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budgeting with intention
September 12th, 2013     |    LifeRelationships

BudgetingWithIntentionLast weekend I read Eric William’s new book, It’s Your Money, which details how Eric and Kelsey eliminated almost $40,000 worth of debt in 23 months.

After reading their inspiring story, I immediately declared the rest of the day “Finance Day” at the Livelys.

Mr. Lively was thrilled. During our first year of marriage, we set up some guidelines for our finances and how much we wanted to save, invest, etc. But we hadn’t really given it much more thought since the initial decisions over a year ago.

As Mr. Lively and I discussed our debt situation (substantial low-interest student loans), we realized that we could change our lifestyle to save faster for a house or condo one day, or we could step up how quickly we pay back the student loans.

A few hours of conversation about these two major options, we realized that we don’t know what our priority will be three years from now. If we stay in Chicago for the next 5-10 years, we could live in our current apartment for quite a while. Perhaps until we have two kids. So any surplus saved money could go towards paying down the student loans faster now.

On the other hand, if we end up moving to a more suburban area, we would much rather have the funds to purchase a home right away.

Since we don’t really know where we’ll be in the next 3-4 years, it has honestly been easy to just kind of ignore the whole thing.

“The future is so cloudy now, why worry about it until we know? Let’s just save a decent amount on top of our retirement and loan payments and call it a day.”

Obviously, this is not an intentional way to go about things. But how do you act intentionally now, when you don’t know what you are going to want in the future?

The answer we came up for our personal situation came down to the following:

We don’t know whether we are going to want a down payment for a nice home in the next 3-4 years, or whether we will want to eliminate our student loans. But, we do know that we are going to want to have the option to do one of those two things in the next few years. Therefore, we should start saving more substantially now, to give ourselves the ability to decide later

I’m not a huge fan of line-by-line budgets, so we decided to take a variation on Ramit’s approach to personal finance. We decided to automate our savings goals and bills, and then have a lump sum for miscellaneous spending like food, shopping, cleaning products, etc. each month. Over the next few months, we’ll be figuring out how to factor in savings for trips and larger yearly expenses, as well.

In addition, we’re also recognizing that excess money that we bring in beyond the budgeted finances can be used for fun spending and trips, or it can go towards the savings or loans.

Though it feels a bit less exciting to be saving so intently for something we are unclear about right now, it feels awesome to know that we are giving our future selves two exciting options to choose from.

 

  • Glad the book motivated you to take action! Finding what works for you is the best thing you can do — can’t wait to hear an update in a year or so on how it’s going 🙂

  • Yes, Jess! I love that you’re talking about it. And I totally get where you guys are at… stuck in middle and not knowing what to do. Kudos for being intentional and stashing away the savings for now.

    We were stuck in that after our daughter was born. We were in between savings goals and it was all too easy to stay stuck there vs. making an intentional decision.

  • mllerachelm

    I love the idea of living life with intention! Doing things with a clear purpose behind: great way to live life!!!

    Thanks for this informational post, I’ll have to check out “It’s Your Money” and really start planning out my finances better.

  • neonseattle

    How far along are you on your loan payments? I think that plays a role in this. I’m sort of in the same situation. My fiance and I want to buy a home in the future and I’m trying to pay off my loans. My fiance only has a very low interest auto loan to repay. I only finished grad school a year ago so I have a substantial amount left and for me it’s more worth it to make aggressive loan payments now considering my interest rates are in the 6-7% range which is nothing to sneeze at considering the principal amount. So for now I’ll be making big monthly payments towards my loans and will have a smaller piggy bank set for a future home.

  • I’m actually not sure about Mr. Lively’s payments. I believe they are on a 10 year plan(?). Luckily he only has very low loans left – close to 3%, so that makes things easier than the 6-7% you mentioned.

    I think we are going to end up doing the inverse of what you shared, low extra payments to the loans and higher savings for the home/cash out the loans in the next few years. : )

    Best wishes on the loans, school, wedding, and home!

  • For sure! Eric’s story is really motivating. I highly recommend it. : )

  • I know, it was a little hard to get motivated to save when we didn’t have a clear goal.

    We hated the idea of paying ALL the loans and being short for a down payment, if we happen to move to a more suburban area in the next few years. Now, at least we’ll have the option to do either/both!

    What did you decide to do with your ‘lull’ when Rooney was born? What were the two decision points?

  • Thanks, Kelsey! Your story is really awesome. I am so glad you guys got this puppy out there to help people (like me!). : )

  • Kimberly Anne

    I love the idea of budgeting with intention. I used to work in finance, so I am really passionate about making a budget that is workable and allows for changes when needed. In my mind, it doesn’t matter if you know what you are saving/preparing for…it matters that you are being conscious of your debt and budgeting for growth in the future. 🙂

  • Exactly! Do you have any budgeting/personal finance books that you recommend? Someone in the Private Victory Mastermind Group asked for recommendations.

  • That’s awesome to hear, Jessica! Kelsey and Eric did the same program, too. They also did switch it up a bit, etc. I’ll consider it an option – my main concern is that Dave R. is all about getting rid of ALL debt ASAP, and we are actually not sure we want to go straight to ALL student loans vs. save for a house. Do you think that would be an issue if we followed the plan? Wouldn’t that be kind of ‘breaking the rules’ they lay out?

  • Jessica Freeman

    Technically, that would be “breaking” the rules… but we break the rules too. We have a credit card for emergencies or large doctor bills AND we just got a car so we have a car payment. But, we learned a lot of good practices and just general financial things from him. I think when we first did the program, we were so “stick to the grid” about it – but life happens, and we make it work for us as much as possible. We can’t follow it to a T, but it pointed us in a good direction! We learned things about insurance, retirement, bank accounts, etc.

  • Jessica Freeman

    I forgot to add – we are also not out of debt, and not getting out of it ASAP. We’re trying to save 🙂

  • That’s great to know. Thank you for sharing your story and how it worked for you guys. : )

  • Kimberly Anne

    Sorry! I don’t have any book recommendations. 🙁 Most of my experience is from working with clients and/or online.

  • No worries. Thanks, anyways, Kimberly!

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  • Thanks, Kelly! It’s going really well so far. I’m much happier with this approach than our past one. It’s so nice to be moving toward our (potential) goals intentionally. : )

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