Meeting Your Financial Goals

When we started our site a number of years ago we started by sharing specific, daily tips to help you save in your budget.  At the time, we were in the final stages of paying off our $100K of consumer debt and knew we wanted to eventually provide you the tools and resources we used ourselves to help you with your financial goals.  As time continued, we started to slowly share our Deep in Debt to Debt Free story with the intent of eventually sharing the process we used to pay off our debt.  Over the last year, however, many of you have requested we share the process we used.  We have been building up to it and now it is here – or at least the overall approach that we have used, that we are using, and that we plan to use in meeting our every financial goal.

Our passion is to provide you these resources to help your family with something we didn’t have years ago – a plan that we had to come up with as we tried to dig ourselves out of that seemingly infinite hole of debt.  Our passion is to share what worked for us.  Not one that we picked up from a book but rather one that we developed as a family to work within our family.

This is why we are sharing it with you – because we hope and pray that if it worked for us that it might help others as well!  Our desire is to put this in your hands and then continue giving you the resources you need (e.g., how to cut your grocery/household/everything budget and ideas for earning extra income) to accomplish this.  When we were in the heart of our debt we didn’t have anything like this.  And we didn’t even know it could be done.  That’s really why we started our site when it comes down to it, to help others know that it can be done, that there really is a light at the end of the tunnel when you can’t see it, and try to share those tips with you on how to do it.

But why another plan and why so different?

If you’re wondering the reasons for a different plan (there are so many plans out there), we encourage you to check out our previous articles we wrote in preparation for this one:

• How Our Crash-Diet Budget Crashed Our Budget (Part 1)
• The Financial Controversy: Crash-Diet Mentality vs the Healthy Diet for Establishing Long-Lasting Change (Part 2)
• Time for Some Financial Ground Rules: Every Battle Requires Some Rules of Engagement (Part 3)

At the end of the day, and if we had to put it into one sentence, its that open communication, honesty, accountability, and small, incremental changes towards a holistic lifestyle change will actually give you greater results than the all-or-nothing approach.

Here’s the plan – we like to refer to it as our “2 by 2 plan” as the heart of it is that small 2% each month.  This may sound simple, but this is truly what worked for our family.

1. Track your expenses and earnings over a period of 1-3 months
2. Create your baseline budget based off of reality (the results you found in #1)
3. Decrease spending each month by 2% (“found money” goes into savings/debt)
4. Increase income each month by 2% (“found money” goes into savings/debt)
5. Each subsequent month will be decrease/increase by 2% over the actuals (or reality) of the prior month

Is that too simplistic?  Well, we hope its pretty simple.  Because honestly, if we gave you an overly complicated flow chart (e.g., this government health care flow chart probably requires a more detailed approach than your household budget) you might be tempted to say, “Thank for the information anyway, but no thanks its not for me,” and move on to another plan.

We really did try to keep it simple because as we developed this in the heart of our debt.  It wasn’t something we were trying to develop to later on share on a website.  This wasn’t something we were planning to one day release to the world and hope that it would help others.  No, there were times we would have never imagined we could use the words “Debt Free” and us in the same sentence.  We would have laughed at you had you asked us if we would refer to ourselves one day as The Thrifty Couple.  This plan is what we developed because our family needed something that would work.  Our family needed something we could simply use.

We’ll try to keep it simple here and then in future weeks expand on more of our rationale and even ways that we came up with this plan to help you understand the plan in full.  But hopefully after reading this post, you will have a good high-level view to help you understand how to get started in meeting your own financial goals!

#1. Track your expenses and earnings over a period of 1-3 months
At first, this step might seem overwhelming, but our encouragement to you is to try and get through this part as any effort you expend here will pay off in the long haul.  Depending on your family, you might already have this data from the last few months.  If not, there’s no reason to worry as you can start tracking your expenses and income now.

A few months ago we were sharing this at a conference and we were asked how to break those expenses down.  First, we want to assure you that this can be done and might depend on how your family has been tracking your expenses.  It might be as easy as signing up for a free online tool to track your expenses for a couple of months and let that service break down your spending into categories.  No matter how you track it, the most basic numbers you need is your total incoming (e.g., earnings, income, tips) and outgoing (e.g., spending, bills, transfer to savings).  Its really these two major numbers that you will use for this plan.

