Thank you all. I have looked into Dave Ramsey and as soon as possible we will be signing up for his FPU. We do go over expenses and finances every month and too plan everything out every month, but even when it seems like we are good something happens and we end up coming up short. We make it but barely and there is never anything left over.
I suggest thinking about what categories the “something happens stuff” fall under.
I’m a big fan of sinking funds where every month you budget a certain amount for expected but unpredictable expenses and hold onto the money until the expense appears. For instance, I think everybody that can spare it probably needs to set aside at least $80 a month for a car repair savings fund, as you will always eventually spend that money, either on a car repair or when purchasing the next car. Similarly with household repairs. Our family budgets $100 a month for household repairs and maintenance (and if we had more to budget, I’d put put $200 into that category). Ditto medical/dental/therapy–we budget between $150 and $200 a month for that category and generally manage to spend it–a dental visit here, a couple copays, and it’s all gone.
Likewise, we see Christmas coming 12 months away and save a little for Christmas every month. I also try to save for about three months for birthdays so that we have something to be festive with and the expense doesn’t all hit the same month. We also try to save some every month for our yearly trips to the grandmas and grandpas.
If you have a good income and can’t seem to set aside anything for sinking funds, have a look at your housing costs and car costs. (If you listen to Dave Ramsey, 80% of people’s financial problems are caused by the house and the cars.) Can you cut down your car costs while keeping yourselves in reliable vehicles? DR’s rule of thumb on cars is that all of your cars and things with engines in them should amount to no more than 50% of your yearly income in value, even paying in cash. So, if you make $50k a year, you can afford at most $25k total in cars, boats, motorcycles, whatever, while if you make $80k a year you can afford at most $40k. Housing is an even bigger issue. The usual rule of thumb there is that housing expenses should consume no more than 50% of your monthly income, and in my experience, anything approaching 50% of monthly income is going to cause a lot of hardship. Our current total housing expense (mortgage, taxes, insurance, maintenance) is around 25% of monthly income, but I personally find that pretty tough sledding at times. The lower you can get your housing expenses as a percentage of income, the easier your life will be and the more room you’ll have for savings and fun. (I realize that if you live in an expensive area, that may be very difficult advice to follow.)
Elizabeth Warren has a 50/30/20 budget in her book All Your Worth that you may find helpful philosophically. She suggests spending no more than 50% of income on fixed expenses, 30% on options, and 20% on savings and debt repayment. That may sound frivolous, but the beauty of that system is that if your income were to be cut in half, you could still survive perfectly well just by eliminating the 30% frills and the 20% savings. I think that’s probably easier as a theory than to put into practice, but I’d say that stuff belongs in the 50% if bad things happen if you don’t pay for those things.
Good luck!
