Hi friends! Happy Tuesday.
If you have been following along on Instagram, you can see that we had a heck of a vacation! I cannot wait to share a vacation recap post on Thursday! I’m going to share our favorite photos, tell you (honestly) how being away from Max for 5 full days went, share again why we deeply believe in taking time for just the two of us, give some suggestions for Northern California/Oregon, etc.
Onto the blog of the day…
It always pleasantly surprises me how well read my blog posts regarding MONEY and saving tips are. I get more messages and comments about those posts than almost any other. It demonstrates that MANY people are trying to get better with money. And I love that. I truly believe it is a part of our health, because money can be an ENORMOUS stressor for people. And sometimes, this is avoidable.
My friend Abby messaged me afterward this post: Confessions of a Non-Shopaholic, and had a few follow up questions. I had to admit: GIRL, I think you and your husband are a few steps ahead of Drew and I. That is when I had the idea to bring THEM on the blog and see how THEY are doing it. I’m excited for all of us to have another perspective on this important issue! **Side note: I did not get ONE new item for our recent trip and was SO proud of myself. I used to get a bunch of new outfits when going on vacation. This time, I borrowed a couple hiking tops from my sister and knew I had plenty of maternity dresses to wear.**
Without further adieu, here is how Abby and Colin navigate finances and saving.
Ames: First, thank you two SO much for agreeing to this. I know that finances can make some people get all tense and awkward. Why do you think it is important for people to open up more and feel okay talking about finances?
Abby: Finances are a lot like body weight, it is a number most people only share with yourself and those who are really close to you. It is easy to fudge because no one is looking over your shoulder at the bank account or numbers on the scale but you are only hurting yourself if you are dishonest in these areas of your life. You may have friends or coworkers (or great bloggers like Amy) in your life who have easy tips and tricks on achieving healthy weight or healthy finances that you many have never thought of! Open up about your financial inquiries, financial peace can be yours and it may just start with asking for some help or a few tips. Ames: I LOVE this analogy.
Ames: What are your BEST tips for responsible spending?
Abby and Colin: We could name a hundred! But here are a few you may not have heard of yet:
- Set caps on when you want to pay stuff off. We have an immediate pay off on credit cards, a 9-month cap on cars and a 10-year cap on houses. If we cannot pay it off during that period, we either need to take more time to save up before purchasing or buy something that will suit our goal. Sure the perfectly landscaped cul-de-sac house on an acre of land with the in ground pool and movie theater would be great to have right now but it’s also nice to have some freedom with your paycheck and not have it all going to a barely achievable mortgage payment. Ames: Obviously Abby and Colin have aggressive caps for themselves and maybe yours won’t look exactly like theirs, but I love this idea!
- WHEN you purchase items is huge for maintaining a budget. Do you need a swimsuit in March when it will sit in a drawer with full priced tags until summer? If you buy summer wear after Memorial Day you can save big. Car purchases in July (when the next year models come in) can save thousands of dollars. With cars, buying at the end of the month will usually give you a thicker discount (sales reps want to hit their commission goals). Bonus tip: if you are confident on what vehicle you want to buy, ask for the newest sales rep on the lot and get a killer discount for giving him/her their first sale. With houses, you will have more options in the Spring and Summer when everyone puts their homes on the market, but you’ll get the best deals in late Fall/Winter when people are desperate to sell. We bought both our homes in November during a low market and their value has increased exponentially with us doing minimal work.
- With purchases, for every one thing we buy, an item needs to go. We have had the same number of hangars since moving in together and every new decorative pillow, piece or artwork, coffee mug, etc takes the place of something else. This majorly helps with ridding clutter and ensuring our storage does not fill with useless old items. We did break this rule when acquiring baby items but the rule still holds true with toys and we hope to instill good sharing and donating lessons on our kids as our family expands.
- Have an “envelope” system – another Dave Ramsey idea. I’ll admit we do not follow this as much anymore now that our budget is well engrained on our lives but it was great when we were starting our budget out. You can do this electronically by having different debit cards set up but you can also have physical envelopes with cash in them set aside for each individual budget. Our accounts are: Colin Fund, Abby Fund, Home Fund, Rental Property Fund, Entertainment Fund, Wedding Fund (was for our wedding but now it’s for wedding gifts, bachelor parties, and wedding guest attire), and HSA Fund. A set dollar amount goes into each fund from each paycheck and once the fund is at $0, no more spending until another deposit comes in. Doing the envelope system helps you get creative and stay on target for the budget goals. AND, you have already put aside the money for fun so you make sure to keep life exciting. See budgets can be fun, entertainment is important as long as you stay within reason!
Ames: Did marriage change the spending/saving habits for either of you? How do you best recommend to get on the same page?
