’m the money manager. It’s been that way since day 1. I have always been more comfortable in this role. Eric, my husband, affectionately refers to me as a “budget hawk”. At any given time, I know (almost down to the penny), how much money we have in our bank accounts and investments. I keep an eye on things but have relaxed a bit. I don’t check account balances daily, at least not anymore. The old saying is true, a watched pot never boils.
My husband does not like getting into the weeds with all of the money details.
But, it is necessary for him to know the lay of the land.
For example, when I went into the hospital with pregnancy complications in 2016 my husband had no idea where the mortgage payment needed to be sent to or how to access the accounts. He later admitted to me that he did not like that feeling. From that day onward he has become more involved and we now have a more collaborative money relationship.
I continue to write the checks and handle paying the bills, but we have committed to monthly budget meetings and we regularly discuss our financial goals and future.
During our monthly budget meetings, we:
- Analyze the previous month’s budget and expenditures
- Discuss what we did well and what can be improved upon
- Preview the upcoming month’s budget
- Track our debts (currently consists of mortgage balances)
- Look at our net worth
- Review short and long term financial goals
- Dispense personal spending money
Is a financial planner necessary?
In the first year of our marriage, we enlisted the help of a financial planner and we have never second-guessed our decision. I’ve always had an interest in and an inclination towards personal finance but I was super green back then. I didn’t have much actual experience with money because I had never had any! Working with a CFP (certified financial planner) helped us make some really good financial moves early on in our marriage.
We pay our financial planner, Scott, an annual fee and meet with him at least twice a year to review goals and discuss strategy. I believe it’s worth every penny.
But, a financial planner is NOT necessary for financial success.
I know plenty of folks who do well without the assistance of a financial planner. With the right planning and resources, you can certainly manage all of your financial matters on your own. However, we have worked with the same guy for the past 12 years and plan to continue working with him for the foreseeable future because we believe its a good investment. We trust Scott’s opinions and value his experience and expertise, but ultimately my husband and I have the final say on all money decisions.
Where We Keep Our Money: Bank Accounts
Brick and mortar checking account
This account serves as the temporary storehouse for all money flowing into the household. Every dollar earned in our household temporarily lands in this account. All direct deposits and paychecks land here first and are then transferred to the appropriate account for paying bills, saving, or investing.
We previously used this account for bill payments but the bank started requiring us to pay when re-ordering checks, which in my opinion is ridiculous! I would close out the account but changing all of the direct deposits would be a big hassle. So for now this account is a repository for the cash.
Online Money Market account
We use an online money market account to house our 6-month emergency fund. The account bears very little interest but we are fine with that because the emergency fund isn’t meant to be an investment vehicle. It is a place to securely store our emergency savings while protecting it from being spent on non-emergency expenditures.
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If an emergency arises I can transfer the money to our brick-and-mortar account and have it in my hand within 2 business days.
This account is also linked to an online checking account at the same bank. Internal transfers between accounts happen instantaneously. This account also comes with a checkbook and debit card if immediate access to the funds is necessary.
Online Sinking Funds
A sinking fund is a short-term fund that can be used to save incrementally for an anticipated purchase or expense. I love using Capital One 360 for my online sinking funds. I am able to see all of my accounts on one page and I can create customized names for each account. Currently, I have sinking funds for the following accounts:
- Utilities
- Life Happens
- Vacation and Travel
- Irregular expenses
- Car maintenance
- Kid’s summer camp
- Home Maintenance
- Christmas
- Baby
- New (Used) Car
Retirement Account- 403B
I strive to max out my employer-based tax-deferred accounts every year. My employer offers a 403B with a 100% match on the first 2% of the compensation that I contribute to the plan. As of 2017, the IRS allows employee contributions up to $18,000 for those under the age of 50. All of this money is contributed pre-tax so contributing to the maximum amounts helps me to lower my tax bill each year.
Other Investments
Roth IRAs
Hubby and I both maintain Roth IRAs and try to contribute to those annual as well during years when we are eligible. The IRS has income limits so you can become ineligible to contribute if you earn over a certain amount of money. Roth contributions are funded with post-tax dollars but grow tax-free and redistributed tax-free in retirement.
