A friend frustratingly shared how she is already short on her monthly home budget plan for the month. It was not even half of month when she shared her frustration. I asked her what her expenses were these past few weeks besides the usual and basic family expenses (groceries & bills). She mentioned, Mother’s Day food orders, food deliveries and some “harmless” online shopping.
I will not lie, it’s good to spend money on things you like, people you love and whatever makes you & your family happy. But I always encourage family and friends who manages home finances to separate your funds if you want peace of mind and avoid conflict. It is already a headache to ask yourself “Where did our money go?” and even more frustrating when you get asked by your spouse that.
On our first few months of marriage, to be honest, was the most loose we were with our finances. And because of of that, husband and I are afraid that we will fall trap of our own “overspending”. We set up our finances that allows us use our money without the fear of losing it all to overspending – somewhat, a way to protect our money from us. Here is how we we manage our income:
Salary – Tithes – Home Fund – Savings – Investments = Allowance
When our our salaries come through in our personal savings accounts, we both divide and transfer our funds into different accounts based on expense needs and priority. Both my husband & I does this separately when our income comes in and have a system in place where we log any incoming transactions (except for Home Fund).
Tithes or tithing is not usually practiced by everyone. On our case we give back to the church to support the activities they do help others in need. This is our way of acknowledging that our work and the income we get from it is a blessing in itself already. This is 10-15% of the net income that comes through and usually the first one done before the rest of the funds is moved around.
Home Fund is basically what we call the monthly budget we need for the house. It covers everything we need to keep the home running. Should you ask my husband or I how much we need to survive each month, we have a fixed amount for this. It is also fixed monthly budget that both of us can afford should one losses their job and covers from basic groceries items to monthly bills for the home. This Home Fund has its own separate bank account where both husband & I have ATMs to. This allows us to access the funds should anyone of us needs to run an errand on their own. Separating our Home Fund allowed us to be mindful of what to purchase because everything else is budgeted and stops us from using other funds when we overbudget on items for the home
Any excess money from it we Forced Save. It is a method we learned from one of Randell Tiongson’s books. We forcibly save an amount that has no intended purpose. For example, we had an initial budget of 2999PHP for internet but we downgraded to 1899PHP when we moved home. Each month we set aside 1,100PHP and move it to our savings accounts. This way we don’t “accidentally” spend it on something else.
Savings is intentionally putting aside money for emergency, retirement, family projects, etc. Depending on the priority, we either raise a fund in one go (like Emergency Fund when we were raising it) or we divide according the how much we are aiming for.
All savings accounts we have has intended purposes: funds for travel, retirement, our future child/children, or future house, etc. And because the accounts already have a purpose we perceive money set aside as not ours anymore – but for travel, retirement, future kids, house, etc. This perception stops us from taking money from these accounts because it is not ours to use. For example: when we don’t have enough money raised for travel, we don’t allow ourselves to use the funds from our future children savings – that would be unfair for the future kids, right? We have to raise the travel funds first before traveling then should that scenario happen.
When you do find yourself having extra funds that you can allot for investment, it is highly encourage you do so. We set aside extra money for investments that includes the setting up funds for retirement plans, stocks and other investment options we are doing. Investment funds are supposedly okay for you to lose funds. Most investments have holding periods and with no assurance that you can get the money you initially invested (depending on your risk profile, ofcourse). Hence why it is not smart to use the money for emergencies, groceries or to pay your kids tuition for investments.
While investing and letting your money work for you is good, this only follows Savings in priority. For example, if we need to finish raising our Emergency Funds, some investment funds will have to be sacrificed since investment comes only second to basic needs and savings.
Allowance is the only money we allow ourselves to spend anything on we like and for the people we love. This is where we got money to spend when we go on dates, food delivery orders, online shopping or other non-necessity spending.
This is the only amount that we can spend on anything without worrying if we still have money to pay the bills or buy groceries from.
The allowance also gives us the flexibility and freedom to purchase what we want outside of our budget. Because we allow ourselves to have extra money for spending, we don’t get that feeling of not being able to enjoy the money we are worked for. And because this fund is separated from the rest of our funds, we can go all out and spend our allowance down to the last peso every month and not worry that we have touched other budgets we have.
The idea of separating your funds according to your needs
forces you to use it for its purpose and to stops you from thinking
“I still have money to spend” even when you may have
already overspent on your budget.
Separating your income can be too much to manage having lots of accounts to go through. But it gives you a visual representation on your financial status and stops you for overspending.
There are a lot of financial products that allows you to open e-accounts within your existing bank account, so you can have one account to login and check every time. This way you do not have to worry about maintaining fees or having a lot of bank accounts to manage. You can also do it in an envelope system. Envelop system is withdrawing money you need for the whole month and separating it in labeled envelops according to the needs.
However you do it, at the end of the day, it is more of securing your family’s needs smartly and efficiently.