"In prosperity prepare for a change; in adversity, hope for one."
This is post #2 in my little series on money management, or what I've learned about it at least.
1. Have a budget.
2. Save 10%, give 10%, live off the rest.
3. Buy meaningful things.
4. Look for deals.
5. Marriage specific - Have a limit for how much you'll
spend without talking to your spouse first.
On saving . . .
Saving money is a very good thing, and my father has tried to ingrain that into my soul since I was born. Before I even had my first summer job I had lost count of the number of times he said, "Always take 10% of your paycheck and put it in the bank." So that's what I've always done. He also encouraged me to look at cash gifts from others and decide to spend only a portion of them and save the rest. I do that a lot too.
Say I received $100 for my birthday. I don't just put that $100 in my checking account and have an extra $100 to spend. I think, this is a gift from ___ and surely they don't want it to end up spent on a couple of trips to Taco Bell, a tank of gas, and some parking meters - what do I want from this money? . . . . how about a new pair of jeans? So I buy a new pair of jeans that are $50 and put the other $50 into the savings account.
Saving money is a very good thing, and that money shouldn't be removed from it's safe, save-y location unless absolutely necessary. Otherwise, it won't be there when it is absolutely necessary.Some things are expensive (we're talking can't possibly fit into the month's budget somehow), necessary, and unexpected - that makes them savings account worthy. But some big expenses are plan-able, and in that case I don't think using savings money is the responsible thing to do. If it's plan-able, even if it isn't a regular expense, it should be figured into the budget.
Let's talk about Nelly's flea/heartworm medicine. I buy the 6-mo pack because it's cheaper in the long run to buy it in larger quantities. But this also means I'm shelling out more money up front. So when money was a little tighter and paying $100 from 1 month's budget for the cat wasn't exactly feasible, I pretended like I was paying in installments. Each month, for 6-mo, I pretended to take 1/6th of the cost out of our "Miscellaneous" budget section (by that I mean plugging in the amount into the spreadsheet as an expense but not actually paying it). Big cost paid at the 6-mo mark, no savings needed. All is happy, well, and flea-less. Notice: this is a great way to pay in installments without going into credit card debt.
Saving money is a very good thing, but there will come a time when you need to spend some of your savings. And that's OKAY. Why save money? An accumulation of wealth for the sake of an accumulation of wealth is worthless. Money is nothing but a tool and, as such, should serve a purpose. We save money so that we have it when we need it. When an emergency happens, when a big purchase needs to be made, when someone goes to college --- those are all future reasons for saving money in the present. So when those future time periods become the present, it's time to take the money out of the savings account WITHOUT GUILT.
Say my car broke down and I needed $3000 to fix it. Then say I didn't have the room in my budget to fix it. That is when I would say, well, I need a car to get to work and doctor appointments and buy food and what not. But I do not have a car because mine is broken and I don't have the means from my income to fix the broken car. Clearly, this is a situation where it's OKAY to use the money I've saved up for emergencies . . . this is the kind of situation I've been saving for, so the money's purpose is now being met. There will be less money in my savings account and that's OKAY.
For us, this 10% is a base-line for giving. This is the 10% that we give back to God. We believe that God provides for us and this is a statement of faith and worship for that provision. I think giving is more than an action, it's a spirit. And we're trying to foster that spirit in our spending of our other 80% as well.
On living off 80% of your income . . .
I'm not going to try to tell you that no matter what, living off 80% of your income will work. That would be rather presumptuous and I don't like being presumptuous. What I will say though, is that I think most Americans would be surprised at how little they need to live a frugal, but decently comfortable lifestyle. I'm going to get just a little financially transparent here for the sake of making a point. Hopefully that doesn't make you uncomfortable.
Over the last few years I've had a lot of people tell me how much money Austin and I needed to get by. I think the lowest number I was told was $40,000/yr. For the first several months we were married, we lived on less than that and were still saving, still giving, still healthy and happy with everything we needed and a little bit of what we wanted. I think sometimes we get these ideas of what life is supposed to look like because that's what other people have or other people do, or even what other people tell us to do. But no one can tell you the best way to live your life and spend your money because they aren't you. So I guess what I'm trying to say is that I would encourage you to honestly, thoughtfully, and creatively evaluate your spending habits before you write this off completely.
Thoughts? Comments? Questions?
Am I missing anything crucial?
Do you have any advice you would like to offer me?
Does anyone else live off this kind of model? What does that look like for you?