I have a few posts coming up about how we handle money as a married couple. What was originally a single post got far too long so I’ve split it up. Today I’m talking about how we organize our money: where it comes from, where it goes and how we get it from point A to point B.
For us, budgeting is simply controlling our money, rather than letting it control us. For us that involves tracking money coming in, going out, being saved and “stored”. I’m going to talk about each in a bit of detail and then give a quick overview of how we pay bills and handle cash and the like.
First off is the money being stored. We have an emergency fund of about four months of living expenses that we keep in an easily accessible bank account. This is true emergency money: it’s saved for a job loss, health issue, car troubles, etc. You get the idea. Ideally we would have about six months saved, but because of the way money comes into our household we’ve kept it at four. (More on that below)
Next is the money that’s being saved. Here we aren’t talking about our emergency fund. This is money allocated to future things: a house, car, retirement, etc. I’ll fully admit that this is where we’re the least sophisticated. We each have retirement accounts through work that we’ve been fairly hands-off with. Other than retirement, we have accounts set up at our own bank for other savings goals. Normally we keep one general savings account and at most two short-term accounts. Some people have like 15 savings accounts to keep track of…that just wouldn’t work for us. We have a general savings that we add to with each check and then occasionally set up accounts for shorter-term things. One common short-term account is a Christmas savings fund. Another is a new car fund, which is what we’re working on right now.
Third, we pay close attention to money that comes into our home. Right now that money comes from three sources: his salaried job, my salaried job and his school stipend. I mention that we’re salaried just to note that our income is very predictable. Though we’re covering most of Liam’s graduate school from our income, he does get a bit of money each term that pays for books and supplies and any school-related travel that he might need. It’s very helpful because it takes care of all of the unpredictable school costs.
Finally, we have money that goes out, or the bills and expenses that we pay each month. One little kink in our system: when we talk about money going out, we only refer to monthly bills. Anything that’s paid on a different cycle (quarterly or yearly) comes from our savings account. That simplifies things for us quite a bit. Money going out includes housing and utilities, student loan payments, credit cards and our car payment. We have a number that we assume is going to be our monthly expense total and keep that in our checking account. That way we can stay ahead of bills by a month and absorb surprises.
And finally, how we handle money – that’s my job. Our paychecks go into individual accounts and Liam’s checks pay the bills and mine “pay” the savings and cash expenses – gas, groceries etc. Does that make sense?
Phew, that’s a lot of talk about a (sometimes) very dull subject. In Part II I’m going to talk about how we’ve combined our spending and set spending limits in each area.