small change toward a rich life

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:

  1. start from one income
  2. redefine Needs vs Wants
  3. calculate Need expenses
  4. prioritize Savings
  5. 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.

sign: the next pink slip might be yoursThe 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).

old couchTwo, 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.

grocery listIt 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.

Prioritize Savings

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.)

sad boy with presentBut 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.

sign: no money kept on the premisesHowever, 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.

houseplantOh. 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!


22 responses

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  1. Brooke says

    You could expand this into a book. Although the allowance concept is nothing new i like how you did the calculations and will be replicating your method to figure a new food budget. I think the most novel part of your budget is how to deal with the step kids. I like that your budget accepts them as a joint responsibility and that you take their care off the table before dividing up allowances (as opposed to taking their care out of your husband’s share). I also like that the biological parent is in control of the account once the amount is agreed upon, and that any overage (beyond emergencies) comes from his share. The way u have it set up is great because he pays for the overage not because they are “his” kids, but rather because he is the one responsible for keeping expenses to the agreed upon amount. This system would also work well for those providing assistance to parents or other relatives. I do not think it would work as well where the biological parents were married, however, because the “opinions” of what the child can do are much stronger in that case (e.g., one parent may veto a purchase because they do not want their child to have the item regardless of whether the other parent pays for it).

    • Karawynn says

      Hi Brooke, thanks. Yes, I took on joint financial responsibility for the kids when we blended our money nearly ten years ago. It’s not the only valid way to arrange stepfamily finances, but I think it made sense for us.

      However, I don’t think I’m suffering from any lack of opinions where the kids are concerned. ;) Early on, sure, I mostly just supported Jak’s decisions. But eleven years in, I’m basically an equal on the parenting front. So if he was buying something for the kids that I thought was detrimental, I’d tell him why and feel confident he would listen to me.

      I don’t expect that to come up, though, because our particular issues haven’t been so much that any one thing was a problem but that Jak wanted to buy and do All The Things for them. There wasn’t a sense of tradeoffs or limits. Which was not just bad for our finances, but also poor behavior to be modeling for the kids, I think. Growing up entitled does not prepare you for the real world.

      Anyway, I think even two biological parents could benefit from this approach, if their spending styles were very different. It effectively forces an awareness of tradeoffs, moderating a spendthrift tendency without the need to debate each individual expense.

      I’m glad you liked the concept!

  2. Elizabeth says

    This is absolutely fascinating stuff. It makes so much sense! After just quickly plugging our numbers into this style of budget, it seems like we have so much more money to spend on ourselves than I thought. Having $50 for x and $30 for y really made me feel like we didn’t have enough for what we wanted. It’s amazing how a simple refocus can really change your outlook (and hopefully, our financial health!)

    • Karawynn says

      Elizabeth — yes, that’s been true for us too. And it’s a lot less work to keep track of, I think, than a budget with lots of individual categories. Let me know how it works for you! :)

    • Karawynn says

      (Also, I took a look at your journal — nice writing!)

  3. Amanda says

    This is very helpful and inspiring. I have done elements of this but I’m giving your system serious thought.

    As someone who spends around the “Moderate” level (though I don’t separate out non-food consumables), perhaps I can give you a little insight into who the heck would spend at the “Liberal” level and why–I could easily inch up there if I wasn’t disciplined, and if I made more money, I probably would. I buy mostly organic and try to pay attention to sourcing, and I buy a lot at farmers markets. I cook and bake more than lots of people I know, but due to time and stress issues still buy some prepared foods (again, often organic or fewer additives), canned beans, etc. We get a little fancy cheese now and then, and local honey. I do make lots of frugal choices and big pots of vegetable soup; my husband drinks $5 wine from TJ’s and I don’t really drink; I do moderate couponing and price shopping and buying in bulk–but I’m also brand-loyal and go to specific stores for specific stuff I want.

