I‘ve said it before and I will say it again – there is no one-size-fits-all approach to money management. That is why I wrote this series to give readers a “peak under the hood” to share how my wife and I manage our money. This article follows the first in the series, which covers the financial products and services we use, and I will follow it tomorrow with a similar article on how we manage the finances of our small business.
How we manage our money
My wife and I have combined finances. This is not the best approach for every married couple, but we find it works best for us. It helps us to know and understand how much money we have, where it is coming from, where it is going, and helps us better plan for the present and for the future. This article will show you what we do when the money hits our accounts, how we track our money, spend our money, how we pay our bills, make investments, and what we do from there.
Tracking Income, Expenses, and Investments
We use Quicken for our money management software. But it is not for everyone. As powerful as it is, Quicken has two major downfalls: it can be cumbersome for some users, and it is a desktop software program, which means you can only use it on one computer. That said, Quicken is probably the most robust money management software program on the market, especially now that MS Money is no longer being developed or supported. Quicken gives us great insight into our spending habits and makes it easier to see where our money is coming from and where it is going. The reporting features are great and can spit out detailed charts, graphs, and other reports in seconds.
The main advantage of using Quicken over some of the other money management programs that I’ve used is the ability to integrate personal income and expenses with detailed investment tracking and portfolio analysis. (here are some Quicken coupon codes if you are interested in trying out Quicken). As I mentioned in a previous article, I also use Mint.com because it is a little more user friendly than Quicken and it is portable. However, Mint.com is not as powerful, especially with investment tracking and analysis.
The Nuts and Bolts – Daily Money Management
USAA – Our Main Financial Hub. We primarily use USAA as our main financial network, depositing our paycheck there and then using their online bill pay for almost all our bills. We also have most of our insurance there. USAA is a financial institution similar to a credit union; they limit their membership to military members past and present and their family members. They have a multitude of financial products and services, as well as many forms of insurance. We also have savings accounts at Capital One 360 and Discover Bank because their interest rates are currently much higher than USAA.
Income. My paycheck is directly deposited into our main checking account at USAA. From there we use online bill pay to pay most of our bills. We actually try to use our credit card as often as possible for recurring bills, then we pay that each month online through bill pay. If there is a surplus in our checking account at the end of the month we transfer it to our main savings account so we earn a higher interest rate.
Spending. My wife and I primarily use cash back credit cards for our purchases and we pay them in full each month. We only write a handful of checks each month, mostly to our church and for my wife’s singing lessons. I like to carry cash with me at all times even though I don’t usually carry much and I almost always use my credit card for purchases. I guess cash gives me a feeling of security. See what’s in my wallet.
Budgeting. We don’t have a strict budget that we track down to the penny. Instead, we track where we spend our money each month and look for trends. For example, if we notice our fuel expenses skyrocketed we will look for causes. Sometimes it is as simple as realizing we took two major road trips. Problem solved. Not having a strict budget works for us for several reasons: we don’t have any debt other than our mortgage, we have a reliable positive monthly cash flow, and we don’t spend much money (we don’t go shopping often and we rarely go out to eat). This doesn’t work for everyone, so please do what is best for your situation.
Debt. Our only recurring debt is our mortgage payment, which we pay a little extra on each month (roughly $100 extra). We currently have a 15 year mortgage, but I think we will go with a 30 year mortgage on our next house and make extra payments if we can afford it. A 30 year term has lower monthly payments so it offers more financial flexibility in the long run (it may also be a good hedge against inflation). We aren’t in a rush to repay our mortgage because we have may be moving to a larger home in the near future.
Investing. We are a little scattered when it comes to where our investments are located, having 8 separate retirement accounts with 4 different companies. Some of this cannot be avoided though because they are employer sponsored or an account we don’t want to close. The best we could do at this point is consolidate down to 3 companies. Even if we consolidated companies we would still have 8 separate accounts. (I have a Roth IRA, Traditional Rollover IRA, Traditional 401k, Solo 401k plan, and Thrift Savings Plan account, my wife has a Roth IRA and two TSP accounts). I addressed this topic in the article about which financial products we use. We also have taxable investment accounts with Vanguard and TradeKing.
Investment contributions. We make contributions to our retirement investments through automatic deposits to take advantage of dollar cost averaging and so we have a more stable cash flow throughout the year. Every few months we may make a lump sum contribution into a taxable investment account, depending on our investment goals, cash flow, etc. We try not to make automatic deposits to these accounts because commissions can add up quickly!
Charitable contributions. We donate to our church each week, to other organizations that we believe in, and when circumstances arise when money is needed urgently, such as the Haiti Earthquake disaster. I also like to give money for fun events. For example, this past fall some personal finance bloggers had a fantasy football league and I donated $100 to the winner’s charity of choice. Fantasy baseball is starting soon, so I imagine there will be a similar donation in the works. Bragging rights and money to a good cause – it doesn’t get any better than that!
Dealing with irregular income
This is a topic I almost didn’t include, but I added it at the last minute. I draw a salary through my day job, and I run a side business that brings in some extra money on the side. This doesn’t really affect our way of life very much because our standard of living is based on the income from my day job, not the money I receive from my small business. That includes everything – from our mortgage, living expenses, charitable giving, etc. The additional income I bring in goes to: taxes, retirement investments, additional charitable giving, savings (our long term goal is to upgrade from our two bedroom home to a larger home to accommodate our growing family). I guess we could “keep up with the Joneses” but we have our own financial goals in mind. (even with our extra cash flow our main TV is a 25 inch TV; oh how I want a 40+ inch flat screen!). But some goals are more important than luxuries!
Did I miss anything? I think I covered just about everything that elates to our daily money management, and some of the recurring expenses such as mortgage payments and investing. Feel free to leave a comment or ask questions and I will address it in the comments section or make an addition to this article.