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One Young Couple's Budgetary Journey© Sound Mind Investing | June 2009
[Note: This personal account, written some years ago, appeared in several installments in the Sound Mind Investing newsletter during the early years of Andrew and Angie's marriage, as together they fought the never-particularly-pleasant battle of the budget.] It's December. My wife Angie and I have begun working on a spending plan for the coming year. We've been using the Family Financial Workbook, a great cash management tool by Larry Burkett. The basic focus in the opening section is on helping us think correctly about the importance of living within our means. Having the ability to separate our needs (life's basic requirements), wants (degree of quality of goods purchased), and desires (spending from our surplus after meeting all other obligations) is critical as we begin to formulate a budget. Fortunately, Angie and I have a similar understanding of what we "need," including freedom from debt. Proverbs 22:7 says, "The rich rule over the poor, and the borrower is servant to the lender." I think about my debt quite a bit. I think how wonderful it would be to be debt-free. I used to think that a job would present itself after college, and the money to pay back my debts would be readily available. But "after college" is here and I still have quite a long way to go. I'm now facing up to the challenge of putting into day-to-day practice all that I know about the dangers of debt and the importance of paying it off. The Workbook also provides an overview of the four primary uses of income: tithing, paying our taxes, providing for our family, and retiring our debts. Whatever is left after we've met these requirements is our surplus. Tithing is a commitment Angie and I share. I haven't always been good about this. It's easy to say we're going to tithe, but when the bills come in, or I get a desire confused with a need, it's difficult to put into practice. We need to learn to give to God first and trust Him to provide. I really believe He will bless us for our faithfulness. We can't come up with a realistic budget for the future until we know where all our money is going now. The Workbook offers suggestions on how we can begin tracking our spending. Angie and I know for sure how much we spend on rent, electricity, car insurance, gas, debt retirement, and our phone bill each month. These were easier because we paid by check and have a paper trail. For example, our electric bill over the past nine months has averaged $97.33. It's trickier to keep track of our cash spending (e.g., food, drug store, entertainment). Over the past month, one thing that has become apparent is that we spent quite a bit on eating out. It's easy to be persuaded by friends and family to do this on the spur of the moment, and it sure adds up. This kind of spending should probably be included in our "entertainment" category, since it is a form of recreation for us, and it isn't a "need" but a "desire." Budget-breakers are everywhere, and they almost always come in appealing packages. January: With sweat dripping from my forehead from the burning heat of the conversation, sparks flying, blood flowing, muscles tensed, we did it. We forged out a budget. After taking into consideration our spending, tithing, savings goals, and some 29 subcategories of spending, we have come up with our budgeting guidelines for the year. It took prayer, some tough decision-making, lots of patience, and a reliance on God to provide. There may need to be some modifications made along the way, but we're ready to put it into practice. The table at right shows our budgeting percentages (along with those suggested by Crown Financial Ministries for young couples as well as families of four). Unfortunately, The most difficult aspect in putting this together was estimating Angie's income. Only about $30,000 of our gross income is "guaranteed." Angie's job is commissioned-based, so we're forced to make some educated guesses. So as not to presume on God's generosity, however, we tried to be conservative in our estimate. Midway through the year, I'll be back with an update to let you know how we're doing. Meanwhile, we'll be trying our best to live by this budget day-by-day in the same way we challenge and encourage you to live by yours. July: The moment I have dreaded has finally arrived. It's time to let you in on how Angie and I fared in following the spending plan I disclosed to the masses about six months ago. The world's largest accountability group is now in session. Thankfully, when it comes to budgets, there is room for second chances . . . and thirds . . . and fourths. If our experience is any indication, an effective budget needs constant refinement. And keeping track of the cash flow is no picnic, either! But, it's necessary if we're to understand what we did right and what we did wrong. A key component in our budget was the estimates we made on Angie's income. The income projections concerning her real estate commissions were pretty much wild guesses, albeit conservative ones. Real estate is a tough business and Angie tried her best (which is all I could ask). Fortunately, her tenacity along with God's blessing resulted in income for the first six months which was slightly higher than we had projected. For those of you who live off commission-based incomes, I feel for you. Speculative budgeting is definitely challenging. Each "deal" needs to happen for budgets to be met, and this adds stress to your business life as well as your personal life. This kind of budgeting makes the whole cash flow process a lot more difficult. So it really wasn't on the income side that we had any problems. It was (surprise!) on the spending side. I suppose this is typical for most people in debt. You can see from the table below how our actual spending compared to our projected spending. A few items require special mention: • Net Spendable Income. No, we didn't actually find a way to make our income jump the way it looks. Instead, we made two bookkeeping errors. First, we didn't think to have taxes withheld from Angie's commission checks. Oops! Second, the amount set aside for our tithe was sometimes computed on the amount of a paycheck rather than on the gross. • Food. We ate out too much with our friends. What