    I’m well aware that lots of my groceries are luxuries, and every time I buy a $5 loaf of bread I try to plan making my own, but this is the food we like and feel good about eating, from a health standpoint as well as an ethical one. This is one of few areas I really splurge–don’t eat out much, don’t buy much clothes or stuff. And I can easily see how a few more nice cheeses, more mead from the farmers market, a little more sustainably raised meat, some more deli salads and cookies, could push me up closer to “Liberal.”

    I’m sure some people spend more because they don’t know how to do what you do, or because they don’t have the discipline or the time–these all probably play a role with me too.

    • Karawynn says

      I know, I’m a little judgmental there, and I probably shouldn’t be, but I can’t help that it just astonishes me.

      I know it’s harder to keep costs down while working; I had a day job with a long commute for five months of 2011 and it was a struggle for sure. Coupons, for example, went completely by the wayside after a couple of weeks. But I was still coming in way below the ‘Thrifty’ spending level.

      The ‘Liberal’ calculation for our family would be $882 (December 2011, not increased for cost-of-living). Even if we ate organic produce year-round instead of for just five months, and bought only local, artisan versions of foods like cheese and honey, I can’t imagine spending that much. I mean, if someone gave me $882 and said ‘go nuts so long as you buy only non-prepared food items’ … I honestly don’t know how I’d manage it. Go to Whole Foods and look for the most expensive option in every category, maybe. So that’s what I mean when I say I’m appalled.

      As far as knowing how to do what I do, I want to try to explain it. Instead of ‘I will teach you to be rich’ (because I definitely don’t have that one figured out), maybe ‘I will teach you to eat like a gourmet on a food-stamp budget’. /wry I don’t mean my comments to come off as ‘See how much better I am than you’, but as ‘Look, let me help you do this too.’

      Yeah, it does take time and discipline, and I do recognize that most people won’t want to bother. But look — we’re saving around $600 per month over the ‘Liberal’ budget. Put that in retirement savings instead, and In just twenty years, at an extremely conservative 4% annual return, that’s $218k. In forty years, it’s nearly $700k. Them’s non-trivial numbers for at least 95% of the American population.

      • Amanda says

        You totally do come off as wanting to help…and a little judgmental at the same time ;-) And the more you say you can’t imagine spending that much, the more I feel like I’d better look closer at why I spend as much as I do, and go back and look at all your shopping tips.

        • Karawynn says

          Once I stop and think about it, I realize I have a lot of shopping strategies that I’ve never written about. Like, maybe a small book’s worth. :o

          • RG says

            the liberal plan is meant for the wealthiest subsection, right? teenage girls are less likely to be eating you out of house and home, but even looking at two adults: buy organic milk and eggs, not on sale. buy NY strip steak, lamb, tilapia, and the occasional lobster. buy non-sale produce. plus there’s waste, if you’re away from home but your kids need to eat, they might pick at the bean soup and inhale the ice cream. when both parents work, there’s not as much mental space to put together a healthy meal, for yourself or the kids, and semi prepped meals are cheaper than takeout.

            you have to wonder at some prices, right? who buys those tiny containers of raspberries at $4 each? one summer I picked upwards of 150 pounds of berries, free, no sprays or chemicals, wild. and believe me, I never tired of them. in theory I saved $1500 that year compared to fresh or $500 compared to frozen. I do eat at around $100/mo because of all my sacrifices, but if you’re in a two earner household, living in a mcmansion, why scrimp? I know plenty of people who can afford that and still max our their 401k and IRA, emergency fund of two years, etc.

            • Karawynn says

              “If you’re in a two-earner household, living in a mcmansion, why scrimp?”

              “Scrimp” is such a loaded word, and implies getting substandard fare. What I’m advocating has more to do with being smart about how and where and when you buy the good stuff.

