The Conflict-Free Family Budget: Your Turn
In creating the Conflict-Free Family Budget, I was striving to accomplish two separate but interlinked goals: reduce spending and reduce conflicts. I think these work best in tandem, but that’s not to say that you wouldn’t derive some benefit by implementing just one or the other. I’ll try to tease them apart here for that purpose.
Goal: Reduce Spending
Below are the five most important pieces for the frugality goal, followed by some additional tips for each:
- start from one income
- redefine Needs vs Wants
- calculate Need expenses
- prioritize Savings
- take Wants out of the leftovers
Start from one income
As I mentioned, Jak and I have averaged one paycheck between us for more than three years, so it only makes sense that we budgeted from a single net income. However, if you’d like to implement this yourself and your family currently has two incomes, I recommend you still run the numbers with just one.
The reasons why would make a whole separate post — one which I will definitely come back to later — but for now, the basic idea is safety in uncertain times. If you can manage to treat that second income as optional rather than necessary, you’re dramatically improving your ability to cope with large economic disasters. If you absolutely cannot make it work with one person’s paycheck, then get as close as you can for now … and then look for ways to change your basic situation so that one is enough.
Redefine Needs vs Wants
I suspect that some people may balk at the slightly radical idea of putting items like housewares and furniture and clothing under Wants rather than Needs. Because I mean, we need something to eat food from and something to sleep on. Plus I’ve been told nakedness is frowned upon in polite society.
It’s also a fair point that our family went into this system pretty well-stocked already. We aren’t building a household from scratch, just replacing things that get worn out or break, or adding things that we like better than what we already have. However, I don’t think this invalidates the principle, for two reasons.
One, most people reading this will, like us, already have the bare minimum of necessary clothing and housewares (in fact, given the emphasis on consumerism in American society today, I’d wager nearly everyone will have a great deal more than they actually need — we certainly did).
Two, even if you are just starting out — say, leaving your parents’ home for the first time, or establishing a new household after a breakup or divorce — placing things like ‘housewares’ and ‘furniture’ in the Wants budget rather than the Needs budget will help you avoid the trap of overspending on items before you can afford them. A few plates and bowls are a reasonable necessity, yes, but you can get them for fifty cents apiece at Goodwill or a yard sale. Need something for visitors to sit on? Pick up that ugly-but-comfy-and-free couch off Craigslist for now. Then save some of your discretionary dollars each month until you can afford to upgrade to the 40-piece matching dinnerware or the leather loveseat … if you still want them.
Calculate Need expenses
Most of the expense calculations are straightforward, but I wanted to touch specifically on two things.
First, debt. We ignored debt in our calculations because (aside from the mortgage) we don’t have any. But if your household is carrying consumer debt, you’ll need to add minimum payments into your Needs budget.
Second, the Grocery budget. After housing, food will (or should) be the single biggest expense category for most people.
It also has vastly more decision points than any other type of expense, which makes it a very elastic category. Hand two people a grocery list of basic items, and depending upon which store(s) they choose to go to and which exact products they choose to buy, the cost could differ by a factor of four.
With such wide variations, you might wonder how you determine what is a reasonable amount to spend. I certainly did. Turns out the US Government has us covered.
The USDA offers four levels of ‘Food Plan’, designated (from least to most expensive): ‘Thrifty’, ‘Low-Cost’, ‘Moderate-Cost’, and ‘Liberal’. The Thrifty Plan is used to calculate food stamp (SNAP) allotments; the Low-Cost Plan is used by bankruptcy courts to allocate food expenses. (The Liberal Plan — which clocks in at roughly double the expense of the Thrifty Plan — affects the meal allowance for military personnel, and any of the plans may be used by courts in cases of alimony, child support, or foster care.)
In our case, once Michaela moved out in September, our household consists of one 19-50yo female, one 19-50yo male, and one 12-13yo female (half-time). The Thrifty Food Plan for our household (using June 2011 numbers and taking half the allotment for Claire) adds up to $443 per month. Mind you, that’s meant to cover food alone — no soap, no toothpaste, no toilet paper. I also checked the cost of living in Seattle against the national average; food in Seattle is 10% more expensive, which brings us up to $487.
Now, though I had been categorizing expenses a little differently before this budget, I was confident that I wasn’t going to need that much. In the end, I decided $450 per month would be plenty for our Grocery budget.
How’m I doing? Well, first of all, we are still eating very well, including an 18-week subscription to a local CSA each year — a distinctly non-frugal choice, but important to us for ethical reasons. Without the CSA, I’m averaging $283 per month; with the CSA (annualized), our monthly cost is $332. So even with all our nonfood consumables (like pet food and soap), we’re still beating the ‘food stamp budget’ by over $100 per month.
I find this both reassuring (that a food stamp allotment would more than cover our actual food expenses, if we ever needed it) and appalling (because now I’m wondering who the heck spends at the ‘Liberal’ level and why).
