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About 6 months into my marriage, my parents discovered Dave Ramsey and they gave us his book, The Total Money Makeover. The principles and strategies taught in that book have been such a blessing to us! My husband and I have been married for 13 years now, and we continue to use Dave Ramsey’s methods. Dave teaches the importance of budgeting, saving for emergencies, saving for the future, how to invest, paying off a mortgage, getting out of debt and staying out of debt. He breaks it down to baby steps to make it a simple plan for anyone to follow.
Dave’s 7 Baby Steps:
- $1000 in an Emergency Fund
- Pay off all debt using the snow ball method
- 3-6 months of expenses in savings
- Invest 15% into a Roth IRA
- College fund for children
- Pay off mortgage early
- Build wealth and give
Sounds easy enough, right? It really is a simple and straightforward plan and he teaches how to do each step. We have not made it past baby step 3 in our 13 years of trying. I don’t tell you that to be discouraging about his system. It’s a great system, but here is our situation: we got married while we still had 3 years of college ahead of us. I had scholarships and we both had financial aid, however, we still had to pay a fair amount of tuition, books, and fees throughout college and our financial aid decreased every year as we worked at better jobs and made more money. I am happy to say, that with budgeting, we were still able to graduate WITHOUT student loans. Budgeting, working hard, being disciplined (and obviously the scholarships and financial aid) helped us reach that accomplishment.
We quickly saved the $1000 and then for the next 3 years worked on baby step #2 to pay off the small debts we had (wedding ring, car, and a $1000 student loan I took out my first year). It took us that many years to pay off about $2,500 in debt and then stay out of debt while getting our degrees.
After college we were debt free and had $1000 in savings, so it was time for real jobs. However, we were not able to move on to baby step #3 because my husband was going to get a master’s degree and I only taught elementary for 1 year before quitting my job to stay home with our first child. So for the next 5 years or so, we continued to budget and be disciplined so that my husband could get his Master’s degree without going into debt all while having more kids and living on one teacher’s salary. But we did it! He finished his Master’s degree and by that time we had 3 kids, lived on one income, had bought a house and a minivan. We did have to take out a short term student loan, but it was paid off in a few months when we got our tax return. In the end of our education process we made it with 2 bachelor degrees and 1 master’s between the two of us without student loans and while living on one income and raising a young family. The one area we did stray from on Dave’s advice was buying the minivan. We did go into debt to do that, which he is absolutely against, but at that time we felt it was necessary for our family. We took out a 7 year loan, but had it paid off in 4 years.
Fast forward a few years. We are still living on one salary (my husband is a school counselor), we have 4 kids that are involved in many activities, we sold our first house and bought another, we are debt free and have $1000 in an emergency fund. So it has taken us 13 years of continually working on this system, but we are finally ready to begin baby step #3. We could not have made it even this far into the process if we had not been diligent about budgeting. I will say this over and over; we are NOT perfect at sticking to our budget! We do budget before each and every paycheck, but sometimes life happens and we cannot stick to it every time. But I did want to share how we budget and what we have found to work well for us.
How we budget
When we first started budgeting we used paper and pencil and a budget sheet. But since 2006, we have been using a spreadsheet on the computer, so I can still go back to that year and see all of our budgets for the last 12 years. In fact, I did go back and look at November of 2006 and we made a total combined amount of $1217.78 for the month!
I have adapted and changed a few things over the last 12 years to find what works for us. A few general things about our budget…
- We use one spreadsheet per year and each month is a new tab:
- Use a formula to subtract all the expenses from the income to know how much is left over or how much is lacking
- Try to budget EVERYTHING (bills, gifts, donations, food, gas, money to pay kids, entertainment, hair cuts, etc.)
- The goal is to have your income and your expenses zero out. So spend everything you make. You can “spend” it into a savings account, but make sure that you assign a place for every penny to go.
- Budget before every pay check.
- We now save our budget into google docs so we can view it anytime rather than saving it only to our computer.
- I use a “description” column to explain anything out of the ordinary.
The first step in your budget it to list all income and total that income (I am going to show a mock budget so these are not the actual numbers we budget). The formula to insert into your “total” cell for each pay check is =SUM(B3:B5) But if you are in column C then you would change the B to a C. And if you have more rows for income then just change the numbers to match the row numbers of your first and last rows of income (so change the 3 and 5 to whatever your first and last row numbers are).
Next, you will list all your expenses. I color code the numbers. Black means that I paid it using my debit card or online and that it has been paid. Green means that I need to get cash for that amount. Red means that the money is in the checking account, but I have not yet paid it. I divide the bills according to when they are due so I know which pay check I will use to pay each bill. In the description area I use a / to separate the explanation for the first and second pay checks. As you can see, I get as close to zero in the total box as I can. The formula for the total boxes are =B6–(SUM(B9:B38)) for the first paycheck column and =C6–(SUM(C9:C38)) for the second paycheck column.
After assigning a place for your money the next step is to put that plan into action. Start by paying all the bills online or setting up automatic payments. I have learned over the years that if I wait to go to the bank to get out the cash that I usually spend it with my debit card and then it messes up my whole budget. So next, go to the bank and get the cash you need. I go so far to figure out what bills I need so that I can then put the right amount into that envelope (yes, I use the envelope system!). For example, if I were getting the cash for the first pay check I would ask for 3-100 bills, and 6-50 bills and then put those into the envelopes they belong. The blow money would be divided up between my husband and I and that is the amount that we can spend on whatever we want. The surprise money usually just stays in the checking account and is there for the surprises that come up. If there is extra left over then it will roll over into the next pay period.
