Percentages vs. Snowballing

I mainly like to read blogs written by family and friends. Even though I love to cook, I never really have become a huge fan of foodie blogs. However, there is one lifestyle blog that I love: Frugal Wife=Wealthy Life

Inspired by that blog and the fact that I wanted journal the past few months of our experience for my children is the purpose of this post.

Last October Ken's medium-sized start-up was acquired by Hewlett Packard. With that we received about 1/3 of our stock options immediately including the huge tax burden that goes with it. A few months before the acquisition they terminated our 401k plan so we were unable to contribute for the last half of the year. It was highly frustrating because we count on being able to max out our retirement contributions to keep our tax bill lower. It worked out fine in the end because starting November 1st Ken was on HP's payroll that let us contribute up to 50% of his salary each paycheck. We totally took advantage of maxing out his retirement plus paying as much as we could in federal taxes to lower how much we would have to pay when we file in April.

That being said, the two most expensive months out of the year we lived off just a little more then 1/4 of his salary! It was 26.7% of his salary to be exact. The only time we took $$$ out of our savings was to pay for our airplane tickets and house rental in Cancun. All of our spending $$$ for our vacation, Christmas presents, and regular living expenses for those two months came out of this 26.7%.

Oh my goodness it was so sad. Seriously, like so sad. November and December Ken was taking home just a little bit more than his first job when we were married. A time that we remember vividly; we only had one car, rented a tiny apartment, and money always felt super tight. Flash forward to 13 years later and it felt uncomfortable but not super difficult.

How was a family of six able to live off of 26.7% of their monthly salary??? Or in other words what some people think is a comfortable house payment. I think the short answer is because our house payment is only like 10% of his salary.

That two month experience led me to re-think how we have been doing our budget. For the past while, like 7+ years, we had been doing a percentage based budget.
Here is how it broke out:
60% for Mandatory Living Expenses. Things like mortgage payments, tithing, utilities, food, etc. (including all payroll taxes and medical insurance).
10% for 401K
10% for Short Term Savings. This is birthdays, holidays, life insurance policies, etc. Basically infrequent things we know we will pay for sometime during the year.
10% for Long Term Saving. This is stuff like a new roof, new car, something major we will have to buy at some time like 5 years down the road.
10% for Fun. Honestly, for us that means vacations and dates.

The pros of this budget are that it keeps our living expenses in check. But what I discovered from the two months at 26.7% was that we could live way leaner then we have been. Also, I have always struggled with saving the Long Term Savings because our Short Term expenses would pop up like crazy. Like needing new tires (poof!) goes $600, your kids wants to play band (poof!) another $600, a guy rear ends you without insurance and even though you have specific coverage for that, you still have to pay your deductible and when the insurance gets payment from the guy they will refund you and so it goes...(poof, poof, poof!) BUT, since we had budgeted that 10% for vacations by golly we needed to spend it all. You don't want to just lose out on money like that!

Anyway, we decided to switch from a percentage based budget to what we are calling snowballing. A term I have heard from some financial guru I can't remember who. In effect, Ken and I have decided to spend nothing extra, and work towards about 12 financial goals for this year. Some require us to save as little as $500 for a specific purpose, others up to $2,500. Every little bit of money (other than retirement) is going towards our goals. We also wrote a list of about 5 exceptions from us spending the absolute minimum. Things like Darin's 12th Birthday and Rose's 5th Birthday, decorating 2 kids bedrooms in our house, shelving units for our garage, and only ONE vacation this year (Yes, I just said one, which will probably make me die!). All of our kids will get parties, because we believe in doing that for our children each and every year. But Darin and Rose have special birthdays this year and we will do more than a minimal amount. I think it's okay to teach your kids to be frugal, but to sacrifice special hallmark events in their lives when you can afford to do more is just being stingy.

It's been two months and here is how we have done:
*Paid off $1,100 we spent on our Credit Card in Cancun, this was our hotel bill because we had to charge it to get the hotel deal. And includes the international roaming fees we had to pay for my phone.
*Paid-off $4,300 in medical bills! Nathan and I had major expenses from the last two months of last year and the final tally for the bills started coming in January. And then of course 3 of us already maxed our $500 deductible for this year.
*I was able to pay $1,200 for me and the girls to attend my Grandfather's Funeral.
*We have saved $3,400 for the remainder of our tax bill. I still have $300 I need to save by April 18th.
*I've had many internal struggles going grocery shopping. Like what's considered minimum there? Not much has really changed with my shopping because I'm weak. But I've been trying to make sure we eat every single leftover. We also haven't eaten fast food except for a special occasion. The other night for our date night we had a Jack in the Box Milkshake and it felt like I died and went to Heaven!

It's mainly been a wash towards our goals these first two months because as you can see we have had major things to pay-off just to get to a good starting place. Which we kind of figured. Actually, we thought it would take us until April to get all the medical bills and taxes paid off. So we are in a lot better shape than we had hoped for. Which led us to...go on vacation!!!?

This does not count towards the ONE vacation for the year. This was just too good of an opportunity to pass up. Ken needed to be in California for an Engineering Retreat the week before Spring Break. He told his boss he was thinking of staying for the week after that too. His boss seemed happy about that and approved his expenses so we pulled the boys out of school for a week. We decided to drive since that was the cheapest option. The amount Ken's work would have spent on his plane ticket and rental car for two weeks is just a little more than the amount of money we will spend on gas. Of course they reimburse for the hotel, and all of Ken's food. But I have brought my trusty little electric fondue pot to whip up easy dinners like chili and chips, top raman, mac and cheese, fajitas, spaghettis, etc. in the hotel. We are staying at Embassy Suites which has by far the best free breakfast EVER! And it's sandwiches and chips for lunch everyday.

The kids and I are buying city passes and Bart Cards to get us into the Exploratorium, California Academy of Science, Alcatraz, SF MOMA, an Aquarium, China Town, and of course Ghirardelli Square. All of this fun for a grand total of $250. Seriously, did anyone else know that if you buy your kids a BART card at a Safeway they ride for 65% less then the regular fare??? That's a big deal! We have huge plans and great things we are going to see and do. And our children have been well-versed in why instead of stopping at McD's for lunch we are stopped at rest areas. Our goal is to only spend $20 a day on incidentals, treats, or souvenirs. Making our two week vacation a grand total of $500!!!