A Budget Process in 3 Steps

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If budgeting was a natural and pleasant thing to do, everyone would be doing it. It took us some time to get it right. We have combined our natural affinities to create a 3-part budget process that we’ve fine tuned over 15 years together.

Photo by NORTHFOLK on Unsplash

I am probably above average regarding how many budgeting “how to” articles I read. They make budgeting seem really easy. Just put money in an envelope (metaphorical or actual) and spend what’s in it and stop when it’s gone. Or, just “pay yourself first.” Oh, and cut out going out. Simple.

We budget a bit differently. We take a more analytical and nuanced approach. Creating a budget process takes time and tinkering. If you don’t get it right the first, second or third time, it’s okay. Keep what works and as your needs change be open to making changes. Budgets are a guide to help you prioritize, not to kill joy or restrict you.

Budgets are hard to start

The Moneyaires prize efficiency and hitting the “easy button” as much as possible. In our relationship, Mrs. Moneyaire researches and is big picture. Mr. Moneyaire enjoys tracking data. We’re both analytical, enjoy planning and thrive on structure. Our budget process is probably more intense than what most people do.

Starting a good sustainable budget process is hard. It’s hard because it requires 3 main things: tracking, planning and goals. Mr. Moneyaire has always tracked his spending, but didn’t really align that tracking with planning or goals. He was naturally a saver and didn’t necessarily worry about saving towards something; after all, he usually had enough saved up for things as they came up. Mrs. Moneyaire also had enough money on hand and invested but rarely ever tracked her spending. Mrs. Moneyaire would put money into her brokerage account based on what she thought she could. Neither one of us was being particularly efficient or optimizing our money working for us. We were both young and working on making sure our immediate financial needs were met; having reliable cars to get us to work, paying our cell phone bills and making sure to save for a wedding.

The Dream Book

The Dream Book played a key part of our budget process.

We both worked together and had the opportunity for a free consultation with an Ameriprise Financial Advisor through work. Since we were planning on getting married, we took the opportunity to meet with him. He was a very nice older gentleman. He asked a few questions about when we planned to get married, how much we both earned and what our financial goals were. The answers to the first two questions came very easily. When it came to talking about our goals, we floundered a bit. We of course wanted to save money, but we didn’t have a particular set of goals in mind. He handed each of us a little booklet that had several prompts in it. He talked to us a bit more about the virtues of the company he represented, saving & investing and how he could help us with retirement planning. We thanked him, took our booklets and left.

Mr. Moneyaire threw his little booklet out before he got to his desk at work. I sat at my desk and leafed through the booklet. The prompts asked about our near, intermediate and long term goals. It asked the reader to think about values, activities, dreams and aspirations. I was enthralled.

Goals?

We hadn’t ever really talked about our future goals together let alone individually. In high school the goal was getting into the best college. In college, it was all about following your passion and picking a degree that would allow you to do that. Oh, and getting an internship and paying for school and a social life. Towards the end of college it was a scramble to find the *perfect* job. It felt like everyone was finding great jobs with signing bonuses.

For the Moneyaires, we both struggled to find good paying jobs for a few years after we graduated until Mr. Moneyaire landed at a great Fortune 500. It was a great place to work and when Mrs. Moneyaire’s future boss asked him if he knew of someone who could fill an entry level marketing position, he recommended me. After I got my job at the same well respected company, we both felt like things were finally falling into place for us.

The Dream Book we received helped us frame one of the most important conversations of our relationship. In this conversation we talked about our goals, where we wanted to live, what we wanted to save towards, our values towards money and debt and how we should combine our finances. The Dream Book helped us capitalize on the good fortune we finally were getting traction with. It helped us by laying out what it is we wanted in a life together and how to use our money to get there.

