We’ve never had a budget. If I had to explain our previous financial strategy, it would go something like this:
- Max out 401k and HSA
- Regularly contribute to 529s
- Maintain 3-month cash emergency fund
- Have no debt outside of mortgages
- Buy whatever we want and always put it on a credit card
- Never carry a credit card balance and never miss a payment
- Move lumps of cash into after-tax brokerage accounts when excess cash available
- Use brokerage account for future large purchases or investments
According to our financial planners, we’d be set for retirement by 65 and be able to afford each kid’s tuition (not board) at an in-state, public university. This plan no longer meets our goals, so time for a budget.
This post constitutes our annual budget planning report. We’ll do periodic updates to see how we’re doing.
Hello, You Need a Budget. Regards, 2017.
Author’s Note: Despite this post being published in September, the budgeting process and decisions made took place in March.
2017 started off great for our family, but terrible for our finances. After 6 months of the most hellacious trip planning I’ve ever experienced, we took a week-long trip to Disney World. It was an amazing trip and a place we’ll return. But the happiest place on Earth also happens to be one of the most expensive.
I’ve always passively tracked our income, investments, and spending, but I rarely did anything about it. Then in January 2017, our expenses came in at $15,837, nearly topping our highest spend month the previous year. We followed that up with a $17,864 record-breaking February, exceeding our previous year’s average monthly spend by 50% and setting a two-year record high.
Based on our 2016 effective tax rate, if we maintained this level of spending, we would need to gross $260k annually just to pay for our cost of living. That’s $260k of pre-tax income and not being able to save a single dollar. Not good.
Motivated by the new-to-me Mad Fientist podcast and stories of those on his show, it was time to admit we had a problem.