Welcome to Part 7 of the Home Management Series! I threw our weekly topic out to the people on Instagram and you voted for family finances. There are tons of different directions I could take this post, but today I am going to focus on how we organize our finances & how we manage money together. Let’s dig in!
To start, I feel particularly qualified to talk about this topic since my background is in finance. In case you didn’t know, I started my career on Wall Street – working for Morgan Stanley and Citi for 6 years before switching into the creative industry. In addition, my husband, David, is also in finance – working as an investment banker then in private equity and M&A. We actually met in business classes at UVA’s McIntire School of Commerce. I say all of that not to toot my own horn but to say, our finances are probably the thing we are on top of the most. And also to say, there are a lot of unqualified people out there that will try to tell you what to do with your money. I’ve seen it. Please be careful out there. Money is a powerful tool and we want to make the most of what we have been given.
How We Organize Our Family Finances
This is how we generally think about our money:
- We should save as much as possible and use the power of compounding to work in our favor. This is a powerful tool and will greatly affect how and when you retire.
- We pay off all debt as quickly as possible, including the mortgage. This allows us to breathe easy in times such as these.
- We always have a rainy day fund that is easily accessible (i.e. in cash) at our bank. You will hear various numbers around the web but I would suggest starting at a minimum of three months’ worth of your expenses and work up from there to six months.
- And finally, we believe that our money has been entrusted to us and we try to use it to help others. We give away as much as we can & grow this number every year.
So with those principles in mind, it all comes down to our budget. We live and die by our budget. Since both of us know the ins and outs of Microsoft Excel, we have everything tracked there. It works for us but I know this might be more complicated for some. I have heard great things about Mint.com and Everydollar.com if you are starting from ground zero.
The Monthly Budget
Our budget is created annually but managed monthly. I’m not going to spend a ton of time on what our monthly budget looks like (but if you do want more details here comment below). We begin at the top with any income (adjusted for taxes) coming into our house. Next, we track our fixed monthly costs. This would include anything that is something we can’t cut back on if we needed to. For example utilities, insurance, electricity, and cable/internet. We work down from there to our savings goal: this is split by retirement savings & and general savings for longer-term goals (like vacations or the kids 529 plans). Our goal is to save AS MUCH as we possibly can in this stage of our life. The reason for this goes back to the power of compounding. And finally, our remaining line items are those that we have in our life but are more adjustable: grocery shopping, household shopping, eating out, salons, etc. If we need to meet our savings and giving goals, these are the areas where we can cut back.
Once we have our budget, the next biggest thing is tracking your progress and staying on top of spending. We update ours monthly. If we had a month of over-spending, David and I will discuss a plan on how to cut back next month. Usually, that means giving up a dinner or two out.
Another note, we use mostly credit cards! I hear the collective gasps going around. We made the choice to do this so it would be easier to track where everything is going and also as long as we pay them down in full every month we get to benefit from the points. Our credit cards are truly working in our favor each month.
Annual Planning & Goal Setting Meeting
Every December we sit down for long conversation to go through how our budget ended up. This requires a lot of prep work beforehand pulling all the budget numbers together (David) and thinking through what our last year looked like as a family (Valerie). During this time, we will look at this such as:
- Where are the areas we went over our budget? How can we cut back or make adjustments next year?
- Are there any areas in our life that felt hard? Could we add something to make our life easier?
- Do we want to allocate more money to any particular sector? Mama could really use some spa money in 2021…
- And finally, how can we cut back broadly to save more money or give more money away?
Next, we do a big vision casting and goal setting exercise. We set big goals for our family! This keeps us motivated and intentional with our spending and saving. This is where we plan out things such as:
- Family vacations & budgets for the year ahead
- Longer-term projects for our house
- Buying a second home (my dream is sipping coffee on our front porch and watching the sunrise)
- Big anniversary trips: like our recent 10 year trip to Hawaii (yes, I already have our 15-year trip picked out in my mind)
- Any other savings goals
How We Manage Money Together
I think it’s important to give everyone specific duties and responsibilities to keep things running smoothly in your house. In that vein, here is how we split up our money duties:
Valerie: CEO – I am in charge of the day-to-day spending in the house so I track our adjustable expenses. I also dream up the longer-term goals for our family & our life. And I do any bill pay that comes to our house via mail although we try to get everything set up with auto-pay.
David: CFO – He is in charge of running the monthly budget numbers, general research and development of new investments or ways to save, and generally executing any trades in our investment accounts.
Together: We participate in our annual meeting and discuss/review any big purchases.
Financial Advisor: We look to my dad (who also works in finance) for generally keeping us on track with our investment & retirement asset allocation (which stocks to invest in). If you don’t have expertise in the markets, I would highly suggest finding someone who will do this for you. It can be hard to find someone who you can trust, but I would suggest asking someone who shares the same money values who they are using to help!
I hope this post on family finances today was helpful. I have so much more to share but I don’t want to overwhelm you…especially in these uncertain times.