Archives For budgeting

Power and Water Budget
Nearly every household has monthly power and water bills. These are priority bills because if they’re not paid, you don’t have water or electricity!

For the first several years of our marriage, we budgeted monthly for these two bills.

During most of the year, our power and water bills were a little below the monthly budgeted amount and whatever excess was left in that category we’d use to cover any areas where we went over budget or just spend the excess.

Some months, like the middle of winter and the middle of summer, the power bill would be greater than the amount we had budgeted. When the bill was more than we had budgeted, we’d have to scramble, moving money around from other budget categories and occasionally dipping into savings to cover the deficit.

After years of this, it finally dawned on us that by saving the monthly excess during months that our bills were low, we wouldn’t have any stress when we received bills that were higher than what we budget.

We started putting our power and water budget money together and at the end of each month, whatever amount was left rolled over into the next months category. After several months of setting aside the excess, we had a nice sum built up which started to serve as a cushion for the months when the bill is greater than the amount we budget.

Currently, we keep $200 in the power/water category and budget $150 each month. At the beginning of the month, our power/water budget category has $350.

After our power and water bills are paid, whatever is left over $200 is used towards extra principal and we end the month with a $200 balance. If we have to dip into that $200 cushion, we just allow the next couple of months excess build back up until we get back to that $200 excess.

Example:

$200 balance
+ $150 monthly budget amount
________________________________
$350 in power/water budget at the beginning of the month

$25 water bill
– $115 electric bill
________________________________

$210* left after bills are paid

*$10 would go towards an extra principal payment and $200 would remain in the power/water category for the next month.

Carrying an excess in your power/water budget category serves as a mini emergency fund that keeps high bills from causing financial stress.

And, being intentional about wisely using the excess over your minimum amount can help you reach financial goals. You can use any excess towards paying down debt, putting money in your savings account, building up an emergency fund, saving for Christmas, paying extra on your mortgage or whatever goals you’re working towards. (Our big financial goal is to pay off our mortgage in 5 years so our excess in this category goes towards our mortgage principal!)

We have decided to keep a balance of $200 excess because that’s the amount we’re comfortable with but you can choose to keep a minimum balance of $100 or even $50 and probably have a decent amount of cushion built in!

 

Power & Water Budget

5 Year Mortgage Goal

We have decided to share our goal to pay off our mortgage in 5 years for accountability and to encourage others in their personal finances.

You see, we’re a family of 5 living on one income. While my husband makes a comfortable income, we’re not rolling in money. Our monthly budget is comfortable – we don’t feel we’re doing without but we do have to spend carefully and watch where our money goes.

Managing your money wisely helps you financially.

You do not have to have a large income to succeed with personal finances.

Our goal to pay off our mortgage in 5 years seems like it is an unattainable goal for a family living on one modest income. However, there are several factors that make this goal a realistic one for our family.

How does a young family living on a budget think they can pay off their mortgage in just 5 years?

1. We have no other debt.

We both graduated college debt free and we never have had credit card debt or car payments. The lack of these debts allowed us to focus on saving for a house downpayment upon graduation. 

2. We own our vehicles.

We began our marriage driving vehicles that our parents gifted us before college. We saved for years for ‘new’ vehicles and our savings coupled with the money from the sales of our old vehicles allowed us to pay cash. Our ‘new’ vehicles are both older models, I drive a 2004 model minivan and my husband drives a 2002 pickup.

3. We put 20% down on our home.

A 20% downpayment saves us from paying private mortgage insurance. And, the exciting part of a large downpayment meant that we owned 20% of our home the day we moved in!

4. We currently own almost 50% of our home.

Our 20% down payment coupled with regular extra principal payments for 2.5 years plus refinancing to a lower rate has really knocked down principal. We currently have paid almost 50% of the purchase price in the 4 years we’ve lived in our home. We believe we can buckle down and pay the remaining 50% in the next 5 years.

5. We bought a home below our price range.

We qualified for a mortgage amount that was nearly twice the amount of the purchase price of the home we’re in. Instead of buying a house at the top of our mortgage qualification range, we chose to purchase a modest house. Choosing to live in our smaller home frees up money each month to pay towards the principal.

6. We have budgeted extra principal payments.

We reworked our budget when we set this 5 year goal and have budgeted a couple hundred dollars each month to pay towards principal no matter what. Intentionally budgeting money towards the extra principal is playing a huge role in reaching our goal. 

7. We’re sticking to a budget.

We have a written budget and we’re sticking to it!  We’ve budgeted our entire marriage but we’ve had a tendency to cheat. We’ll overspend in certain categories and then move money around from other categories to cover our overspending. While we haven’t gone into debt doing this, we’ve been ‘stealing’ from other areas that could be used to pay extra towards our mortgage at the end of the month. We’re committed that when the money is gone out of the budget category, there will be no more spending.

8. Shopping is no longer a hobby.

Shopping at thrift and bargain stores used to be a hobby. We were finding all kind of great deals and ‘saving money’ on things we ‘needed’. If you stay out of stores, you won’t be tempted to spend! I’m convinced that succeeding financially has a lot to do with controlling consumer spending on smaller purchases.

We believe that paying off our mortgage in 5 years is possible for our family.

This is a stretch goal for us but we think we can reach the goal!

What’s your goal?

Are you trying to pay off your student loans? Finally ready to cut up the credit cards and get them paid off? Are you saving up for a house downpayment?

No matter where you are in your financial journey, the decisions you make today will have an impact on your future.

Set financial goals and work towards them.

Some goals may seem impossible today but with focus, discipline and a little frugality, they can be achieved.

Do you have financial goals?