Vanguard Index Funds
We recently started investing in index funds after completing our fully-funded emergency fund. I am looking forward to achieving financial independence and retiring early. In order to retire before a traditional retirement age we need to have access to cash to cover living expenses once regular paychecks are no longer coming in. Unfortunately, funds invested in most employer-based retirement plans cannot be accessed (without penalty) before 59 1/2. So index investing is a great way to build wealth during the wealth accumulating years because there will be no problem withdrawing them early later on. Leaving the money in a low-interest-bearing account is not a good option because we would lose money eventually due to inflation.
College Savings
We have a 529 plan for the kids that we contribute $250.00 to each month. This is a very small amount considering that we have 3 children. I cringe at the thought of how expensive college will be when they are ready to attend. But we have no plans to increase this amount in the future.
I don’t like the idea of having all of our eggs in one basket. 529 plans must be used for higher education expenses. If our children decide not to go to college that money will be virtually inaccessible. Hopefully at least one of our children will want to go to college! But I don’t want to run the risk of having too much cash tied up in the plan.
We hope to use the passive income from real estate and rental properties to offset the costs of sending three kids to school. And, if they decide not to go to college we can use that income in any way we see fit.
It’s a win-win in my opinion.
Plus, I want my kids to have a good work ethic and be willing to contribute to their own educational costs. We are flirting with the idea of only paying 50% of college costs for each child and requiring them to fund the remaining portion themselves through scholarships and part-time jobs.
They will appreciate the experience and education more if they have some skin in the game and don’t rely solely on mommy and daddy to cover the costs.
Real Estate
Hubby and I currently have two properties.
The Rental Property
We have a 3-bedroom 1,800 sq.ft. the townhouse that is currently being rented out. This was our first home and when we relocated we made the decision to hold onto the property instead of selling it for a loss. Currently, the property does not cash flow well. This is partially because we did not originally buy the house as an investment property. We bought a new construction home and paid too much on the front end.
At best we are breaking even so we may sell it later and purchase another rental that cash flows better. But in the meantime, we are enjoying the tax breaks and accruing equity as the rent covers the monthly mortgage.
Our current home
We also have a single-family home that we live in with our three kids. The home is in an excellent neighborhood with great schools, but it’s expensive. The house is huge- roughly 4,000 sq. ft, which is way more house than we need. We were in the process of buying the house just as I started the journey. The Nicole of today, would not have made the same home buying decision.
I kick myself a little at month every time I pay the monthly mortgage. But, I’m not going to beat myself up about it (too much). You live and you learn.
We can ‘afford’ the payments but it is not the best use of our hard-earned money. We will need to downsize in order to achieve our goal of early retirement. But I cannot stomach the thought of another move right now…
We will likely sell in a few years, turn a huge profit, and use it to pay cash for a smaller home with more land. We bought the house at a great price and as of now, we have nearly $200,000 in equity in the home after only living in it for two years.
How We Budget Our Money
Excel Spreadsheet for the win. Though, at the core, I am a pen and paper girl.
About two years ago I created an Excel budget spreadsheet to use in my Youtube videos and have been using it ever since. Every month I overwrite the spreadsheet and update it to reflect the current month’s budget. On the budget spreadsheet, I keep track of all of the incoming income, household bills, and spending.
If you are serious about getting out of debt and making your money work for you then You Need a Budget!
Learn ‘How to budget in 5 Easy Steps’
Download my Excel Budget template
We budget one month at a time because we are one month ahead on cash flow
How We Spend Our Money
Cash Envelope System
When I first began the journey to financial freedom one of the first things that I did was switch to cash for my household purchases. I tend to hold onto cash for dear life so I was able to minimize frivolous spending by keeping my hands off my debit card. Every month, on average I pull out $1,100 from the ATM to cover the costs of our everyday spending.