Colin: This was one area where Abby and I were similar, though my wife is slightly more frugal and I am J. When we got married we both needed to make some changes in order for our marriage to work in the best way possible. Abby needed to lighten up a little on the purchases she thought were frivolous (like grabbing lunch out during the work week) and I definitely improved with thinking about purchases before pulling out the credit card. We each have our separate bank accounts mainly used for work expenses and personal items then anything family related goes to our shared accounts. Abby said that knowing I could see purchases helped pull down her Amazon spending that was otherwise going unnoticed as long as she got to the front doorstep and pulled the box before I got home.
Ames: Do you two sit down and talk finances? If so, how often?
Abby and Colin: I love your monthly sit-down with Drew and want to pull that into our routine! Right now it is more of a weekly conversation but there’s no structure and sometimes it is as quick as “should we buy a cabin or a bigger house when we’re out of debt?” Some months, like this month, the conversation is a little less positive because we faced many costs that we were not expecting. Our rental property had a gas leak, water damage and our home’s AC unit went out all within 3 weeks of each other. Taxes were also due on the rental property (a downfall of paying off a mortgage early is you do not have an escrow account to hold your takes for the year ahead). That was a hard chunk of change to shell out so we are on a spending freeze until August is done to ensure all those checks make their way through.
Ames: Does one of you take more of the lead on paying bills, watching your accounts, etc.?
Abby: We are both pretty good about splitting this task. Most bills and donations are on auto pay so modern technology makes this part of life far easier. We check our accounts weekly to look at our spending and to make sure no fraudulent charges have been made and how much we still have in the budget for the month.
Ames: Abby and Colin have one sweet child Lucy and they are expecting again! How have bringing children into the picture changed your financial outlook and future financial planning?
Colin: Because we use cloth diapers and Abby breastfeed our babes, costs in that first year are relatively low outside of childcare. We know that dance lessons, karate uniforms, hockey pads, football cleats and whatever else our kiddos will want to try will be entering our world quickly so we’ll simply be smart about the “needs” vs the “would like to haves”.
As you know, higher education continues to get more expensive by the year. Monthly, we have a reoccurring contribution to a 529 plan that we started as soon as Lucy was born. Also, any extra money we have that is not going into one of our buckets, we put into the college fund. In Wisconsin, we use Edvest: https://www.edvest.com/
With the 529, any account earnings can grow federal and Wisconsin income tax free. Plus, withdrawals used to pay for higher education expenses will also be free from income tax. In addition, as a Wisconsin taxpayer, our contributions reduce our taxable income up to a maximum of $3,140 per beneficiary. It’s a great investment tool! Take advantage of the opportunity, that’s what the plan is there for!
Lastly, we wrote a nice note to our family explaining to them that Lucy has all of the toys and stuffed animals that she could ever want. We kindly asked our family for Christmas and Birthday parties that if they felt the need to bring a gift, it would be better for Lucy long term if they contributed to her 529 – and we gave them the website and instructions to do so. Since then, we have several thousand saved and half of it has come from family members, one little contribution at a time. It adds up fast!
Ames: I know that you two have been very focused on eliminating debt. Can you talk strategy for this and what debts you focused on first? Where are you focusing now?
Abby and Colin: One man changed the way we look at debt: Dave Ramsey. If you are nervous or have questions about finances join his free newsletter and blog immediately. He recommends a snowball effect that I will lay out in a somewhat simple way for you below:
- Write out all your debt (#1: credit card, #2: car loan, #3: student loan, #4: mortgage, etc)
- Put them in order of how much you owe with the smallest amount being #1
- Focus on paying off #1 and pay minimums on all the others. If you have an extra $100 from a lottery ticket or bartending tips, it goes to #1. If you get a bonus at work, that extra money goes to paying off #1.
- Once your #1 lowest amount of debt is paid off, you will suddenly have a couple hundred dollars extra per month. It’s a good feeling and it’s tempting to book a vacation, but not yet! Let’s say your credit card is paid off and you now have an extra $600 a month that you had been putting towards that. The $600 now goes toward your #2 slot (car loan in this case). Think of how quick that car loan can be paid off if you put an extra $600 down that you have already been used to paying!
- Once the #2 (car loan) is paid off, you take the money you were spending combined for #1 and #2 and put that toward #3 (student loan debt). That $400 a month car payment and extra $600 will take that student loan debt to the ground fast.
- If you get a positive tax return, spend a little on you but use most of it to erase that next debt line. If you get an increased salary, use the extra dollars in the paycheck towards that next debt line. We’ve said this before but a little bit can go a long way you guys!
- We have been using this strategy for 7 years and it really works. We have erased credit card debt, two car loans, undergrad and master’s degree debt, a wedding and honeymoon, a rental property mortgage and are now working towards our home mortgage. By February we will be debt free from all these payments just in time for our 2nd child to join our family. Colin’s goal was to pay off our home mortgage by his 30th birthday but we’ll miss it by about 3 weeks if everything pans out as expected. Still, this is assurance that YOU can do this on whatever level you are on. Start with the little stuff and stick to your vision.