can I say? We're social animals. • Clothing. We got nothing but great deals, but obviously you can't save money by spending money. No more outlet malls. • Medical. I needed chiropractic visits for my back. I tore the ACL in my knee while volunteering to help with a Young Life activity and have surgery coming up this month — that'll be a great way to end the summer. We needed new glasses/contacts for Angie and me (a truly unforeseen expense!). Although the doctor visits were (and still are) essential, it required a lot more money than we had allocated to our "medical" category. Who knew I'd fall apart at age 28? • The Mysterious "Other." Too many trips to the ATM resulted in a higher "miscellaneous" category than expected because we did a poor job of tracking where that money was going. There were also some unbudgeted pet and computer expenses. • Savings. Since we spent more than we took in, the deficit was paid for out of our savings. This is no way to build a savings reserve! So, where does this humbling experience leave us financially going into the next six months? As a result of what I've learned, my record-keeping and cash-flow tracking will be much improved. Obviously, we're going to have to tighten our belts in the problem areas. We now know where we need to be more conservative and where we need to allocate more. We have tried to be consistent in our tithing, and have good records of what we still need to put toward our tithe over the remainder of the year to get back on track. As always, we're trusting God to help us through. January the following year: Growing pains. What I thought of as part of adolescence has followed me into adulthood. At the age of 28, I find they're as much a part of my life experiences as ever before. There are physical challenges, like when my knee rotated (and didn't tell my foot!) during a basketball game last spring. There are emotional adjustments as I grow into being the husband and provider I want to be. I experience spiritual growing pains as I continue to mature in my walk with Christ. And (did you see where this was leading?) drawing up a budget and trying to live by it last year presented challenges of a financial kind. How did Angie and I do overall? (I thought I'd cut right to the chase since I know some of you can't wait to find out.) Well, not too bad for a first effort. Naturally, we did better than expected in some areas and worse in others. Even those of us who are entrenched in financial teaching can still have difficulty. We spent more than we had planned on clothing, gift-giving, and food (eating out gets us every time!). It was disappointing that we managed to apply only about $5,600 of our income toward our debt retirement even though we had projected to retire much more of it. Still, that's progress — we're headed in the right direction. We learned that several things need to happen for a budget to work out the way you hope. • You need good planning. There's no doubt we would have done much worse if we weren't operating from a budget. Fortunately, we had carefully crafted a spending plan based on reasonable projections that allowed us to measure our progress as the year unfolded. • You need to make the most of your opportunities. In July, Angie was invited to apply for a job as a sales rep for a condominium and patio home developer. After considerable prayer and discussion, we decided she should go for it. It meant leaving her position as a real estate agent where her income potential was higher (but based solely on commissions) to one that offered a set salary with a bonus based on sales. This has turned out to be a wonderful blessing for us — financially and for her overall peace of mind. • You need to make mid-year adjustments. In light of the change in Angie's income, we had to look for ways to save more money. One step we decided on was to sell my car. Last August, I handed over the keys to my personal transportation. It wasn't easy to do. It was the ideal car — low insurance premiums, great gas mileage (45 mpg!), and would last a lifetime (Honda). But we recognized that the hassle of sharing a car for now was worth the savings on loan payments, maintenance, gas, and insurance. Also, when we move to our first home (a condo acquired at great savings thanks to Angie's job perks), Angie will be able to walk to work. So having a second car moved from being a necessity to more of a luxury. And we save about $250 a month before any upkeep costs! • You need to say "no" more than you'd like. Giving up a car sometimes is easier than turning down friends who ask you out to dinner or to denying yourself a sweater at 50% off. This area was a tough one for us, but we're getting better at it. We're increasingly able to view our current lifestyle sacrifices as necessary steps on the road to achieving important longer-term goals. • You need good health. This sounds like a no-brainer but it is key. You can do everything else right and still come up short due to the dreaded "unforeseen circumstances." Our budgeting efforts were good, but there were a few events along the way that caused a surge in the budgetary ebb and flow. I was out of the office for almost three weeks due to my knee surgery and lost a significant amount of salary income — ouch! A recent trip to the dentist cost us our entire yearly dental budget. These were good reminders of why a savings reserve is so important. So, there's a year in the financial "life" of our household. Perhaps you'll learn something from our experience that will make your journey less difficult. Looking ahead, we hope to earn more, save more, retire more debt, and give more! Becoming better stewards of God's money and being able to give more generously to His work is our goal — both at home and here at Sound Mind Investing.
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we have a large amount of our income going toward debt, the majority of which is related to getting my college degree. Another tough fact to deal with is that taxes and Social Security take one-fourth of our income. I'm sure we're not the only family that finds this very discouraging. (I stand by my thinking that Election Day should fall on April 15.) 
To remedy this, we'll have to set aside larger-than-normal amounts for these two areas over the remainder of the year. That'll be an uphill climb!
