I have a confession to make. Until 2018 and the age of 31, I wanted nothing to do with our finances.
I was happy to be the breadwinner in our household, bring home a paycheck, and have Corey manage our money.
I wanted nothing to do with our finances because I felt conflicted and guilty about having and making money. I’ve spent the vast majority of my life (until 2021) working in nonprofit organizations focused on causes to make the world a better place: education reform, poverty alleviation, and economic empowerment.
I knew we were extremely well off compared to the people my organizations worked with, and I didn’t know what to do with that cognitive dissonance. If you want to read more about how I worked through this, I’ll point you to an earlier post “Why I Wanted to Be Poor: Debunking the Scarcity Mindset.”
As a feminist, I’m now a huge proponent of women having their own money and being full partners in the management of money in their households. I can’t believe it took me so long to get involved.
But, here we are… And, I can only change what I do in the future.
I am so lucky to have a partner who was so conscientious about our finances from the very beginning. Now that I’m a full partner in managing our finances, I’m here to pull back the curtain and share how we do it.
What We Do Annually
Early in our careers, when we first started managing our money, we kept a strict traditional budget with distinct categories. At the time, we made very low incomes and lived in a high cost of living area, so this was necessary.
After 5 years of career and income growth, we began to save quite a bit more money. We no longer felt like it was necessary to keep such a strict budget. Around this time, Corey heard about the anti-budget from Paula Pant on Afford Anything.
According to Paula, there are 3 easy steps to the anti-budget:
- Decide how much you want to save.
- Pull this off the top (i.e. automate it).
- Relax about the rest.
While the anti-budget eliminates the need to budget and track spending in specific categories, it is a fairly advanced way to manage your money. For the anti-budget to really work well, you need to already have a good handle on your expenses.
With this approach, you decide what your savings rate will be. But, you can’t decide this in a vacuum.
When we first started using the anti-budget in 2015, we decided to save 25% of our income. This was reasonable based on how much income we were projecting for the year and what we knew about our expenses from the previous year.
Each year, we’ll sit down together to create our new anti-budget. This year, we’re projecting that we will be able to save about 50% of our income. Here’s how we came to that number:
- We projected our gross income for the year (including Corey’s expected W2 salary and our income from the business) and did the calculations needed to determine what that would mean for our net income.
- We reviewed our spending from 2020 together and discussed areas where we thought we might spend more or less. Then we projected our likely spending.
- By subtracting likely spending from net income, we were able to determine our likely savings amount and savings rate.
Automated Investments and Savings
To fully execute the anti-budget and save money throughout the year, we pay ourselves first by automating our savings and investments. Here’s a list of the automated investments and transfers for our savings:
- Employer-Sponsored Retirement Account: Corey’s company offers a an empoyer sponsored retirement account that includes a match. We chose to max out that investment account this year through payroll deduction.
- Roth IRAs: We also have our bank accounts set-up to automatically transfer money each month into our Roth IRAs (which we max out each year). This year that equates to $500 per month.
- We also invest some money into a taxable investment account. This account will provide us some future flexibility since it is not directly tied to retirement.
- Lastly, we also automatically transfer additional money to our savings account at Ally.
Typically, when we need to replenish our emergency fund or save for a large upcoming expense, we will pause or lower the amount going into our taxable investments. Once, we’ve replenished our cash reserves, we again increase the amount. For the second half of 2021 and into 2022, we’ve paused automatic investments to our taxable account so that we can pay for our campervan and conversion in cash (and rebuild a 6-month emergency fund).
We also opened a Solo 401k for our business this year as well. At this point, we don’t automate investments into that account. Business income is inconsistent, so we’ve chosen to do this manually.
What We Do Monthly
While the anti-budget is quite a bit less time-consuming to manage than a traditional budget, you certainly can’t set it, forget it, and hope everything works out. There are two things that we do on a monthly basis to ensure we are staying on track.
Review Our Spending On Personal Capital
While we don’t focus too closely on particular categories, we do review our spending each month using Personal Capital. This tool is extremely helpful for us. It pulls in expenses from all of our accounts and credit cards and puts them into categories.
Personal Capital is the most helpful free financial tool we’ve ever used. If you’ve never tried it, we encourage you to check it out today.
Since we know how much we (roughly) spend per month overall and in particular categories like groceries, restaurants, transportation, etc., we are able to fairly quickly diagnose if something is off.
There have been many times where we take a look at personal capital and realize that we’re spending more money than expected in a certain category. This will give us a quick wake-up call, usually to stop ordering so much take-out.
Track our Net Worth in Excel
Not only do we track our net worth using Personal Capital, but we also track our net worth manually in a spreadsheet.
We started doing this in 2011, before the days of Personal Capital. We’ve continued this because of the historical data and because we like to manipulate the data in ways that we can’t do within Personal Capital. We spend 5 minutes each month entering all of our assets and liabilities, referring to Personal Capital to make this process as easy as possible.
Our spreadsheet allows us to more easily calculate the annual increases in our net worth (both in dollars and percentage: annual growth rate).