But before we write off the importance of knowing any details where your money is going, we would like to emphasize that the more you know will help you understand how best to approach this plan.  You already know your own personality.  Will it be pulling teeth to get you to estimate the amount you spend each month on groceries?  Then that’s a great place to start.  Will you be sitting down and breaking your grocery category into produce, dairy and other subcategories?  That’s awesome.  Either way, we encourage you to break up your spending into categories with the end result of knowing where to best cut later.

We’ll try to share more over the next few weeks, but places you can easily get some of your spending categorized is by checking your bank (some will divide your transactions into categories for you), your credit card company (e.g., American Express and others will give you a nice pie chart showing your categorized spending) and finally a free service like Mint.com that will do the same for all your accounts.  What this will do is at least give you a great starting place for your “baseline spending.”

The earnings portion of this should be much easier for you to track depending on your family situation.  Do you receive a paycheck or two per month?  Do you have tips to include?  Do you have other areas that you receive additional income?  Add it all together and this becomes your “baseline income.”

#2. Create your baseline budget based off of reality (the results you found in #1)
Once you have determined the actual spending and earnings based off the last few months, we encourage you to use that as your “baseline budget”.  This is reality for your family and will be the basis for where you cut next month (your spending) and where you try to add next month (your income).  You can use this Budget Spreadsheet download as a template to help give you a place to start.  We know its much easier to use electronically so will try to develop an even easier version to use in the weeks ahead.

#3. Decrease spending each month by 2% (“found money” goes into savings/debt)
Here’s where our plan becomes drastically different than what you might have seen before.  The goal for next month is not to go through and cut your spending by 75%.  Simply, the goal for next month is to make a small change to get one step closer towards your financial goals.  We’ll remind you again that the situation you are in today probably didn’t happen overnight, so why try to change everything in one month?  Trust us, though it seems small, it will add up to larger differences quickly.  And the motivation and encouragement you gain from seeing your family actually accomplish a smaller goal will help you overcome that inertia resulting from never getting started.  Once that snowball starts moving down the hill, it will become harder to stop – so don’t!

But one thing we want to encourage you in is to try making that 2% decrease in spending as something you can see your family making as a lifetime change.  In other words, instead of trying to cut out those expenses that you know you’ll add back into your budget immediately after meeting your financial goal, consider whether you can find healthier, more wholesome alternatives to help you live better for less.  For example, maybe you want to cut back on your grocery budget and want take a few more minutes in your day to invest the time to make it work.  That is definitely something you can see yourself easily implementing, even continuing after you meet this financial goal.  Can you see yourself cutting out a daily coffee out, possibly finding new ways to save on a date with your spouse or new and creative ways to have fun with the whole family?  Just making small changes like these will help you reach your 2% reduction quickly while helping your family not feel like you are cutting out 75% of your budget while sitting home and pouting.  Perhaps after evaluating your spending with your budget tracking, you have realized some reckless spending that will be really easy to cut to get you to that 2% goal that first month.  One our our goals is to provide you with creative tips and solutions you can easily implement to help you save on things you are already doing or giving you cheaper options while still having fun together as a family!

#4. Increase income each month by 2% (“found money” goes into savings/debt)
You might wonder why we inserted this next part to our process.  Well, first its because we found that combining the small savings with the small amount of additional income add up really quickly.  You can see the math below, but if your income was approximately $3,500 and your expenses were about $3,000 and you applied this plan, the very first month you will give an additional $130 more than you would have had without this plan.  And if you look at that math, when you intentionally take that $500 you would have had anyway, that gives you a total of $630 to throw at your debt or savings just for that first month!

But before we get ahead of ourselves, we want to really focus on why you continue to increase your income.  We heard a very wise man at a conference state a seemingly obvious fact just a couple of years ago.  He stated that the true definition of building wealth is making sure that your expenses are less than your income.  That sounds simple, doesn’t it?  We’re not trying to give you a “get rich quick” tip here, but when you can add to your income while dropping your expenses, you’ll see just how quickly that adds up to more left over – meaning more to pay off debt or add to your savings, which really means getting closer to achieving your financial goals and ultimately your overall goals that you have for your family and even future generations.  We’re learning more every day just how much of a tool that money can be – whether its for being able to give more or having more at your disposal to reach the goals you have set out for your family.  Its just a fact that tool is really important no matter how much we want to deny it.

