Part II – Budgeting: Does It Vary With Life Stages?

Do you have a budget? Are you faithful to it? Or do you feel budgeting is over-rated? If you have a budget, why do you have one? And if you do not have a budget, why not?

Yesterday I recounted my budgeting trial and errors during my first marriage.

As many of you know, my life has changed over the years. My former husband and I divorced quite some time ago, and I have since remarried. With my remarriage came a different set of financial rules.

First and foremost, my husband is a pretty smart guy. He went to school and ended up with an MBA. He put this to good use in the banking industry in various places, ending up in New York City for many years. Hubby had never been married prior to me (he waited for me!, aren’t I lucky?), and was used to doing things his way. Now during my first marriage, I was responsible for all the finances, bill paying, purchasing decisions, etc., etc. When hubby and I married, it could have been a real clash: each one of us was used to doing things in our own manner. Coupling that habit with being older, and naturally more set in our ways this could have led to a real disaster. Except it didn’t. I was tired of being responsible for everything and anything, and hubby enjoys responsibly. I think it is part of his genetic make-up.

We have a lot of bills (like all of them) on auto-pay. This means we know in advance how much will be going out each month a year ahead of time. While the utilities fluctuate monthly, there are historicals that we can use to make accurate determination about upcoming month’s utility bills.

Big differences now come to our credit cards: they are paid off monthly. Always. And a lot of credit card purchases are work expenses for hubby, so he has to turn in expense reports regularly for reimbursement. This basically gives his work free-float, although we do benefit from the points programs attached to the credit card.

If we need any capital expense to the house, we discuss what we are going to do, and hubby puts the money aside. For other big expenditures, like buying a car we research to the purchase to death and then hubby figures out the value of money to determine whether or not we will finance or pay cash for the item.

This business of the “value of money” drives me insane. I am firmly middle class in my economic mindset. Even though paying cash for your house can be economically foolish, mentally I would have loved it! But hubby figured out the value of money, what our rate of return would be with the money that was not tied up in an illiquid asset like property, as well as any tax benefits to having a mortgage, and so we plopped down 20% to avoid PMI and have a mortgage payment. At some point, the mortgage will no longer be a good money value and paying off the note early might make sense. We will revisit that concept in a few years to see if carrying a mortgage still makes economic sense. Because our mortgage rate is so low, I fear the answer. To me, not having a mortgage equates to economic serenity … after all what is peace of mind worth? Hubby’s answer is always “If you have the money in the bank to pay off the mortgage, isn’t that enough peace of mind?” (Note: Bank does not mean a savings account necessarily, but investment account.)

As you can see, the budgeting we do now is based on what needs to be paid and when it needs to be paid. Hubby makes a comfortable living and we do not live over our means (which took a budget to discover), so it is just a matter of paying the bills in a timely manner. In our current situation, the term budget is truly an accounting term. You start with XX dollars each month, and subtract the payments necessary. Excess funds are kept in an account earning interest or dividends. We are saving for retirement as we only have one child (mine), and he is entering his senior year in college. We’ve definitely moved into the middle years of budgeting where the unexpected bills of child-rearing are behind us and have moved on to the saving for retirement years.

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