We also track the time it takes us to save each $100K. This is quite motivating. It’s fun to watch and see that each $100K takes less time than the last.
What We Do on a Day-To-Day Basis
We’ve tried to make our finances as simple to manage as possible. Not only do we automate as much as we possibly can, but we also limit our accounts to three institutions (Ally, Fidelity, and Radius Bank for Business Checking). Here’s how we manage our day-to-day finances.
We Keep a One-Month Cash Reserve
We keep a minimum cash reserve equal to one month of expenses in our main checking account. This cushion ensures that there is no risk that we will overdraw the account because of our regular expenses.
More importantly, this also means we never use any mental bandwidth thinking about whether we have enough money in our checking account when bills are due. Throughout the month, our checking account fluctuates between one and two months of expenses based on our income and the timing of expenses.
We Automate Bills and Charitable Giving
In addition to automating all of our investments and savings, we’ve also automated all of our regular bills and charitable giving. Because we avoid debt when we can, we have very few reoccurring monthly expenses. Here’s a list of our regular monthly expenses that are all automated:
- Electricity (Utilities)
- Natural Gas (Utilities)
- Mortgage Payment, including property taxes
- Streaming Services (we currently have Hulu and Disney Plus)
- Various charitable donations
Coupled with our cash reserve, this automation allows us to never feel stressed about money.
We Keep at Least Six Months of Expenses in our Emergency Fund
We also keep at least six months of expenses saved in our emergency fund. We have our emergency fund in a high-interest savings account at Ally Bank. This allows us to receive much higher interest than a normal bank.
Some people recommend creating separate accounts (i.e. sinking funds) for large upcoming purchases, like a new car, a down payment for a house, or a large home repair. We’ve chosen to keep one account in Ally and co-mingle our savings for these future large purchases with our emergency fund.
In fact, we are currently saving money to pay for our campervan and the conversion. This money is in our Ally account that also serves as our emergency fund, so we have much more than six months of living expenses in this account.
Once we complete the van build, we will very likely go back to about six months of savings in our emergency fund. Because we are both working and have other assets that we could pull from in a true emergency (e.g. Roth IRAs) if absolutely needed, we feel good about keeping the emergency fund at this level.
We Use Credit Cards as Much as Possible
All aspects of our finances are quite simple until we start talking about credit cards. We each have a number of credit cards that we’ve had open for a long time, and we also churn through credit cards for travel rewards.
We put the vast majority of our purchases on credit cards because we like to receive rewards for our purchases. We are not the kind of people who buy more things on credit than if we used cash. In fact, it’s the opposite. If I have cash, I burn through it because what I use it on is not actually tracked in our accounts.
We pay off all of our credit cards in FULL every month. It is not worth pursuing any sort of credit card rewards or travel hacking if you are going to go into debt to do it.
We have a few basic credit cards with no annual fee that we keep open for the credit history, even if we do not use them frequently. When a card has an annual fee, we consider whether the card benefits outweigh the cost. There are some cards we’ve chosen to keep open and others we’ve closed.
We actively pursue travel rewards. In the past few years, credit card rewards have paid for flights to Hawaii, Europe, Panama, and a number of domestic US destinations. While traveling, we have used credit card rewards for many hotel stays, Airbnb, local transportation, and activities. We estimate that we save about $2,000-3,000/year by doing this.
Even during COVID when we weren’t traveling a lot, we used travel rewards to cover things like:
- Part of a cabin rental up in Maine
- Flights to Washington to visit Corey’s family
- Flights and a rental car for our upcoming Napa trip this fall
Since we weren’t traveling much, we also converted some of the points into cash.
Travel hacking can be complicated, but for us, it is worth it. If you are interested in travel hacking, I’d recommend reviewing our Travel Hacking 101 post which will tell you about the types of travel rewards credit cards available and tips to travel for free.
Using credit cards in this way can be complicated, so it’s important to diligently track everything. This is why we keep a spreadsheet of all of our credit cards to track information like date opened, reward requirements, annual fee, etc.
Personal Finances are Personal
Managing your finances is something that evolves over time. We continue to make small improvements to our process. We haven’t optimized all aspects of our finances, but this is the method that works for us right now.
You very likely manage your money differently than we do, and that’s okay. The most important thing is that it’s intentional.
Everyone has to choose what is important to them, often at the expense of something else. We’d likely have a higher net worth if we were to keep a smaller cash reserve in our checking account and emergency fund and invest that money in the market. However, we prefer the peace of mind that comes with this larger cushion, even with the known opportunity cost of having less money invested.
If you are new to managing your finances or are looking to improve how you manage your money, I’ll leave you with several guiding principles that inform our approach to money:
- Spend your mental energy on the areas that matter most
- Create a plan or goal and track your progress along the way
- Automate your investments and as much of your day-to-day activities as possible
- Save more money than you spend to buy back your time
- Make small improvements to your process over time
How have you chosen to manage your finances? Do you have any practices that seem counterintuitive but work for you?