Whether you’re single income, dual income, military, or civilian, budget and money are typically very personal and private topics. When I’ve attempted to Google financial ideas, perspectives and insights, the results are often from financial advisors, church counselors or corporate professionals. If you want the true, down-and-dirty reality of how real people budget, spend, and save their money, your best results are often obtained by talking to friends and family in similar financial situations as yourself.
Finances are a very unusual thing in our household. My husband can hardly sleep around tax time. Not because he’s worried or stressed about the outcome, it’s because he’s so giddy to receive all the necessary tax documents to submit our returns. I seriously catch him at odd hours of the day and night prepping our taxes and tweaking the budget. You can ask him nearly any tax question and he’ll know detailed information and history regarding the answer. It’s ridiculous.
So, needless to say, we have a very well-defined plan regarding our budget, our spending and our savings plan. That doesn’t mean we don’t spend money or have fun – it just means that it’s all budgeted and planned for. Since I have personally attempted to find resources online with budgeting tips from REAL people, I decided to share our process with you so that maybe you can take away a few tips to better your finances.
A few things I want to make clear about our financial plan that is extremely relevant in understanding our perspective: we are a dual-income, dual military family; we have two young children; we have passed our GI Bill benefits to both of our children; we intend to retire from the military after twenty years of service so we will have a military pension for the rest of our lives.
The 50% Rule
We started discussing the bank account situation before we were married. Do we have one account? Separate accounts? Who pays for what? We came to this conclusion: 50% of our each of our earned incomes go into the joint account and the other 50% goes into our personal accounts. The joint account pays for the family necessary expenses to include rent/mortgage, utilities, groceries, childcare, family restaurant outings, pet expenses, etc. (I show our actual budget below for every category that we account for in our monthly expenses). As one of us receives a promotion or pay raise, the family enjoys the increase in the balance of the joint account while the individual receives a reward for his/her success in the respective personal account. Though 50% may not be the right allocation for all families – this may need to be adjusted to ensure the necessary family expenses are covered – it still allows for everyone to enjoy the successes of the contributors while allowing the individual to see benefits to their personal account.
As for this personal account – even if you each only put 5 or 10% of your income into your personal account, I have found that it is quite liberating to have your own funds. I appreciate that my husband and I don’t discuss how we spend our personal account funds (obviously knowing that it’s spent on healthy things, not drugs or illegal activities). I don’t feel a need to seek approval or agreement on the way I spend my personal account money and when I buy gifts for my husband from my account, it seems a bit more meaningful.
The Monthly Budget
We are very honest and self-aware regarding our monthly budget and, to be honest, it’s less of a budget and more of an understanding of our average spending trends. By representing our typical monthly spending trends, we can then determine what we can afford to save and invest. I’ve included a screenshot of our Excel budget below – my husband designed this one – he’s quite proud of this product! Notice that investments and savings are included in this budget and ultimately, our goal is for the “Total Income” and “Total Expenses” to be equal in the far right portion of the image. If we correctly allocate for everything, we don’t have extra money in the account that ends up being spent on unaccounted for or unnecessary things.
The Hopefully Not For College Fund (HNFCF)
We have a fund managed by a financial advisor called the “Hopefully Not For College Fund”. Seriously, it’s called the HNFCF on all of our official reports. As I mentioned earlier, since we are dual-military, we have both received GI Bill benefits. We have both designated those benefits to our two children. Therefore, each of our daughters has 36 months of GI Bill benefits available to them. However, we are not overly confident that by the time that our children are of college-age that politics will not have muddled in the benefits of our kids, risking funds saved for their education. So, we have decided to save money towards our kids higher education with all the hopes in the world that they receive scholarships or attend a service academy. Because our true and genuine intention for this money is to go on an epic vacation when we’re empty-nesters! We set strict rules on this account when we started it: this is NOT a retirement account. We are not waiting to draw from this until we hit a certain age or income bracket and we will only spend it on something enjoyable for the two of us (because hopefully it’s not for our kids’ college).
We calculated the amount of money that we needed to save by initially determining the end goal: how much money would we need in order to fund two kids’ education when they’re 18 years old? If you use a calculator like the one found HERE, you can input your desired starting investment, add monthly or annual contribution amounts and you’ll find what you can expect at the end of your declared time period assuming the declared return rate. I’ll assume that you understand the basic concepts of Time Value of Money and that small amounts of money saved today compound over time with interest to much larger sums of money in the future.
Maximize Your Charge Card Returns
A few years ago, we decided to transfer all possible charges to a charge card. After several military moves, overseas deployments, and lots of work travel, we had our charge cards compromised countless times. We never had issues having charges removed from cards but feared that if our debit card was compromised, recouping funds would be nearly impossible. We also realized that the majority of our monthly expenses were being withdrawn from our checking account and that we had the potential of reaping the benefits of credit cards points from many of these charges. We chose to apply for the CitiBank Double Cash Back credit card because it was the only card that offered 2% back on all purchases without limits. Since obtaining this card and using it for all of our everyday expenses, we have consistently earned about $1500 per year in cash back. Our only policy is that we must use that money on something fun – nothing necessary or sensible. I will also caveat that we do not maintain a month-to-month balance on this card – we pay the entire previous month’s balance each month to avoid paying interest (which is why I refer to it as a “charge card”).
The retirement savings programs that we participate in are the Roth IRA and Roth TSP (in addition to our military pension). I included two links below for information on each. As I’m only sharing our personal savings strategy, I do not want to advise on what is best for each family or individual. One take-away I will offer is that these deposits are automatic deductions. The money allocated with each paycheck to our Roth TSP never hits our bank accounts and the money invested in the Roth IRA hits our bank account with our paycheck and automatically transfers to the Roth IRA account immediately. Another key point is that it is crucial to understand how your Roth IRA and/or TSP funds are invested. By default, they go into a low yielding account. If you have been investing in these programs and have not allocated these funds, I highly recommend that you get with a financial adviser ASAP to get these in high performing funds.
Information about Roth and Traditional IRAs: https://www.daveramsey.com/blog/roth-ira-101
Information about the TSP program (Roth and Traditional): https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/TaxTreatment/index.html
Spend Money When You Can Afford To
Okay this sounds like a no-brainer. However, instead of taking a vacation when we don’t have the funds in our account, take a vacation when we’ve saved the money to do so. If we know we want to travel around the holidays but our savings isn’t where it needs to be, we adjust the budget and determine how much money per month needs to go into savings to afford the vacation. Bottom line: we DO NOT charge or maintain a balance on credit cards.
Consider a Financial Advisor
I never thought I’d see the day that my husband hired a financial advisor. It’s not because he thinks he knows more than any financial advisor, but it’s truly because he loves finances and enjoys learning about investments. Recently, he realized that the demands of his daily schedule were not conducive to managing his own investments and he looked into out-sourcing. He was extremely particular and interviewed several candidates before he chose an advisor whom he was confident would represent our financial goals. With regards to your personal investments, financial advisors don’t typically bill you directly. Their revenue is determined by the performance of your investments. So, if you were to consider a financial advisor, you should not expect that you’ll be taking on a new monthly expense.