Wholly combined finances

One thing that we’ve done that has really created an efficiency and optimized our investing is wholly combining our finances. We do have our own retirement and other accounts in our respective names but we look at our accounts as both of ours. We don’t have separate savings, investment or checking accounts. One reason we’ve combined our finances this way is so that we can put our money to work for us more efficiently. For example, during the pandemic when the market was crashing, I was able to move several thousand from our checking and savings accounts to invest in the market in a day after a brief conversation with Mr. Moneyaire. If I only had access to half of our money we’d have only benefitted half as much when the market rebounded.

We’ve made a decision, as a couple, that the money each of us brings in is for us to decide how to allocate. We both know how much money we have. The accounts we have are just pools of money – they don’t tell us how much we have to allocate towards spending, saving, or investing. Our budget does, and we create the budget with equal input, regardless of who brings home a bigger paycheck. Our budget is basically our financial plan to get us to our financial goals, of which is our individual happiness.

No Privacy?

A lot of other couples we know are not interested in the way we’ve combined our finances. Many couples want to keep part of their individualism and have their own separate accounts and then send part of “their” money into a joint account for joint expenses or saving. For these couples they want to keep some autonomy in regards to what they want to buy and not have to run it by their spouse. Some couples we know keep money completely separate. That’s a completely valid way to run things. It all depends on what your values are and what you’re trying to optimize. We wanted to optimize every dollar we brought in and needed transparency and access into all the accounts to accomplish this. Together, we make sure all our dollars are assigned a job. We’ve given up a lot of our individual decision making to optimize our money working for us.

Follow the money

The Moneyaires see all revenues and expenses as joint. Early on we would track our spending to our budgeted amount closely. Once, I wanted to go get my haircut and Mr. Moneyaire suggested I wait till the following month because we had spent down our personal care budget for the month. Why was it important to move a visit to the salon to the following month? If I did that, we would meet our savings goal for the month. Those savings would then get deposited into our brokerage account to be invested.

Early on, we optimized our spending by implementing an Era of Austerity. We were very deliberate about spending as little as possible in categories we didn’t care about so we could afford things we did care about. When we had pretty limited incomes, budgeting really helped us hone in on what was important. Having a budget kept the both of us accountable to our goals and each other.

The Shift

As our net worth has grown, we no longer watch every dollar. Before, our budget would dictate our spending so we could save and send money towards investments. We’ve since moved to a model where we continue to track how we spend, but the emphasis is no longer on saving as much as possible. We budget for our fixed costs, then our investments and we spend (or bank) the rest. We’re no longer worried about saving as much as possible (though we’re still pretty frugal) but making sure our investments are growing and cash flowing. When we didn’t make as much, we were hyper vigilant about spending. Now that we’re in a more comfortable position, we are more wary of reigning in big ticket expenses, tending to our investments and saving our time for the important things in life, like playing peek-a-boo with Baby Moneyaire.

Laying out our budget process

The next three posts will be about how we go about the three aspects of budgeting:

  • Tracking
  • Goals
  • Planning

Mr. Moneyaire will detail the different levels of tracking he sees and how he tracks our expenses, incomes and investment growth. I’m going to write about how we goal set and an additional post about how we plan to hit those goals. I’ll also share the results of our 2021 budget and our plan for 2022. An overarching theme you’ll see is that we both communicate a lot through this whole budget process. Be sure to subscribe to get notified when these posts are published.

Make sure you get all the next posts about our 3 step budgeting process by subscribing today. Just type your email address in and click on the red sign up button.

If you’re interested in getting a copy of the Ameriprise Dreambook, I have a copy you can download below. Its a fun thing to go through and I refer back to it from time to time just to dream a little bit 🙂

Downloads

You can download the Ameriprise Dreambook below and check out the getting married checklist here. We never used Ameriprise Financial’s advisory services after that first initial meeting. They only work with clients with at least $500k. At the time of our meeting with Ameriprise, we had nowhere near $500k so we weren’t really client material. It was lucky – their fee structure is pretty expensive. Besides, we were already working with an advisor (who we would stay with for another few years).

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