We are continuing to build not only our list of over 100 ways to earn extra income, but also continue expanding each one to share tips to help your family.  We are not assuming that you will just go get another job to earn an hourly rate, but rather find creative ways to work together as a family to accomplish this part of the process.  We will never forget when we started delivering newspapers with our baby girl in the back seat of our car.  We remember delivering phone books and then becoming even more creative in how we used our skills to continue increasing our income.  And that income went towards a good chuck of paying off our $100K of consumer debt.  But what we continue to want you to hear and understand is that first paycheck from delivering newspapers didn’t even come close to cutting into our debt significantly.  But each month, as that amount grew in combination with our cuts in our spending, it did quickly add up over time.

#5. Each subsequent month will be decreased/increased by 2% over the reality of the prior month
Another significant difference you’ll find in our plan is that we understand this is a learning process and the reality that things are not always going to go to plan.  With that, the next step will be to decrease your spending by 2% compared to your actual spending from the prior month.  Each month will be an incremental change over what really happened the month before.  What this does is encourage you to keep going.  When you experience a bad month and couldn’t quite meet your 2% goal the month before, the last thing you need to do is make next month’s goal that much more impossible to meet.  Each month you are attempting to be a bit better than the reality of the month before – the real month before – not the planned or goal month.

Do you see how this can become an encouragement to you and your family?  You are not trying to compound failure upon failure, but instead setting each month up as its own micro-goal.  If you meet your expected goal amounts, then great!  If you don’t, try again next month – but as an achievable goal, not trying to make up lost ground from the month before on top of more.

This doesn’t just apply to your spending, but towards setting your goals for your extra income as well!  We were asked a few months ago about what you do if you don’t earn an extra 2%, but you earn 4-5 times that much.  Well, first of all our response was to rejoice at the blessing of the additional income that month and then to set your goal as 2% more on top of that – that’s a good problem to have.   And likewise, if you can’t quite make an additional 2% more on any given month, then find out where you were at and then try to add on top of it next month.

Let’s check out an example:

Let’s follow each step through this process of a family that used this approach.  To help you understand, we’ll just follow each of the points in the process.

1. Track your expenses and earnings over a period of 1-3 months – This family actually had their data in their bank and credit card statements, making it easy for them to gather this type of data.
2. Create your baseline budget based off of reality (the results you found in #1) – This family established their total income for their “baseline month” as $3,500 and their total expenses as $3,000.  This is a good place to start as the income does exceed the expenses.
3. Decrease spending each month by 2% (“found money” goes into savings/debt) – You see that the 2% decrease in spending worked out to be $2,940 – a total of $60 needed to cut out of their budget.  We always encourage looking at your grocery bill (its great to look at the expenses you used to find the totals in #1 as it really gives you great visibility into what you can cut).  And although they tried, the first month was a little tough and their expenses actually increased by $17.  That’s ok – all is not lost!
4. Increase income each month by 2% (“found money” goes into savings/debt) – The family planned to increase their budget by 2% just by offering to clean houses for their friends and family members.  But what was awesome is instead of a planned $70 additional income necessary, they exceeded their first month of income by $50 for a total of $120 of extra income – great job!
5. Each subsequent month will be decreased/increased by 2% over the actuals (or reality) of the prior month – Here’s the beauty of this plan.  Although this family didn’t quite meet their expenses, after decreasing spending by 2% of the actuals of the prior month, you note the second month of spending is still less than the baseline.  Or to put it another way, progress is being made but the family is not stressing over it.  And in the end, this family actually had $163 more the first month to place towards their goal (debt in this case) with the planned goal of an extra $294.54 the second month as compared to the base month.

We hope you can see the value of working through this plan.  We can only state that it was the instrumental plan that we used in paying off over $100K in consumer debt and that we use it even today in working towards our financial goals.  Obviously as time goes on there will be a limit to how much you can cut from your spending as there will be a budget-decreasing ceiling, meaning you can’t forever cut 2% out of your budget – you will eventually hit your rock-bottom budget and you will know as a family when you hit that. On the other hand, there doesn’t necessarily need to be a 2% income-increasing ceiling as there can always be more ideas on how to generate that income – just be creative with your family.

Our encouragement is to work through this together and establishing long-term spending habits that you can maintain.   We encourage you to even look towards long-term income strategies that you might be able to turn into a more permanent form of income.  But we especially hope you see that the upfront, incremental, small change can turn into some significant change later.

We will continue to work through giving you more tips in the weeks and months to come but want to hear from you.  This is really the first time we’ve mentioned this on our site and we would love to get your feedback.  Do you have questions on any information you would like us to expand on?  What other information can we help provide to make it even more useful for your family?  We hope you hear our passion behind this and know that one reason we love it so much is because we know what it did for our family.  We only hope and pray that it can be of use to yours.

