Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
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This post will be the first in a series of posts over a long period of time giving you a snapshot of my progress towards financial security and (hopefully) financial independence. I hope to show how the principles I’ve highlighted and will highlight in this blog have worked for me and how they can work for you too. If you are one of those people that just want information and not stories, then feel free to skip this post. It won’t hurt my feelings.
The Start of the Journey
As I’ve mentioned I am currently a teacher by profession and I have a wonderful little family. At the start of my journey towards financial security I had just graduated college and accepted a job teaching in a small town in Colorado. My second son was yet unborn (and not even considered yet) and my first son was one year old. We were enjoying life, but there were some strains on our finances that we hadn’t considered.
First, we were gifted a wonderful, used vehicle for our wedding and we were grateful for it. Unfortunately, just at this time of transition the transmission on our car gave out. You may have been there before, knowing that fixing the vehicle was more costly than the whole vehicle itself. We decided to get rid of it and buy a new vehicle (not brand new thank goodness). We were fortunate to get a personal loan from a relative, but now we had a car payment for the first time and just a little bit of room in the budget.
Second, as we started looking for a place to rent in this small town we found nothing. Not a single rental. Granted, we discovered that the problem is people don’t advertise online in our town, but we were convinced that we needed (wanted) to buy a house. Don’t get me wrong, there are a lot of benefits to home ownership and I love it, but it is one of the three biggest money suckers and I didn’t know that yet. So we got a mortgage that we thought we could afford, but the monthly payment was close to 50% of our net income, which we’ve learned from experience is way too high. This increased expense mixed with the car payment put a definite strain on our budget.
Third, our new home needed to be fixed up a bit, so what do good Americans do when they need something but can’t afford it? We financed it (the allure of no money down, low monthly payments). This was an additional expense that we couldn’t yet afford. The problem was that we didn’t know we couldn’t afford it.
The Spark towards Financial Security
The funny thing is that getting into debt is what started me on this journey. What was this magical spark? It was the window salesman that came to our house and mentioned how he was making money living in a four-plex and renting out the other three apartments. I asked him about it and he mentioned biggerpockets.com (not an affiliate, I just really like them). From the beginning I was hooked on real estate, and soon found my passion for personal financial, but I still didn’t get it.
A full year passed by with what little money we had saved left in our bank account dwindling quickly. I couldn’t understand it, I was trying to be conscious of our money and work hard to become financially secure, but it wasn’t working. Why wasn’t it working? Enter the First Step towards having More Money.
Tracking Our Spending
In spite of countless hours listening to podcasts and reading blogs about personal finance, it had never occurred to me to we needed to really track our spending because we “had a budget”. Did we stick to our budget? Nope, but I knew how much we were supposed to spend each month, so wasn’t that enough? It turns out that the answer is no.
After a bit of discussion I convinced my wife to attend a finance support group with me because I thought we need helped in our finances. This was a full year after figuring out that I needed to be better about money–could you be any slower than that? In that group we finally started to track our spending.
This is what we learned tracking our spending. First, we spent more on our categories than we had budgeted for them. Second, while we had enough coming in to cover regular expenses we didn’t have enough coming in for irregular expenses (such as annual insurance, memberships, doctor’s bills, etc.). Third, we didn’t have enough money coming in to meet our needs.
Where We Are Now
I could (and probably will) write a full post about each of the results of these discoveries, but here is the quick version. We had to adjust our budget to reflect what we realistically spent. We then had to put money in savings to cover irregular expenses. Lastly, we needed to make more money or reduce our expenses–we chose to do both.
I’ll get into the changes we made later, but we’ve been operating on this system of tracking our spending for six months now and the results have been dramatic. In sixth months we went from spending more than we earn each month and having a savings account that dropped steadily to spending less than we earn each month and having a slowly increasing savings account. We have about two months of reserves built up and will have at least three months of reserves in place by the end of the summer. We have started investing a bit more in retirement accounts as well as other investment vehicles. I would say we are sixth months from true financial security.
That is a snapshot of our current financial journey. I plan to update you every year to show that progress is not only possible, but inevitable when you follow basic sound financial principles.
Where are you on your financial journey? What has been the effect of tracking your spending on your life? How might you respond differently in my situation? Tell me about it in the comments below.
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Regular Expenses: Expenses that come out of your budget consistently every month. This includes expenses that don’t change like mortgage and car payment, as well as expenses that do change like your food bill and utilities.
Irregular Expenses: Expenses that come out of you budget every other month, semi annually, annually, or unexpectedly. This can include insurance payments, taxes, clothing, doctor’s bills, memberships, etc.
Financial Security: Being in a position to be able to cover expenses in case of emergencies, such as job loss, major medical event, or accidents. The foundation of financial security is an emergency fund. It is NOT having a secure job which is not in your control. What makes you feel financially secure is up to you.