              But to answer the larger question, as to why high earners would want to limit their spending … actually, I’m now thinking this deserves a whole post of its own. In brief, though, two big reasons immediately come to mind. One, many people dislike their jobs, and if they had financial freedom would trade them for different occupations. Careful spending can let you do that years or decades earlier. Two, families that depend on two wage earners and don’t put most of their income into savings are at enormous risk for calamity. A job loss or an illness that takes one worker out for an extended period — not uncommon — will often result in bankruptcy. As will divorce.

  4. Louise says

    Karawynn, thanks for sharing your experiences. I read the whole series and like your idea. We’ve tried the needs vs. wants delineation of expenses in the past but it was really hard for us. There were too many debatable items so we go with an approach of fixed vs. variable expenses instead. But your posts encourage me to give the wants vs. needs another try.

    The only thing I disagree with you on is in regards to not saving money if you have consumer debt. I think it’s crucial to have an emergency fund even if you have to make only minimum debt payments while building it up. Sure, you’re not saving interest costs or getting out of debt faster that way. But if an emergency does come up, you will have a cushion to turn to rather than charge up your credit cards again because you have nothing else to pay with. An emergency fund keeps people out of a cycle of debt and allows them to stay out.

    Also, thanks for the resources regarding grocery budgeting. That seems like a good way to arrive at a reasonable number for any family. I will look into it.

    • Karawynn says

      Hi Louise.

      I put in the bit about debt as an afterthought and didn’t go into nuanced details (because the post was already so long!) but my thinking is generally that having a small emergency fund (say, a few hundred up to a couple thousand dollars, depending) would take priority for exactly the reasons you describe. But as I had just been talking about saving a full six months’ of expenses — likely ten or twenty-something thousand dollars — that amount wouldn’t make much sense if you’re sitting on credit card debts with interest rates in the teens or twenties. Would you agree?

      One of the nice things about this approach is that you don’t have to worry about convincing your partner that something is a need instead of a want — the person to whom it’s important can simply make it a priority when allocating their portion of the resources.

      If you do try this system, let me know how it goes. It’s possible that there are issues that we haven’t run across, so I’m curious how well it works for other people. It might need fine-tuning!

      • Louise says

        Karawynn, I think we’re in agreement that having a small emergency fund (say 3 months of expenses) should take precedence over paying off debt faster. Cheers!

  5. Rowan says

    Hi – I’ve recently discovered your blog – interesting reading.

    I’m also divorced, with split custody, and I noticed that you have a very conservative budget for ‘discretionary’ child expenses. My former wife and I also have frequent discussions on appropriate spending for extracurricular activities for our daughter. I’m sure, as a woman, you appreciate the intangible benefits of things like sports and arts for girls – for self discipline, confidence, and the like. How do you resolve these expenses between houses for your stepdaughter?

    • Karawynn says

      Hi Rowan,

      Both Jak and I are very much in favor of activities and experiences, and in fact that’s where most of Claire’s discretionary budget goes. It helps that the school-sponsored extracurriculars are generally low-cost (although I know, having been through this with Michaela, that the opportunities for spending climb in high school).

      We also work to keep the costs down with choices like buying used sports equipment instead of new. Girl Scouts has been good because cookie sales fund most trip expenses, leaving only small out-of-pocket costs.

      But we did spend, for example, several hundred dollars paying for (half of) a ski program for Claire this winter and last. We can afford things like that on her budget mostly because we don’t spend a lot on ‘stuff’ for her, any more than we do for ourselves. So she gets ski lessons, but not an iPhone.

      That said, we don’t always try to ‘resolve expenses’ between households. For example, we’re not contributing toward her weekly piano lessons — that’s an expense handled by her mother. (At one point a grandparent was picking up the tab; I don’t know if that’s still true.)

      This is not because we don’t support piano — in fact, I would consider sacrificing from my own budget for piano lessons. But if I were paying for them, I would handle things differently: I would select an instructor with rates more in line with the current market, and I would require that Claire be proactive about her daily practicing requirement as a condition of continued lessons, something that isn’t currently in force.

