1. Men and women think very differently about money. For men it is often more of a tool, something to be used. For women it often means security.
2. The nerd and free spirit must learn how to work together.
3. If you are single, find an accountability partner with whom to discuss your finances.
   Teach your children how to manage money so they avoid our mistakes.

We also talked about the importance of having family budget committee meetings to discuss your finances. You need to be open with your partner about your money!

This week – Cash Flow Planning

This week the subject of the class was the importance of putting together a working cash flow plan so that you always know where all your money is going. In other words – A BIG SCARY BUDGET!

A lot of people are making enough money to be able to pay off all their debts, save and do other things, but they just don’t have a handle on their money. They don’t know where it goes month to month, and as a result they end up going into debt, not saving, and just getting themselves into a heap of trouble. The lesson this week hopes to aid in getting you to a place where you KNOW where your money is coming from, and where it is going to. Every dollar gets a name, and goes to a certain income or expense category.

Some key points from this week’s lesson:

1. Spend all money on paper before the month begins. You don’t want money not being allocated, and then “disappearing”.
2. Use the Envelope System for successful cash management.
3. Give your budget 90 days to really start working.

Budget committee meetings and a cash flow forecast

Last week we talked about the importance of setting goals, and of the need for family “budget committee meetings” where both partners in the relationship talk about the monthly budget, and have a stake in it. You are both responsible for the budget. This week, we went from just setting up a quickie budget to actually doing an in-depth cash flow forecast. Another name for this cash flow forecast is a zero based budget.

Everyone will have certain set expenses that will be the same every month (mortgage, utilities, insurance, etc), as well as some expenses that will vary from month to month. You have to decide how much to budget in those categories, and try to get to a point where you’re allocating enough, but not too much.

To do figure out how much we needed or those variable spending categories we went into our Microsoft Money software and ran some reports to find out what we normally spend on food, gas, entertainment and so on. Once we had a reasonable idea of what we spend, we looked at the budget and found that we felt we were spending too much on food and entertainment. We then forecasted what we thought we could get by with for those categories, and slashed the available budget for those categories. The extra money went to savings.

So the whole exercise of putting together the cash flow plan is done to give every dollar a name, and to allocate every piece of income to either an expense category or a saving category. That way dollars don’t just “disappear” and go down the black hole of missing finances.

If you’re just getting started on doing a zero based budget, a great resource another blogger has put together is the zero based budget spreadsheet by Chris Hoffman over at angus65.com. His spreadsheet basically breaks the monthly income and spending down into categories and allows you to track all of your income and spending in one handy spreadsheet every month. Check it out and download it here.

The envelope system

After setting up our zero based budget, the next step was to setup our envelope system of budgeting for certain spending categories. For those of you who aren’t familiar with the envelope system, it boils down to this: You set up several envelopes for some of your biggest problem spending categories (For us this included food, restaurant, and “blow money”). When you get paid, you take out enough cash to fund that particular category for 2 weeks or a month. You put that cash into an envelope. Whenever you need to spend money in that category, you take money out of the envelope. Once the money in the envelope is gone, it is GONE. If you want or need to spend more money in that category you’ll need to take money out of another envelope, or another spending category. There is no free money, it has to come from somewhere!

We’re a little apprehensive about starting the envelope system just because before this we’ve never really been this careful about what we spend. It is going to be hard not just whipping out the debit card and paying for stuff, or just going out to eat whenever we feel like it. It’s going to take some getting used to, but we’re committed to doing this because we know it can save us a ton of money.

For another quick primer on the envelope system, please check out this post from Christian Personal Finance called, “How to budget with the envelope system“.

So now that we’ve done our zero based budget, given every dollar a name and set up our envelopes for problem spending categories, we just need to start working the budget and give it time.

Dave Ramsey talks about how your initial zero based budget is NEVER going to be 100% right, you’ll need to adjust it month by month until you get it where it works for you. Some spending categories will need to go up, and others down. He suggests giving it 90 days, and at that point you’ll probably be at a point where it is pretty close to where you need it to be.

When setting up your zero based budget, don’t be surprised if it takes you a few hours. You may even need to do it over a couple of days, especially if you’ve never kept track of your income and expenses before. It’s not easy, but the money you’ll be saving from getting things in order will be worth it.

Next week

Next week we look at big nasty D word. Debt!

The lesson is titled “Dumping Debt” and talks about a system for getting rid of debt. Stay tuned!

1. Savings must become a priority.
2. You must save for an emergency fund, major purchases, and wealth building.
3. Decide and agree with your spouse on what qualifies as an emergency

We also gave an intro to Dave Ramsey’s 7 baby steps, talking briefly about baby steps 1 and 3. Baby step 1 is to build a $1000 emergency fund, and baby step 3 is to save 3-6 months of expenses in a savings account.

This week – relating with money

This week the topic of discussion in class was the importance of working together in relationships and how we as individuals handle money differently.

How you manage your money can affect your personal relationships, especially those with your closest family members. For example, one spouse may be more of a “free spirit”, and not enjoy budgeting, or looking at the details of a budget. The other person might be a “nerd”, and love looking at the numbers, how they fit together, and have a knack for doing the budget. Within the relationship you need to find a way to work together for your common good.

Some key points from this week’s lesson:

1. Men and women think very differently about money. For men it is often more of a tool, something to be used. For women it often means security.
2. The nerd and free spirit must learn how to work together.
3. If you are single, find an accountability partner with whom to discuss your finances.
4. Teach your children how to manage money so they avoid our mistakes.

Budget committee meetings

Because of the inherent differences in men and women, nerds and free spirits, we need to lay the groundwork for working together on our finances. Dave Ramsey talks about the need for family “budget committee meetings” where both partners in the relationship talk about the monthly budget, and have a stake in it. It isn’t acceptable for one partner to be solely responsible for the money, it is something that both partners need to be involved in, and have a stake in. He asks in this lesson more than once, “Who is responsible for the money? You both are!”.

In these budget committee meetings there are a few ground rules, but basically it boils down to this:

1. Nerd does the budget beforehand and brings it to the meeting.
2. Nerd gives budget to the free spirit for feedback – and shuts up.
3. Free spirit must make some changes to the budget, and gives intelligent feedback.
4. Free spirit must not just say, “Whatever you want to do, honey”.

These meetings allow both partners to have a say, and means that you’ll be more invested in your shared financial venture.

A large number of marriages end because of problems that people had in their financial lives, and because of mis-communications that they had in that area. This week really drove home the point for me that you need to get on the same page as your loved ones, and hold each other accountable. If you can’t do that, then your plans are doomed to failure. If you’re single – get an accountability partner. If you don’t, its going to be a lot harder to keep yourself in check.

Next week we look at some of the nitty gritty details of budgeting, and setting up a monthly cash flow plan! Stay tuned!

Review your income tax withholding. If you are receiving a tax refund of more than $600, you are providing an interest-free loan to the IRS. A better idea is to adjust your withholding — have less money taken out for income taxes — and use those funds earning zero percent interest to help pay down your high interest consumer debt.

The Gregg Family

Living in debt has become a common place for so many of us.  From the time I was a young teenager, I can remember borrowing money for some of the smallest of things.  Now, 20+ years later, some of the same type debts are still waiting to be paid.

After becoming a members in Dave Ramsey’s Financial Peace University, Barbara and I have started digging our way out of debt.  We have created this blog to not only keep us in check, but to encourage others that have found themselves in the same situation.