Photo Credit: House.gov for the health care spending plan flow chart

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We are just a week away from sharing the heart of our plan for reaching your financial goals, whether its trying to get out of your consumer debt, pay off your home, reach that savings goal that you’ve been working on, or essentially attain most every financial goal you might have!  In the first post we shared why that crash-diet financial plan just didn’t work for us.  And last week we shared more about why the plan we used to pay off over $100K in consumer debt demands a more holistic approach to paying off your debt.  We are trying to teach others how to manage their finances by just being wise, good stewards of their finances.

Before we share the details behind the plan we used (and still use today), we wanted to remind you of some additional ground rules.  We already warned you about remembering you are in this for the long haul and that this is a learning process and that things just won’t go to plan.  With those we thought we would remind you of a few more and encourage you to come back and remind yourself of these from time to time.  There are too many to remember and when you’re in the midst of that actual plan it can become easy to forget some of these – especially the ones that might be a bit more painful than the others. And finally, while you may be looking for an order to these, we’re not going to promise that the first few are more important than the others. Each and every family and situation is different. You’ll know which ones are more important (especially after you see the why in them) and which ones you are trying to rationalize because you don’t want to do it. Sure, you may find it odd that we just said that, but honesty is important here.

Don’t get into any more debt
We know what you’re thinking.  We’re out of our minds.  Do we really need to specify that not getting into any more debt is a ground rule for working through our process?  Well, with that being asked, the answer is yes.  First, we really do emphasize that the process we’ll be sharing next week can help you achieve most of your financial goals whether you are in debt or not.  But according to an article on the NY Times, they state 83.5 percent of families headed by persons under the age of 35 were in debt.  This tells us that many that read this may be in the same boat.

If you’ve been reading through our Deep in Debt to Debt Free series, you know how addicted we were to spending – and just as much how addicted we were to debt.  It fueled us.  We loved buying and stocking our new house with furniture sets, loved driving those newer cars, loved the lifestyle that our debt could buy.  And stopping that was hard.  And it began by deciding we wouldn’t go into debt for anything else.  Even that item…on sale…in the store down the road…that we just had to have.  We needed to stop.

Be intentional
We have shared that being intentional with what you do is probably one of the greatest tips we can give.  And with that we won’t expound on it much more.  You already know that setting your mind on a goal and then having it in mind with every decision you make will help you get closer to achieving it.  When you’re trying to cut a few pounds, you don’t just mindlessly graze on the snack jar next to your chair – you intentionally consider how that and every decision you make will help you towards your final goal.  Its the same whether its your budget, your spending, earning extra income or any other decision you are working on.  If you have your end goal in mind and decide the next step based on that goal, you will have a much higher success rate.

Agree and resolve to communicate honestly and openly in regards to finances and goals.
This truly is a big step in working through not only the process we’ll be sharing, but any process you implement in regards to your finances.  We shared this with you earlier this year when we encouraged you to set your financial goals for the year.  When you not only involve the whole family, but agree as a whole to communicate honestly and openly about the finances, you’ll find this process much easier.  And not only that, but you’ll also see your children learning some deep wisdom about financial matters.  Whether they are learning about the evils of debt or about the hard work it takes to reach your financial goal, this will be a great opportunity to train your children.  No, we are not suggesting you cause them to worry.  You know your children and situation.  But we have seen the other side of children not being prepared to manage their finances when they are adults because so much was hidden when they were young.

Communication with close friends and family
You may be wondering why this is one of the ground rules we set.  But it makes sense when you consider it.  Does your family love to go on trips with extended family?  Do your friends like to eat out on a regular basis?  If you share with those who are close to you that you are working through reaching some financial goals, hopefully those loved ones will understand, respect what you are doing and minimize presenting you with temptation.   Even sharing with family that you may be cutting down on gifts for holidays will help prevent you from going overboard in your spending.  There are just too many ways to share how this can help you reach your goals, but hopefully you can start to understand why we list this amongst our ground rules.

Agreeing on a regular meeting time and sticking to it (daily, weekly, monthly, etc)
This really goes hand in hand with being intentional.  Sure you can set a goal to meet on a regular basis to discuss your status, but we have found that unless you have an actual time scheduled, its easy for that meeting time to become the lowest priority of the day.  Do you live in so much chaos that a specific time isn’t available?  Then possibly agree that you’ll meet during a certain meal or that right after will become that time.  Making sure to meet, to communicate and work through your goals and status to ensure you stay on track will help keep you and your family on the same page as you work through this process.