Everything looks very nice on paper and seems to work out perfectly, but that is not always the case in reality. Some months are very tight for us and during those months our food budget might be $50 and we don’t usually get to budget blow money or surprise money because those are the only flexible areas. When we are extremely tight and out of money, but feel that we need food or gas then we do use our credit card. This is absolutely against what Dave Ramsey would advise! We are very disciplined about paying it off completely every month, so it has not become a problem for us, but if you don’t have that discipline then I don’t recommend using that as a backup.
As I’ve mentioned, we are not perfect at sticking to our budget, but I love knowing exactly where our money is going and how tight we need to be that pay period. Budgeting gives us direction and helps my husband and I to be on the same page with our finances.
I would love to hear about your experiences with budgeting. I won’t lie… budgeting doesn’t always make me nice and happy when we have tight months. But staying out of debt and having a plan with our money does help me to feel nice and happy in the long run. It may seem like a lot of work in the beginning, but the more you do it the easier it is.
Do you pay your kids for doing chores? I have heard about parents who pay their kids well for doing chores around the house, and I’ve also heard about parents who say that doing chores is just a part of being a family. I can see good in both concepts. While I do agree that chores is just an expectation of being part of a family, I also want my kids to learn how to manage money before they are really making a lot of money and the risks and lessons learned are harder. I have tried several different methods to pay kids for doing chores, but the rock system (as I like to call it) has been the most consistent and convenient way to make sure it happens. It was completely free for me to make and is easy to start right away.
I gathered up baby food jars for each of my kids. My two older kids have the taller baby food jars and my two younger kids have the small jars. I removed the label on the jars and wrote each child’s initial on their jar. The last step to getting it ready to use is to find your “rocks.” I used the glass beads you can buy in the craft section at the Dollar store or Walmart. I’m not sure why I call them rocks, when they are clearly not rocks, but oh well. You really could go out and find different sized rocks and even paint them to make them cute. You could use cotton balls, dried beans, candy, or whatever you can find around the house. That’s it. You are ready to start paying kids for their chores. Now, here is how is works…
For every chore your kids do, they get to put a rock in their jar. If they want to do 5 chores in a day then they get 5 rocks. Some chores are worth two rocks (cleaning the bathroom AND the bathroom floor). If you try out this hot spot wheel, then kids would get a rock after doing their hot spot. When the jar is full they get paid. So simple! You can decide on the amount that each kid gets paid for a full jar. When we first started and my older kids were about 5 and 6, they both got paid $2.50 for a full jar. In our family, we donate 10% of our money to our church, so $2.50 made it easy to figure the 10% the kids would pay for tithing. Our younger kids received $1 for their full smaller jars. This was such a small amount of money, but the kids love getting paid and feel so grown up to have their own money to do with as they wanted. A good idea is to teach kids to give 10%, save 10%, and keep the 80% to do with as they chose, but since I was paying my kids such a small amount I did not stress over the saving part. They could spend their money on whatever they chose.
Now that my kids are a bit older, I felt that they should have a raise and more financial responsibility along with it. We had a discussion with the kids to see if they felt they deserved a raise. At first my seven year old wanted nothing to do with a raise… this was a good teaching point. Now he understands what a raise is and you better believe he wants it! We agreed that the kids will earn their raise on a full jar IF they had an overall good attitude while doing their chores. If we have to remind them to change their attitude more than twice as they work on filling their jars, then they do not get the raise and go back to the $2.50. We agreed to pay our kids their age in dollars for every full jar. For example, my nine year-old earns $9 for a full jar and my seven year-old earns $7, etc. In a perfect world I would always have the exact change on hand to pay the kids the minute they fill their jars. I do not live in that perfect world. Sometimes they get to empty their jar to start over and I just make a note that I owe them their money. That immediate reward for a full jar is much more powerful though, so if at all possible try to have several dollar bills available at home. Now that my kids are making more money we can talk more about saving for college, cars, missions and also saving for big items they want. My daughter attends a gymnastic camp at her favorite college in the summer and she is expected to pay for a portion of that camp. So she is working on saving towards that. My two older sons have decided that they want to buy one of those battery powered cars they can drive, so they have combined their money to save for that. After just a couple of weeks (and some Valentine money from Grandma and Grandpa), these boys are already up to $61 combined! Any time they ask to buy something at the store I love that I can tell them, “sure you can buy that. You have your own money now!” It’s funny how those silly little things are not as appealing if they have to use THEIR money to buy it!
A recap of why this system works for my family:
1. Cheap, easy and fast to put together and get started.
2. Kids receive an immediate reward for doing their chores.
3. Offering a raise for good work ethic teaches kids a real world concept. (and less whining!)
4. Allows kids to develop a habit of paying tithing.
5. Kids can learn about money management.
6. It is easy for ME to be consistent with this system.
A clean house and watching kids work makes me a nice and happy mom! I would love to hear your experience with this rock system if you give it a try, or about what other payment systems work for you.