Anyway, I think an extremely safe target formula for a frugal-minded family would be: the Thrifty Food Plan amount for your household times a cost-of-living multiplier (note that if you live in a cheaper-than-average area this will actually reduce your budget). Rock the leet frugal foodie skillz and you can do a lot better than that.
And if keeping expenses down is less of a concern, you can use the Low-Cost numbers instead; they’re roughly 30% higher.
Please don’t make the mistake of stinting on the Savings portion in order to increase your percentage of Wants. It’s particularly tempting if you’re making decent money but you hate your job — you may think you deserve more perks because you work so hard, or that you need more luxuries just to survive the job stress. (Believe me, I’ve been there.)
But there are better ways to combat job stress or unhappiness than buying more things — in fact, there’s a whole pile of research that shows buying more things isn’t even particularly effective at making you happier. And those savings? That’s what’s going to eventually give you the freedom to choose work and working conditions that will genuinely make you more happy. The more you save, the faster that day will come.
At the very least, take all of the tax-advantaged retirement and medical savings that you are allowed. Also make sure you have a solid emergency fund — enough non-retirement savings to cover six months of expenses. (If that seems like too much, consider that the average length of unemployment in the US today is nine months.)
Exception: if you have consumer debt — such as credit-cards or an auto loan — you should be paying it off as quickly as possible — probably, given typical interest rates, even before pumping up your emergency fund.
Then, if your family is debt-free but has a second income (because remember, we’re calculating with just one income here so far, right?), save most of that as well.
Why? Well, without going into too much detail here, because most Americans aren’t saving nearly enough to cover our own retirement. If you’re not putting away at least 20%, you’re likely in trouble. Some late starters need to be saving 50% or more in order to properly fund even a modest retirement.
Take Wants out of the Leftovers
This is the part where I admit an exception to the rule I laid out just above.
If you’re really serious about living within your means, you will restrict your non-vital expenditures to the amount you have left over after everything else — including substantial savings — is accounted for.
However, it’s also psychologically critical that you have some budget for extras. If you’ve been dramatically overspending until now, and the budget numbers just aren’t working out for you, simply eliminating the Wants category altogether is not a valid solution. It might work in the very short term as an emergency response, but it isn’t sustainable — in the same way that an extremely restrictive diet gets great results at first, but inevitably people backslide and end up worse off than when they started.
If you have a second income, you can tap into that to augment your Wants. If you’re already accounting for your total income and you’re still in the red, you should probably allot 5% of your net income to Wants (total for all family members), even if it has to come at the expense of Savings.
Just consider this a temporary condition, while you look for ways to lower the cost of your Needs, or increase your income, so that you can afford both Savings and Wants.
Goal: Reduce Conflicts
Jak had been grumbling about the lack of autonomy in minor financial decisions off and on for years before I really gave it much credence. After all, I was coping okay with joint decision-making, so I figured he just needed to learn how to be comfortable with less control.
But then I started studying behavioral economics, and learned exactly how large a role autonomy and control play in basic human happiness. I mean, to the point that giving nursing home residents control over a houseplant substantially reduces their death rates.
Oh. Um … sorry, sweetie? Here, have a houseplant …
(What I’d failed to take into account was that I already exercised a lot of uncontested autonomy over our grocery budget. Plus Jak was much less likely to object to my unnecessary spending — I don’t think he ever once suggested that perhaps we didn’t need new sheets. So we weren’t really in comparable positions, control-wise.)
But buying into the idea that he needed more autonomy didn’t automatically solve our problem. I could have just given him an arbitrary monthly amount to spend as he wanted, which in fact was a solution Jak suggested some time ago. By itself, though, that idea didn’t reduce my concern over our expenses. Because my (admittedly self-imposed) mandate was to Be Frugal About Everything, merely putting a cap on the amount that Jak could spend frivolously wasn’t going to stop me from feeling bad about every dollar of that amount. Plus I didn’t see anything preventing us from switching from debating individual purchases to an ongoing tug-of-war over the amount of his discretionary budget.
The critical piece for me was finding out what we genuinely had available to spend on extras, which is where the Needs/Savings/Wants calculations came in. That, in turn, allowed me to give myself permission to take a personal budget of my own, which helped satisfy my need for fairness.
The thing is, even if (like me) you think you’re doing well enough without your own little financial fiefdom, you’ll likely find that it’s more pleasant to have one, as I described in Our Results.
Most couples have conflicts around money because most couples are not exact matches in financial style. There’s almost always one who spends more and one who saves more. (It’s not always the same person, either — sometimes the saver in one area will be the spender in another.)
If you and your partner are having arguments about spending, this could be your answer: have the saver calculate a reasonable budget for that category of expense, and then give full control over the specific decisions to the spender. (You can wrap this into the spender’s Wants budget, as we’ve done with housewares and electronics, or you can track a separate budget, as we’ve done with kid expenses.)
Then enjoy all those minutes and hours that you no longer spend arguing!