Recommended Post: The Beginner’s Guide to the Cash Envelope System
I like using cash for purchases such as:
- Groceries: $500
- Dining Out: $100
- Gas: $200
- Personal Spending: $200
- Entertainment: $100
Why cash?
- Its easy to tell how much you have left to spend.
- No need to keep receipts or complicated spending records.
- There are no surprises at the end of the month.
If you have a spending problem or difficulty sticking to a budget I HIGHLY recommend transitioning to a cash-based system for your household purchases.
Even though we mostly use cash we still maintain a couple of credit cards.
Credit Cards…Yes, we still use credit cards.
It may seem counterintuitive for someone who worked so hard to get out of debt. But, keep in mind that the $100K of debt that we had consisted of student loans and a couple of stupid car loans. We have never had an issue with credit cards or accumulating consumer debt.
We continue to use credit cards strategically because we enjoy the rewards points that many of the premium credit cards offer and use them for free gift cards and free airline tickets.
I also like to maintain a healthy credit score. Although I don’t have plans to finance anything again, you just never know. It’s better to have it and not need it, than to need it and not have it.
Hardcore Dave Ramsey followers…please don’t come for me!
*Word of caution: I don’t recommend credit cards for everyone. In fact, they aren’t for most people. This strategy works for us…you have to figure out what works for you and your family.
Even though I have never struggled with credit card debt I do set ground rules for myself to ensure that I don’t get caught up and overspend.
- I only use a credit card on items that I know I can pay for in cash.
- I pay the card off on time and in full EVERY month.
For example, I tend to use my credit card at the gas pump when I fill up my car each week. Sometimes it’s cold outside or I have my children in the car so it’s more convenient to pay at the pump as opposed to running in to pay the cashier. I budget for gas in cash each month, keeping the cash set aside and then use it to pay the credit card bill before it is due.
How We Track Our Money
Personal Capital
We recently started tracking our assets, liabilities, and net worth using an online platform called Personal Capital.
Personal Capital has been featured in Bloomberg Business Week, Forbes, Time, The Wall Street Journal, The New York Times, and Reuters.
Personal Capital allows you to manage your assets, track your net worth, and plan for your financial future using online software.
With Personal Capital we are able to link all our financial accounts in one place (think Mint.com but much better). The accounts update in real-time and allow you to look at your entire financial picture using one interface.
In addition, the software allows you to set financial goals (ie. a target retirement age) and provides recommendations for how you can optimize in order to reach your goal.
Will we share our actual numbers on the blog
A lot of personal finance bloggers share their net worth on their blogs. But, I am still deciding if this is something that I want to do. It could serve as a great source of motivation and inspiration for the blogger (me) and for the community of readers (you). You all are experiencing the journey along with me- my frustrations, my wins, and my mistakes. That was the whole point of the blog in the first place.
But, sharing net worth and real numbers also has a downside. It can serve as a stumbling block for people who may make unhealthy comparisons. People may also be judgmental and feel inclined to tell me how to spend my money. Hey, it’s the internet, right?
I also need to clear it with hubby and see how he feels about me sharing our finances with the whole world (ie. the 10 or 15 people that currently read my blog). But I fully expect to grow this blog and hope that the readership increases tremendously in the near future.
How do you manage your money?
Don’t beat yourself up if you’re not sure how to answer this question. But if you are reading this article then you must be interested in improving your finances.
Unsure of where to start?
10 Ways to Start Improving Your Finances Today…like right now.
- Find out who and how much you owe
- Create a household budget
- Set SMART financial goals
- Spend less than you earn by living below your means
- Start an emergency fund
- Switch to cash for household purchases
- Contribute to your employer-based retirement fund (at least up to the company match)
- Automate your savings
- Track your assets, liabilities, and net worth for FREE with Personal Capital.
- Read every personal finance book you can get your hands on
Your money management system doesn’t need to be complicated but you do need a system. There is no need to obsess over your money but there is a sense of peace when your financial house is in order. No more sleepless nights worrying about your money. You’re in control of it, it doesn’t control you.
Until next time..live well and be blessed!