An e-mail with a friend got me thinking about how to prioritize our savings goals. He had mentioned looking into an HSA, but realized he had no emergency fund, so rather than fund an HSA, he worked toward setting up an emergency fund first.
I’m trying to figure out what’s best for our situation. I have a few main categories for which I’d like to proactively save: our emergency fund, our HSA, travel/vacation, and Killian’s preschool tuition for the fall of next year.
Our Emergency Fund
Currently, I only have $200 a month designated to go toward our emergency fund. I’d like to contribute more, obviously, and I’m trying to figure out how to shave budget categories to do so without having an unrealistic budget. It’s an ongoing process.
That said, I figure that we need $4,000 per month for an emergency fund to cover the basics each month - rent, bills, groceries, limited gas, medical expenses (although the HSA should come in handy here), car payment - that kind of thing. At that rate, it would take over four years to save three months worth of emergency fund (we already have half a month saved). That’s ridiculous. I’ve got to figure out how to make that happen faster.
Our HSA
This has been set up, which is a goal we’ve had for months that I am now able to cross off. That’s progress! We’re starting our initial contributions at $250 a month so we can see how it affects our budget. Our regular medical budget is higher than that, but with our expected decrease in take-home pay, I’m hedging my bets for now until I can tweak our budget to accurately reflect our income.
I’ve been trying to figure out how to make adjustments for our HSA and our medical expenses in our budget. I suppose I can just add our HSA to Quicken and that money can technically count as income, even though it will be earmarked, and can then leave the medical budget alone. I’m not quite sure how to factor that yet, but hopefully can figure that out. Eventually, I’d like to see the entire medical budget being put in the HSA, plus some for the unexpected expenses (Hello, hospital bill! I’ve been waiting for you!).
Taking Vacations
One of the things we used the credit card for was for plane tickets to Texas in May for Taylor’s college graduation. Ideally, we should have saved up for that, but we don’t have a vacation category in our budget. I’m at a total loss for how to add one - I don’t have any idea where the money will come from.
We were able to pay off the credit card during the same billing cycle, because I had drained our savings account. Not ideal, I know. As a rule, we don’t carry credit card debt. I chose to buy the tickets when I did because I was able to get a great fare sale and I jumped on it. I’ve somehow managed to keep it this way, despite the number I’ve times I’ve used it because we didn’t have the funds otherwise.
I know some people would say we shouldn’t take a vacation or travel while we don’t have an emergency fund, but I’m not going to wait five years for my family to be able to create vacation memories together. And I’m not going to wait five years and miss important events in the lives of people we love who live halfway across the country, simply because we don’t have saved living expenses - those are the things that life is about, and it’s a priority for us to make those things happen.
Preschool for Killian
We were blessed and privileged to get Mary Judah into a home-based Spanish immersion preschool last year. It was the preschool’s first year as well. She went for one day a week for the better part of this school year, but I pulled her out several weeks ago for a variety of reasons. It’s a community we care about and that has made a huge difference in our lives, and I plan to send Killian there for the 2010-2011 school year when he turns four.
The tuition for this fall is $4,050, so I’m using that as my amount I should expect to save. I’d like to go ahead and start saving for it, even though he won’t go this year, since I know I don’t have the room in our monthly budget for the tuition. If I waited to pay it for during the regular school year, it would come out to over $400 a month, and my education budget is only $150!
If someone can figure out for me how much I need to save each month to pay the last month’s tuition with the monthly savings contribution plus the last of the surplus I should save, that would be awesome. Surely there’s a way to figure that out.
Since Mary Judah is homeschooled, I also have to plan to pay for supplies and curriculum for her as well. I’m not yet sure what I will use for school for her, but I know at least part of the education budget must be used for her school as well. It is also used to for things like her weekly science class, and their swim lessons. We want to provide opportunities for our kids, like sports teams and music lessons, and I would rather go without nice haircuts and continue to wear my hole-ridden jeans than not provide those for my children, so that’s important to us.
Options?
So I know I have the medical budget to cover HSA contributions, and part of the education budget to cover saving for Killian’s preschool, but I need to add a vacation budget, and I’d like to increase emergency fund contributions. I know if I try to do all of these things at the same time, it won’t look like I’m making much progress. I’ve been trying to shave some of our budget categories, especially by saving money on things like groceries and drugstore items, but our categories are realistic and I don’t want to always feel like we’re nickel and dime-ing ourselves to death.
Any time I see posts on how to save money here and there in your budget, I think, “I do pretty much most of that already,” so that’s frustrating. We understand the financial trade-offs of living in San Francisco, and of me staying at home, and of our decision to homeschool, and we’re not planning on moving or me getting a full-time job or of enrolling the kids in public school due to fear over money.
