Tuesday, April 14, 2015

Budget Tips: Financial Peace, the Buddy System, and Go!

This little series has started to get some traction. I've talked to a number of people who want to know more about budgeting. All are younger folk. One co-worker, for example, said that this is perfect because all her friends are the YOLO-type and will just blow money on a Thursday night binge. I have no problem with blowing money from time to time or even sometimes yelling "YOLO", but it might be harder when you're broke at 75 with no teeth and no way to pay for new ones.

Zero to 1
Starting is the hardest part. I've seen posted in several places this line: "Zero to 1." To be honest I think it's a book and I'm guessing at the premise, but if I follow and perhaps might even co-opt it, the big idea is that this is the hardest step to take, the scariest step to take, but also the one that gets all the others going.

So, to mix the metaphor just a bit more, let's get to The Foundation.

Get Some Financial Peace!
As I shared a few nights ago, the most vital component to the Lisi Home of Budgeting Practices is The Foundation. We discovered the best foundation in Dave Ramsey's Financial Peace University. It started off as something I got for work. I was the Executive Pastor at a campus of a large church in Seattle and we were looking into the idea of running these classes at each of our locations. I decided to take it home because Stacy and I had yet to establish any kind of working budget. Here's a high level of where we were at by end of December 2012:

  • Single-income family: We were in the $50-75K range.
  • A couple hundred dollars in a savings account.
  • Roughly $10-20K of debt.
  • "Tracking" expenses, but not closely at all.
  • No real plan for the next 3-5 years financially.
We started watching Financial Peace University at home together and going through the workbook that comes along with it. What I plan on doing here is taking some of the highlights of that, but I strongly recommend finding a class and joining. They are usually out of churches. In full disclosure, there are elements of teaching from the Bible, but I wouldn't necessarily call it all biblical. Much of it is just practical wisdom found in Scriptures (which may also help disarm those of you who think the Bible is some ancient, out-of-date book, but that's for another time). If you can deal with that, then get into a class. 

Baby Steps
As I wrote earlier, the hardest step is Zero to 1. Ramsey understands this and thus calls the entire process he lays out "Baby Steps" to Financial Freedom. We're only on number 4, so that's as far as I can remember and that' all you're gonna get. Only the information you need, right? Boom:
  1. Save $1000 to start an emergency fund
  2. Pay off all debt using Debt Snowball
  3. Save 3-6 months of expenses for emergency savings
  4. Put up to 15% into pre-tax retirement funds, like an IRA
Ramsey is super strong on making sure to follow all of the Baby Steps in order. I will spend time on Baby Step 1 tomorrow.

Also, he works in the framework of the average American income, which at the time of recording was about $55K. Some of you make more, some less, but that shouldn't deter you. The best way to get a grip on any level of income is to still follow as closely as you can the plan laid out, especially with budgeting. 

Here are a few more practical areas of consideration and one piece of homework.

The Buddy System
You will not be able to do this alone. Lone soldiering budgeting works only for the rarely, supremely disciplined person. If you're married or engaged, it's an easy choice, especially because your financial decisions are or will be joint and affect one another. If you're single, you will want to pair up with someone who's a little different than you. How should you pair up? Well, Ramsey says that in every pair there will be a "Nerd" and a "Free Spirit." The Nerd likes the budgeting process, crunching the numbers, can sit in front of it all for two hours and not get tired, and is strict with the decisions. The Free Spirit can spend about 17 minutes AT MOST looking at the budget before he or she starts getting the shakes. They should be allowed to make some changes, open up possibilities, and provide a little freedom. 

As I'm sure you can tell from the blog, I'm the Nerd and Stace is the Free Spirit. For the first two months of this, she fell asleep on the couch! In each pair someone will always be the Nerd and someone else will be the Free Spirit, even if you aren't super strong or weak for either type. The point is that you just own your role because both are crucial for balance, accountability, and consistency. 

Every Month
The key behind it all is the simple, but powerful tools of the budget and the monthly budget meeting. It typically looks like the Nerd reviewing the previous month's budget and preparing the following month's budget while the Free Spirit dances with fairies or watches TV (trust me, you don't want that person doing anything close with the budget at this point). Then when you're ready, invite the Free Spirit in to look over it all and blow up some parts.

Quick Budget
The first bit of homework for you is to fill out the quick budget form that Ramsey provides on his website. It is a one-page budget, a quick overview for you to get an idea of what you will need to take in each month. I love this because he isn't calling for you to track your expenses for a month before doing this like so many others. That's where I would always get discouraged because no matter how hard I tried, and even with something like Mint, I sucked at straight tracking of spending. The idea is that if you maintain a monthly cadence you will be able to make adjustments as needed. 

Time's up! 'Till tomorrow...

This blog is an idea. An experiment. An adventure. I am writing a post on one thought for 30 minutes everyday for a full year. If you like what I write, have an idea for me to write about, or have any feedback, please share in the comments below. Also, if you think it is at all valuable to you, share it because it just might be the same for someone else. Boom!

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