As all of you know, this year is election year. One of the big topics this year is budget control. Everyone wants to make sure our governmental officials are spending money, within the allotted budget. What makes budget control interesting is, most people do not live within their own budgets, but expect the government to do so.
Living within your means is difficult. It is especially hard if you are a family of five, living in Southern California and on one income. That is our financial situation. We have lived on one income for 17 years. It has been one of my greatest challenges, as the financial manager for my family. My husband is not in a high paying career field. He does make a good living, but we have five people to feed, clothes, educate, provide housing, and medical care for.
The end of the summer always is a financial strain for us. The older boys both have summer birthdays, we usually take a big summer trip and school supplies need to be bought. By the time school starts, we are broke. We try to plan for the extra expenses of summer every year, but never quite seem to do it. Things always end up costing more than we planned for.
This year I decided to take a serious look our financial situation before we head into the holiday season. My husband and I are tired of feeling so strapped for cash. I will not be returning to work this school year, yet we have goals we need to plan for.
Before I could begin any financial planning my husband and I needed to decide what our financial goals were for the next year. We do pretty good at saving and preparing ahead, but we have been hit hard since we have moved into our new home nine months ago. Our mortgage bill went up $600 a month, something we did not really plan for. We have continued our fun lifestyle living in the new home, including the extra cost of doing upgrades to the home.
My husband and I think alike with regards to our financial future, with a few exceptions. He is very into the latest technology (phones, computers, cameras) and I love entertainment (theater, eating out, movies). We both want to work less on home repairs and travel more. We also need more money is our emergency fund. My husband would like to get a new car next fall, so we can give his current car to my oldest son to drive (Gulp).
As you can see, we have a lot of things to prepare for and that does not account for things we are already doing.
Here are some things we do right, with regards to finances.
We put at least 11% of our annual income in 401K, stock purchases and IRA. We should be doing more, but we are comfortable with our savings amount for now.
Each boy has a savings account for college. They are not huge, but better than nothing. We started saving when they were babies, contributing a small amount each month.
We have full medical insurance for each family member to include: healthcare, vision and dental. We are fortunate my husband’s employer assists with meeting insurance needs. We also have home, car, disability, and life insurance (for husband and myself). I have always had life insurance, even though I do not earn income. The work I do for the family, would be an extra cost for my husband if something should happen to me.
Own a home
Our current home is our second one. We recently refinanced to get our interest rate lower, so we can manage our finances better. Our home is a valuable asset, but also one of our greatest expenses.
No credit card debt.
We now do not have credit card debt, but have had it several times in the past. It is extremely difficult to live debt free. This is our greatest struggle and something we know we need to improve on.
Here is a list of things we need to improve, with regards to financial planning.
We do have an emergency fund, but it is far below the recommended 8 months reserve, financial guru Suze Orman recommends.
Planning ahead for vacations.
We travel every year and every year we are unprepared for it. Travel cost is one of the reasons we get into credit card debt. We need to plan better for our annual trips.
Save for a car.
We have made the decision for my husband to get a car next year, but have not saved nearly enough for it. Suze Orman recommends only buying a car if you can pay it off in three years. This goal is what we hope to do, as our oldest son will be heading to college in three years and we do not want a car payment.
After setting our financial goals, I decided to see how well we were doing with living within our means. As you may have guessed, I am a fan of Suze Orman. Her practical approach toward finances had helped me make better financial decisions. I have several of her books. Suze is a consultant for Oprah Winfrey’s magazine O and on Oprah’s website, she provides several useful tools to get started with financial planning.
Before you use Suze Orman’s financial tools, you must first sign up for Oprah’s website. I am always trying to be a quest on Oprah’s shows, so I have been signed up for years. The first tool I used was Suze’s Budget Calculator. This tool helps to understand how much money is coming in and how much is being spent each month. I used this to decide if we were living within our means.
It turns out, we are living within our means. I wondered why do we always seem so broke. The budget calculator looks at your annual expenses, based upon how much you spend each month. All forms of income are included including birthday gift money and my husband’s annual bonus. The problem is we do not get birthday gift money every month and the annual bonus is not until April. We usually end up paying off our credit card with part of the bonus money. This year we want to be able to save the entire amount of the bonus, not use it to pay off bills.
Next I used the Suze Orman’s Monthly Expense Budget Calculator. This tool allows you to see how much you are currently spending . It has a listing of typical expenses. Each monthly cost is calculated and applied to the monthly take home income. The key to using this calculator is to be very honest with what you are currently spending. It took me a little time and research, to find out the monthly costs of some expenses that only occur annually, but I did it.
Turns out we were over budget for our monthly expenses. This explains why we fee so broke each month. The spread sheet lists expenses and once completed color codes what expenses are above the national average and what could items could be reduced or eliminated. As expected, living in Southern California, we spend far more than the average American family on everyday expenses. Things like gas, electricity, food, water and mortgage were all listed too high of a cost. The sheet also informed me we spend too much on eating out (GASP), entertainment and phone expenses.
The two things my husband and I enjoy the most (entertainment and electronics) were our highest expenses. It was good for us both to see the numbers and realize what changes we need to make. We both love eating out and new gadgets, but traveling and a new car will bring us much more long-term happiness. We vowed to make cuts in both areas and focus more energy on saving.
Budgets are wonderful things. When you build a new plan for savings, things do happen. However, the problem with a budget is it does not account for stress. My desire for eating out comes from getting stressed and feeling I deserve a break. My husband’s desire for the newest gadget comes from wanting to enjoy the latest item, as a reward for his hard work. Both ways are fine to reward yourself, but not so often.
We have reviewed our finances and have decided to make changes. We sat the boys down to explain what the financial changes mean and how their lives would be affected. The reaction was good, especially because Old Boy will be getting his own car in a year and we are saving to go to the Grand Canyon during Spring Break.
For the first time in a while, I am feeling confident. It will interesting to see how the new budget goes. We will do our best. If we are successful, you will be seeing family photos on Photo Friday at the Grand Canyon in the Spring.
If not, you will see photos of us swimming in the Pacific Ocean, during a staycation in San Diego.
It is kind of a win-win situation, if you ask me.