      We also — her dad and I — enforce a limit of two simultaneous regular extracurricular commitments during the school year. So for example, she’ll have to hold off on ultimate frisbee in the spring if she gets a role in the school play. We had that rule with her older sister as well, and I think it’s a good way to keep kids from getting overcommitted, put a cap on the possible stress, and make sure there’s time for homework. And that does help keep costs down, though cost was not any part of the reason for that policy.

      As she gets older, we’ll start requiring that Claire contribute to her own activities. For example, we helped send her sister Michaela on an exchange trip to Japan when she was 17, but instead of just laying down the money, we offered a match of Michaela’s own earnings up to a certain amount. I believe that kids should have ‘skin in the game’, as the saying goes — whether that’s a financial stake or a commitment of time and responsibility. I think they develop better values that way, and make better decisions.

      Does that help? :)

      • Rowan says

        thanks –

        A couple of questions/comments. The discretionary spending aspect for children’s activities, etc. is a reasonable concept, but I should have been more clear. As a divorced parent, Washington requires a parenting plan regarding shared child expenses, and I assume that you and the other household have one in place. So there does have to be some resolution of child expenses between the households. I can see how a budget like this may decrease conflict within the house, but how do you keep open communication regarding expenses between the two houses within the framework of the parenting plan? I know that my ex and I have often struggled with it…

        Regarding the piano – I know from personal experience that if the kid doesn’t feel that there is parental support for an activity, that they are less likely to pursue it. Since you put such an emphasis on financial responsibility, but you aren’t helping pay for lessons, maybe she doesn’t feel like you have any skin in the game.

        • Karawynn says

          Oh, do you mean the practical aspect? There’s a shared Google spreadsheet for kid-related expenses that any of the (now four) parents or stepparents can update. Plus Jak and the kids’ mother discuss and agree upon potential shared expenses by email or phone.

          Claire’s failure to be responsible for practicing piano was the norm for all the years we were paying half the cost of lessons — it’s the cause of our withdrawal of funds, not the result. I took my skin out of that particular game, as it were, to save the headache and conflict of the constant nagging and exhortations. We have enough other challenges …

  6. S. Meier says

    What is ‘necessary vs a want’ can be very subjective. Especially when it comes to kids. We have been married for almost 26 years and never have been divorced or had stepchildren. But, we do disagree about what is a need/want. Sticking to children, if one of us disagreed on an item for a child when they were growing up- such as a sweater, book, lesson, or later a car, the other would say “I adamantly disagree- I disagree enough that I will not support this or help financially.”
    Then the other parent would have to decide it they thought it was a ‘need’ or important enough ‘want’ for them or the child to provide for it financially all by themselves. I am not talking about disagreeing on the “what” was being bought- like one of us didn’t want them taking the lesson no matter who paid- just the financial part of the need/want.
    It is not a perfect system and frankly there are arguements- but you can have keep civil and come with your pro/con facts- the debate can be lively :)

    • Karawynn says

      Yes, there’s a lot of room for opinion in determining whether something is a Need or a Want.

      For the purposes of the CFFB, the touchstone I used was: if we suddenly fell to zero income, what would we have to continue paying for? Anything that could be dropped or postponed in case of a financial emergency was classified as a Want. (More on that in Part One.)

      One of the challenges of merged finances is that typically either person can decide to incur an expense but the opportunity cost is paid by both people. This invariably results in higher spending, and usually in increased conflict, as the only recourse for the non-deciding partner in any given circumstance is to argue against the expenditure.

      In a way, the CFFB is about creating a space for individualized costs and decision-making much like what you describe — something that naturally exists with separate finances, but not with joint ones.

  7. Bridget McKenna says

    Yes, a book, please. Some combo of personal memoir of your family using the system, plus guidelines for others to follow. I’ll bet you even know an editor. Small books are okay. You might consider putting out a branded series of them, tied to the blog.

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