How We Budget & Drop In Expenses
Greg recently did a tweet
We just dropped our operating costs by $1500. We learned a few things, redistributed funds. Trying to get courtney to write a blog post
— A Roaming Life (@ARoamingLife) November 9, 2016
For this to make sense you have to understand a little bit about our finances and budgeting.
Greg and I budget using the “Electronic Envelope System”. The old school version of this was when your Gran & Grandpa used to pull out envelopes and set aside money each week for a big purchase such as washing machine, car, etc.
The modern version of this is using either apps, or in our case, multiple bank accounts. Specifically we use Ally.
I’ve broken our accounts into the following categories.
- Monthly Bills
- Entertainment/Dining Out
- Personal Care
- Home Maintenance
- 6 Month Emergency Fund – Certificate of Deposit
You might be thinking, Whoa – Who needs 8 Bank Accounts? But I assure you, there’s a method behind our madness and it’s not as complicated as it might first appear.
I’ll use a real example…
Our full coverage & full timer insurance on truck and trailer are $1,500/annually. $1,500 in one month would really suck. But over the course of 12 months, we don’t really feel $125/month as much. Plus we get a discount for paying yearly.
Now this is the basic principle behind all budgeting. But how do we not mix the funds between say insurance & medical expenses? What if the truck needs new tires? The money is co-mingled – Maybe even worse, it could be in one lump sum in a checking account, so how do we make sure we saving enough in one category and don’t overspend another?
I could use excel, Mint, or a variety of apps, but I’m lazy. So instead, I just open an account. Throw a nicknamed on them, and each month a lump sum is deposited. If the money is needed, maybe to pay insurance, I easily transfer with a few swipes of my phone into a checking account tied to a debit card.
Drop in Expenses
In the tweet Greg stated that we had dropped our operating expenses. If you have a fairly good understanding of the above system this will make more sense.
At some point of saving for specific accounts I consider them completely funded and will stop depositing money monthly. Remember, this is the lazy version of budgeting – So it’s Goal Achievement Unlocked!
For example with our 6 month emergency fund (which everyone should have) this is our safety net if I lose my job and gives us 6 months of bare bone living expenses + Unemployment = 12 months to find another job. I know our base expenses and saved accordingly, therefore we stopped funding that count awhile ago.
Whereas, our Vehicle Account will never be considered fully funded since we’re always budgeting for insurance and maintenance.
This month we achieved 2 accounts funded:
- Vacation/Gifts – $5,000
- Pet/Medical – $4,000
Up until this month I was budgeting $670/month between these 2 accounts to build them up. I consider them fully funded at this point as our HSA (Health insurance) max out-of-pocket is 4K/annually, George is doing good health wise, and I can’t see us blowing more than 5K on any upcoming vacations. If we end up using funds from either of these accounts then they will need to be re-built, but probably at a slower rate.
But wait… I thought Greg said your costs dropped by $1500/month?
When we originally planned going full time I budgeted $800/month in camping fees. Within the first month Greg got our first Workamping gig and so exchange for him working 20-25 hours a week we stay for free.
We didn’t know if this was something we would continue as the goal was to be mobile every 4-6 weeks. However, we’ve decided this is the pace we like, moving 3-4 times a year. Plus saving up to $800/month means we achieve other financial goals faster. We’ve officially committed to hosting gigs now thru Sept 2017 so I’m taking the camping fees out of the budget for the time being.
$670 + 800 = $1,470 (Ok so he rounded up)