Our Budget, PART 1
People ask us a lot about the nuts and bolts of our budgeting practice. We manage our household finances with a written (spreadsheet actually) budget every month and use the resulting allocation of cash to cover our expenses. Learn the whole process in detail in this multi-part series.
The Basics
Before I explain it all in detail, it’s worth covering (or reminding you of) the basic ground rules of every household budget. There are only two figures: income and expenses. The income is what you have to spend (your paycheck, your investments, even cash left over from last month). The expenses are what you spend it on (food, rent, education, utilities, loan payments, savings). In our basic household budget worksheet, the income is a positive number and the expenses are represented by a negative number. If we’ve done our budget right, the number at the bottom of the budget sheet will be zero. This is what’s called a “balanced budget,” meaning the income matches the expenses.
If the expenses exceed the income, that means we are living beyond our means and will have to borrow money (credit cards, debt) to cover our expenses. If the income exceeds the expenses, that means we have more money to spend or save.
Our Situation
There are a couple things that are worth noting about our (the Breedings’) particular situation.
Our household has multiple streams of income. We are active and busy people and are very motivated to achieve Financial Independence as quickly as possible.
Dusty gets a monthly paycheck from our church for his work as a campus and youth minister. That’s his primary source of income, but over the years he’s also periodically brought in money from coaching strength training and CrossFit classes with Pepperdine’s campus recreation program. He also has taken on personal training clients on and off over the years. He has also officiated weddings, spoken conferences and events, and served as a director of summer camps. Each of these has resulted in income that (in the month it was received) was added to our monthly budget.
Cecily is a freelancer, which means she works directly with clients and bills them for the projects she completes. She doesn’t have a set paycheck from one employer (though she does have several consistent clients), but instead gets paid as projects are completed and services are rendered. She invoices clients at the conclusion of a website project, for example, and gets paid via PayPal, Venmo, Apple pay, check, and sometimes even cash. In addition to her freelance graphic and web design and photography work, Cecily teaches yoga and strength training classes for Pepperdine’s campus recreation program. Over the years she has also brought in money teaching at yoga studios, drug and alcohol rehab programs, and teaching goal-setting workshops.
To top off Cecily and Dusty’s incomes, our rental properties bring in monthly rental income that is deposited to our bank account from our property managers. At the time of this blog article (June 2020) we own two rental properties. We purchased the first (a single family house) in 2019 and the second (a duplex) in 2020. Both properties are located in Detroit, Michigan, and managed by a property manager.
We do our budget monthly, around the 25th of the month. So our income and our expenses represent one whole month. As described above, we have several streams of income which are being deposited into our bank accounts all month long. Rather than spend the money as it comes in, we let it accumulate, then at the end of the month we sit down and have our monthly budget meeting around the 25th of the month (because that’s when Dusty’s monthly paycheck gets deposited).
We use real cash and real paper to track our budget. During our budget meeting, we open an Excel spreadsheet on Cecily’s computer and plug in all the numbers. Then we print the budget sheet and drive over to the bank to withdraw a big pile of cash and stuff our envelopes for the month. I’ll cover this in greater detail in the next post, but it’s important to understand at the beginning that our household budget does not live in some digital app or electronic world. Our budget runs on cash and has for the last ten years.
One more thing to mention before I begin….
We are debt free!!! This is one of our greatest shared accomplishments. When we got married in 2010, we had around $85,000 worth of student loan debt looming over our heads. Our first year of marriage was spent living in Kenya, making no money. We didn’t get serious about paying back our debt and working toward Financial Independence until June 2011 when we moved back to the United States. We read Dave Ramsey’s book The Total Money Makeover and it inspired us to get serious about paying back our debt so we could live our lives. That book taught us how to live on the budgeting system I’m about to describe and enabled us to pay off ALL $85,000 of our debt in two and a half years. On Christmas Day 2013, we paid our last student loan payment and finally kicked Sallie Mae to the curb. We’ve never taken out a loan since. Because we are debt free, there are no longer loan payments in the expenses section of our budget. But there used to be. When I explain more about our budget in detail, I’ll describe what our budget looked like when we were in debt, as well as what it looks like now that we have no debt.
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But that seems like a lot for now….. more to come!
