Paying-Off Debt II – Our Money Organization Strategies

In my third post, “Paying-Off Debt – Which Strategy Works Best,” I outline the various options for paying-off debt. Well, Mrs. Broke Architect asked me to add a little more meat to the bones of paying-off debt. So, for this post I will discuss the money organization strategies we used in the Broke Architect’s home during and after our debt pay-off periods. I have broken this discussion into four part:

  • Planning – General overview of how we handle money in our home
  • Banking – Setup of our various bank accounts
  • Saving and Investing – How we save and invest
  • Shopping – Our clothes shopping habits

Planning

Ms. Broke Architect and I decided many years ago to run our finance like a business. There is no CEO; we have a two-person board of directors. Both of us have veto power and we both must mutually agree on all purchases over $50. This amount may seem low but it forces us to communicate about our spending habits.

Once a year we have our board of director’s meeting to review and revise our family’s strategic plan. Our strategic plan contains the goals and budget we set the previous year. During the meeting, we review this information and outline our new goals and yearly budget for the upcoming year. Additionally, we review the previous year’s spending and compare it to the previous years’ goals to see if our spending and our stated goals were aligned.

Lastly, while reviewing and setting our budget we look for ways to reduce expenses and increase our profits. One year after one of these meetings, Mrs. Broke Architect called the cable company and got our bill reduced by $100. The follow year, we cut the cable cord and signed up for a television streaming service, which reduced our cost by another $100.

To some of our friends, the yearly strategic planning meeting seems a little extreme but this process has help us stay focused and achieve many of our financial goals.

Banking

Just before getting married, Mrs. Broke Architect and I had a difficult conversation about how to set up our banking system. I wanted a five accounts system:

  • Family Checking Account
    • All joint bills would be paid from this account
  • Checking and Savings Accounts for Mrs. Broke Architect
  • Checking and Savings Account for the Broke Architect

My reasoning for this system was to ensure that Mrs. Broke Architect would always have her own money. This was something my mother taught me. She was adamant that a woman should always have her own money and not depend on a man.

Mrs. Broke Architect wanted to have combine finances. Her system consisted of just two accounts, very simple:

  • Family Checking Account
    • All joint bills would be paid from this account
  • Family Savings Account

The system we settled on was the combined finances option. Over time we have modified the system to have two joint checking accounts. The second checking account is for our emergency fund. This system has worked out well for us. Additionally, it has forced me to grow up regarding how I handle money. This requires us to be open and honest about personal goals and desires on all matters because money touches so many parts of our lives.

Saving and Investing

  • During Debt Pay down
    • While paying down our debt we had an emergency fund saving of $1,000 and invested the minimum amount required to receive the employer match in our 401k retirement savings. This approach allowed us to focus our monies to paying down debt, while allowing us to continue to save and invest.
  • Post Debt Pay down
    • After we paid off the debt, we changed our investing and savings habits. We increased our emergency fund to six months of our household expenses. This included each of the following times six:
      • Mortgage Payment
      • Average Monthly Electric Bill
      • Average Monthly Gas Bill (home heating)
      • Average Monthly Gas Bill (vehicle fuel)
      • Average Monthly Water Bill
      • Average Monthly Sewer Bill
      • Average Monthly Cell Phone Bill
      • Monthly Home Security Bill
      • Monthly Grocery Bill
    • There were items that we did not include on this list. Items such as the cable bill and home phone bill (which have both been cut in the past two years). We felt that if shit hit the fan and we needed to use our emergency fund, we would cancel cable and cut off our home phone service.
    • Regarding investing, we increased our 401k contribution amount to the maximum amount allowed but law, $18,000 per year. During the yearly strategic planning meeting we review our investments and savings to ensure we are making progress towards hitting our retirement goal.

Shopping

  • During Debt Pay down
    • During our initial debt payoff period, we decided to forgo the purchase of clothing while paying down debt. This sounded like I great idea, until we got about 18 months into the system and our clothing began to look very worn. We needed a plan to address this issue. So, we agreed to do a little shopping on the day after Christmas. We were not ready for the 50% to 75% off sales. Our dollars went much further than we ever expected. We replaced about 65% of the clothing and shoes we owned. This was such a great lesson on when and how to shop for clothing.
  • Post Debt Pay down
    • Due to our great experience with the day after Christmas shopping we still shop on this day. We are considering adding the back to school shopping season to the list of possible days to shop. This will allow us to pick up summer apparel at a deeply discounted price. So, for the most part if we need to shop for clothing we only shop on the days when items are deeply discounted.
    • This method of shopping has allowed us to save countless dollars. Additionally, we have also improved the quality of the clothing we now purchase.

I hope this information helps you on your path to becoming debt free. If you should have any questions regarding any particular part of our system, pleased leave a comment or email me.

Remember without sacrifice there is no growth.

The Broke Architect

(-$45,000 negative)

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