Becoming Financially Independent requires some sort of discipline when it comes to managing your money. Yes, I know. It’s boring and dreadful. Wouldn’t it be nice if we didn’t have to put any effort. There are people who are savers, great with money and don’t even need to budget and that’s great. The majority of people aren’t as naturally gifted which means we need to have some sort of money system to become Financially Independence/Work Optional, especially if we are trying to accomplish this at an early age.
Now, if your partner is someone like me (money police and control freak), then you are lucky! Fortunately, for Ryan, I handle most of the leg work of managing our finances. That doesn’t mean he’s off the hook, though!
I remember how much I dreaded budgeting and the likes. It felt so pointless and so restrictive. I thought I could just wing it and it would all work itself out, but it didn’t. Once, I got the hang of it and started seeing results, I was sold.
So, here it is…
Fair warning, over time, I have a become a bit obsessed and so my system to manage our finances keeps getting more sophisticated by the day. I started with the basics and then graduated to what I have today.
On the 1st of each month, I set up a new monthly budget. I have a Google Sheet template that I roll over each month. I make modifications as needed and then update as needed during the month. I used to update weekly, but with the other systems I have implemented, once a month is enough most of the time.
I split our budget in 3 sections.
Monthly Recurring Bills. These are my mortgage payment, utilities, life insurance, telephone, car payment, etc. These are the non-negotiable expenses.
Monthly Variable Expenses. These are my groceries, restaurants, entertainment, other household expenses, etc. These are the negotiable expenses. These are the ones I can play with each month. If we are really tight, then pasta and ramen soup for days it is (just kidding!).
Savings and Debt Repay. Currently Paying Debt is our priority, so we have a small budget for emergency fund and the remainder of our leftover income goes straight to pay off debt leaving out with $0 money from that month after everything is set and done.
This is what they call the Zero-Based budgeting. Basically, giving each dollar a home.
Recently, I implemented a new banking system that I am in love with. Ryan, not so much.
We have 4 bank accounts.
- Income Account- This is where our paychecks get deposited.
- Bill Account– On the first day of the month, I transfer the exact amount budgeted in Monthly Recurring Bills section of my monthly budget as described above.
- Other Household– Each month, I transfer the exact amount budgeted in the Monthly Variable expenses above.
- Savings– Finally, we have an interest earning savings account at Ally.com where I hold our emergency fund and our sinking funds: Car Insurance, Gifts, Vacations. We transfer over money each month to cover future expenses. This account is held in a different bank for a reason. It’s set and forget so we don’t spend it.
Ever since I implemented the new accounts, it has been sooo much easier to manage the budget without having to worry as much about the tracking itself. The balance of our account reflects how much as we have left to spend. Whenever we go over budget, I replenish from the income account.
At the end of the month, I empty out any remaining cash left in the income account by paying down debt or sending to savings.
Ryan doesn’t exactly love having so many accounts, but he doesn’t manage the finances, so that’s okay. We also have our businesses bank accounts, so it adds up. Banks love us. We recently switched banks and opened 7 new accounts between personal and business. 🤷🏻♀️
Either way, I still track our expenses using Wave App. I have all of our bank accounts and credit cards linked and I categorize expenses weekly. I review the reports and see how we are doing. Then discuss with Ryan our progress.
Finally, at the beginning of the next month, I update the budget template with my final monthly figures and then update my personal financials.
Personal Financial Statements
Net Worth Tracking- I have all of our accounts links to Mint App as well, but I only use it to track the balances of my assets (cash, properties, retirement accounts) and liabilities (mortgage, loans and credit card debt). I export their report and I copy paste into my Net Worth tracking spreadsheet. I’ve been tracking my progress monthly to see how it changes over time. I started with negative and in the last two months, I’ve been in the positive. Big Horn property was a really nice boost to my Net Worth position
Income & Expense Report– I also export out the income & expenses report from Waveapps.com and add to a template where I track our month by month spending. I use this to analyze spending patterns and compare to previous months to see if we need to budget for unexpected expenses or if we need to make adjustments to some budget items. If I am constantly going over budget in one category, then I need to be realistic and increase the budget.
Keeping Myself Accountable
Finally, I have a monthly check-in with my financial accountability partner to talk about how we did in the previous month. Having that meeting forces me to actually do the work.
And now this blog is also part of my plan to keep myself accountable.
As you can see, I am a nerd when it comes to managing our money, but doing this work has improved our financial position significantly.
Mind you, I started by simply tracking our spending with Mint, then I moved into the Spreadsheet/Wave Combo, then added Net Worth tracking and like that I slowly starting implementing new stuff until I ended up with my current system.
It’s like when you start working out. You dread it at first, then you start seeing results, get more motivated and start doing more.
If you feel like your finances are not where you want them to be, I highly recommend implementing a money management system. Obviously, you don’t have to do anything like I do. You do whatever works for YOU. Start with baby steps and see where that takes you.
If you want a copy of my spreadsheet, shoot me a message and I’d be happy to share.
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