Keep each other accountable by setting a spending threshold
As we said before, not only did we use our process as a way to pay down our $100K of consumer debt, we still use it today.  And yes, we still abide by this rule as well.  This honestly is a handy rule we found to help us work through our debt and spending.  What we mean is that you define a certain amount (it will depend on your family, of course) that you won’t spend above unless you consult your spouse or parent.  For example, when we were deep in the heart of paying off our debt, our threshold was $5 (yes, that low), but today its higher at $25.  What this does is helps prevent you from making a brash purchase with the end result of negatively impacting your budget.  It also helps you be intentional in your spending.

After setting your large goal, make sure to achieve very achievable small goals
Back in the day, when employees had to define their annual goals, we were instructed to make them S.M.A.R.T.  As you have probably seen before, the goals were to be S – specific, M – measurable, A – attainable, R – realistic, and T – time-bound.  And honestly, this ground rule is really short-hand for making your goals S.MA.R.T.  If you don’t make your goals attainable or realistic (by breaking them down into smaller goals), you’re just going to get frustrated too soon.  Take that goal of paying down that debt into smaller chunks.  Can you instead break them up by creditor?  Or even take that lofty savings goal and break it down into chunks that you can actually see progress.  We have found that making your goals smaller will truly help motivate you – meaning a higher success rate and increasing your motivation (and speed in reaching those goals) in the future.

Agree to stop old attitude and old spending habits
Seriously, if you think about it you know why you are in the situation you are in.  You can probably list out pretty quickly those temptations, those craving, and ways you’ve spent to get where you are at.  And although we are going to encourage you to take small steps towards achieving your financial goals, you also know you can’t fully get there without changing many of those attitudes and spending habits.  We shared about our covetousness, our greed, and denial (lack of honesty) that landed us into our $100K of consumer debt.  And we shared about our repentance because of that as well.  We’ve learned that there are true changes that will need to occur and that you need to remember this as one of the ground rules – or else you may never see a true change and find success in reaching your financial goals.

Agree and understand that there will be sacrifices made, but it will be for an ultimate end goal in mind
As you work through this process we will continue to try to provide those resources to make changes that will last for a lifetime.  But there will be changes, especially as you start seeing success in meeting your initial goals, that may only be temporary.  Possibly your family will set a goal to not spend as much on clothing or gifts as you work together in achieving your goals, and know that you won’t always have to have that rule in place.  Those are the types of sacrifices we are talking about.  When your whole family can agree to sacrifice something (not just one person in the family) with the common goal of achieving your financial goals, you’ll be that much closer to successfully achieving those goals.

Family committing to sticking to the budget
We mentioned this before but wanted to state it again.  Including your whole family in the process will not only teach good stewardship, but help prevent one family member from blowing the budget and failing all your effort in meeting your financial goals.

Setting the rules and set clear goals with spending
Make sure to set those rules clearly at the first.  You’ve heard your children make those excuses before, “But mommy/daddy, you didn’t say X”.  Setting the rules upfront and making your goals clear (specific to borrow from the S.M.A.R.T. principles) will prevent you from hearing one of those excuses later.  And it might even prevent you from making one of those excuses as well.

Consider the consequences of messing up the budget
As you consider how exciting you will be to meet your goals, make sure to discuss with everyone in your family the consequences of not reaching your budget.  No, we don’t mean setting up a guilt trip or trying to manage by fear.  But it can be good to understand not only the why of reaching your goals but also what you are trying to avoid.  We remember the misery, the sense of not seeing the light at the end of the tunnel when we were in so much debt.  But not only then, we also realize today that if we don’t work together intentionally, that all the work we’ve invested to this point could be lost.  Obviously, this one will be different according to your family and situation, but its sometimes just as important to know what you are avoiding as well as to know why you want to reach your goal so badly.

Wrapping it all up…

As we originally stated, we know this is too much to take in all at once.  Sure, many of these tips might be obvious, especially when you understand them.  But we’ve found that often the most useful tips are ones you already knew.  Its just a matter of intentionally applying them to your situation and working altogether as a whole family.

As you develop your family economy, you’ll see just how important each of these tips can be to help you stay on track.  We encourage you to consider each one as you work together on your family’s financial goals.  And we would definitely love to hear from you what other goals we might have missed that you have found useful as well!

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