Ames: Where do you invest your money?
Abby and Colin: We invest with mostly mutual funds through Edward Jones and also in our 401k company plan. If you are in an income level that allows for the Roth, that is a great option! If you make above the single or combined income level, a Traditional may be your best bet. As discussed before, we also have a 529 Plan that we max out for college savings for our kids. You are also able to put $6,750.00 into a family Health Savings Plan annually to use for tax-free medical expenses. ALL our health expenditures go through here from chiropractic visits to delivery of our babies and it is a huge cost savings. We also invest money in our church; some people may not think of this as an investment but our monthly donation goes to many great opportunities within our church, within our community, and for the organizations Door Creek Church touches. Even if it does not directly affect our immediate family’s future, it definitely affects the future of the things we value and are passionate about.
Ames: I think it can be a VERY interesting journey on how people become smarter with money. Some people are raised to be that way, some people educate themselves, some people seek professional advice. Can you speak to where you two learned your healthy financial habits?
Abby and Colin: We definitely grew up a bit different! Abby grew up in North Dakota with parents who made minimum wage and was barely scraping by many months. WIC and food stamps were necessary and birthday gifts were usually found at second hand stores. Life changed for the positive when Abby’s family moved to Wisconsin but many of the saving tactics and buying only the necessary items stuck with her for life.
Colin grew up quite differently. His family also didn’t have much money as a young child, but his Mother worked extremely hard and made it to an executive level at her company. Since she didn’t have much growing up she always wanted to spend her money on her family with gifts and a nice home. It is an inherently good quality to want to spend money on your family, but there might be better ways! Some of the best things in life are free! Colin really kicked his financial knowledge into gear late in college and at his first job. He had a number of great mentors and colleagues that introduced him to the Ramsey method and helped him along the way.
Ames: What are your TOP 3 tips or mindsets for people that really want to improve their spending and saving habits:
Abby’s Top 3:
- Get a hobby that makes money. Amy, you are doing this with Expecting & Empowered and I just know it will yield great success! For me, I lifeguard and it gives me a free gym membership and I also educate on doTERRA essential oils which brings in a nice commission monthly. These are things I enjoy doing so the money it brings in is solely for extras in our “Entertainment Fund”.
- Show grace on yourself. I mentioned earlier that this month was tough with many unforeseen costs coming in. It was the first time in a long time that we had to cut into our donations and entertainment expenses to make ends meet. Instead of getting angry at our dull bagged lunch and NetFlix night-in for the 3rd weekend in a row, we laughed and knew that things would get better in August. If you are in a tight spot financially – hang in there. It gets better and being frustrated over money does not fix the overall issue.
- “Live like no one today, so you can live like no one tomorrow.” Sure it would be nice to go to a daily lunch with coworkers, grab coffee on the way into the office each day, and have a brand new outfit multiple times a month but if forgoing these little spends means retiring early or enjoying an extra vacation every year, I’ll take the ladder!
Colin’s Top 3:
- Pay yourself first. Pay yourself at least 10% of your income into your retirements savings. Utilize the tax savings of your 401k. Max it out if you can. But at the very least, put in 10%. Maximize what your employer matches.
- Get pissed off at your debt. Doesn’t it just hang over your head?! Eliminate it. Be more diligent about paying off debt than you’re about buying “toys”. The point in all of this is creating cash flow.
- Create cash flow. Cash Flow + Little Debt = Financial Freedom. No Debt and Cash Flow is even better. This allows you to do what you want, allows one of you to stay home with the kids, allows you to go on 5 vacations a year, allows you to help pay for your kids’ education, allows you to give more and be geneous with your wealth, and frees you from stress. This allows you to spend time doing the things YOU want to do. Do the things in life that matter. Remember, you came into this world with nothing and you will leave with nothing. Money does not buy happiness, but financial freedom certainly helps.
Ames: What are you going to do when you are debt free in February?
Abby: Remember that house on the cul-de-sac we talked about earlier? Yep, that’s our next big purchase! Colin and I are waiting until the housing market comes down and will buy then. We are certainly in no rush, but are continuing to keep our eyes on the market for when a good deal comes around. We’ll have enough saved up to only take out a 3-year ARM loan for our forever home (ARM loans are only a good value if you know you can pay it off during the term, otherwise the interest rate spikes and a 15 year or 30 year would be a smarter choice). Other than that, we will continue investing in college funds and retirement funds and ensure that our donations increase as we have the means to do so. We both feel passionate about our jobs and love our childcare so no big changes on career but I will sure enjoy that 3-month maternity leave with our February baby knowing that there won’t be a mortgage payment due the entire leave!
HUGE thanks to Abby and Colin for opening up and dropping some knowledge on us! Hope everyone picked up a tip or two, I know I certainly did!