Any suggestions on how to designate funds to our savings goals?
Kristen -
Ryan and I have a budget we revisit annually (or when there is a big change in our incomes/expenses). We just build a spreadsheet in excel, and estimate from top to bottom:
Gross income
Income after 401k/HSA/deductions before taxes
Net income after taxes
The final net income after taxes is what we use to budget expenses for the year. Then we go through our expected fixed expenses:
Savings/Investments (IRA, stocks, etc…)
Charity (Church, non-profit donations)
Housing (Rent/mortgage, utilities, repairs, etc…)
Phone (cell phone bills)
Car (Gas, Fastrak, repairs, etc…)
Medical (this is redundant with the HSA and both of us are covered under our respective jobs)
For you, Kid expenses would prob be another category (tuition, classes, teaching materials)
Then we have two discretionary expense categories:
Big expenses (yearly amount)
Small expenses (weekly amount)
Big expenses are ones that we absolutely plan together for, such as vacations, large purchases like a TV, etc…
Small expenses include everyday spending, including food, toiletries, clothing, random gifts, etc…
We each have a weekly ’small expense’ budget that we split equally between the both of us. It helps to have a ballpark target of what our budget is, and then we have a lot of flexibility on what we spend on - some weeks we might eat out a lot, some weeks we spend a lot on groceries, some weeks I blow a bunch of money at Target, etc… At first I really resisted the idea of having a weekly budget that included food, which I considered a ‘fixed’ expense, but Ryan’s perspective is that a lot of our food decisions are really discretionary - ie. buying the organic strawberries that cost more, or a bag of chips, etc…
For ‘big expenses’ we usually have a conversation when we do our budget for the year on what our priorities are for that year. Usually one priority is one big vacation for the year. Or travel to weddings, etc… We usually lump big dumps of money here too, like our Christmas gift budget, actually pretty much anything that is a large one-time expense.
Ideally all expenses = net income after taxes. We spend a good bit of time discussing where the $ is going, and where we want to be in terms of savings for the next year. We also evaluate the previous year (do our account balances approx match what we projected?)
Whew that was an essay. Hope it helps to get a perspective on what someone else does.
Maybe I’ll copy this over as a blog post!! haha!
I’m with you on the shaving costs part. I’m pretty darn frugal and don’t have cable tv, or lawn service, and only got a cell phone when a friend was able to get it for me for $15 a month. I don’t have a car payment and I don’t have any other debt. But yet it seems like I need to be able to save more. Where do I cut? Start rationing 3 tp squares, turn off the water while I soap and shampoo. get gravel and cacti so I don’t have to water the yard…hey, that last one isn’t a bad idea..
Good luck. I can shave $2 off your monthly budget next time you need Quicken. I get a decent discount.
Justin,
I know! The kids and I all go to swim class at the same time, and I factor the shower we take in the locker room afterwards as one of their baths for the week! Now *that’s* frugal!
There’s this whole couponing movement online, and if you know what you’re doing, you can get a lot of stuff for free and pennies on the dollar. You just have to know how to work the system. I’m trying to figure that out. Who doesn’t like free stuff?
I don’t have a whole lot of advice for you, because you are on the right track already. But I can add a couple of semi-useful things, perhaps.
Something I do when I make purchases is think, “If my husband lost his job, would I regret spending money on this?”
You are already watching your pennies and trying to save wherever you can. Of course there are more ways to save (so we’re both researching this couponing stuff), but it gets to a point where you just can’t save anymore without significantly changing your lifestyle and cutting out things that are really important to you/your family (swim lessons, expensive preschool, homeschooling). The only other option is to find a way to make money. Do you do any photography on the side? I was wondering if that would be something viable you could do on the weekends now and then. Just a thought. I bring in a very small chunk of change by working at my church on Sunday mornings, Sunday nights, and Wednesday nights–times when the kids are either up there with me in their own classes, or they are at home with Scott for Daddy time.
Tiff,
I actually looked for work last month - I applied for about a dozen jobs, trying to find primarily something I could do at night and on the weekends. The only job I heard back from was the post for a wedding photographer for this guy’s daughter, which turned out to be a scam (not to mention really creepy).
I haven’t been doing any photo work on the side. I’ve considered starting a business, and even made some steps toward that process after Killian was born, but it hasn’t seemed like a good time. It would take a lot of energy and time to do that, neither of which I feel like I have at the moment. I would need a lot of tutoring in how to run a business, and I’m pretty slow on learning curves.
There’s a lot of other issues that have kept me from looking for work and getting a job. Perhaps one day when I feel emotionally strong enough, I can write about that.
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