Today, I have a guest post of Frugal Rules. I'm really pleased with this post entitled Why Starting a Family Won't Kill Your Finances. Please go check this article out! The third installment of the Agile Personal Finance will be here for you when you get back!
The final six principles
The final six principles of the agile personal finance manifesto are probably the most practical principles that we've written down because they are mostly relational in nature. These principles explain how we treat each other (husband and wife), our family, and others outside of the family. Because we have view relationships as so important, these "operating principles" are especially important in helping us to develop healthy relationships. These are the final six principles.
7. We honor one another's (and our child(ren)'s) requests for tools, luxuries, investments and special giving by weighing those requests with our financial priorities.
8. We plan our finances cyclically (monthly), but we speak about them regularly.
9. At regular budget meetings, we reflect on how to become more effective, then we tune and adjust our behavior accordingly.
10. Growing generosity and growing net worth are the measures of our progress.
11. Continuous attention to our spending to net worth ratio enhances our freedom to pursue extra-market activities that accord with our values (the closer we are to financial independence, the less we need to work).
12. Emotional money discussion are only fair when both husband and wife are prepared to speak, listen and not attack.
We honor one another's requests
We honor one another's (and our child(ren)'s) requests for tools, luxuries, investments and special giving by weighing those requests with our financial priorities. This principle allows us to have different views of what is important. When I want a new kitchen and my husband wants to put all our money into index funds, how do we balance these things out? We have to respectfully discuss it in a budget meeting.
Sometimes, we have the money to do all the things, but more often than not, we make compromises. These happen in budget meeting where we truly merge our desires from I to we. We prioritize giving first, followed by expenditures that help us solve current problems. After this, we push a great deal of money to the future, while reserving a small amount for luxury spending.
In the future, we plan to invite our kids into budget meetings and to ask them for input on what they would like to spend (music lessons, soccer team, trips to Disney), but we will retain the right to not have to explain why we won't go to Disney even though we've got the money for it.
We plan our finances monthly
Every month, my husband and I have a budget meeting. It's kind of exciting, because its the only time of the month where I get a spenders high. We create a new budget every single month. We only have a few fixed bills (insurance, internet, taxes, insurance and phones), and a few other fixed but variable expenditures (childcare, gas, electric, and water), so the majority of our income could be viewed as discretionary.
During our budget meeting we review our sinking funds to be sure that we're putting enough aside. We review our accounts to be sure that all the income we were expecting came in. And then we decide what to do with the money. Although at first, our budget meetings were tense, they've developed into a bit of a fun event. And as long as we're on the computer, we usually watch netflix afterwards (which qualifies as a date).
We reflect on how to improve
Even though we have achieved Rock Star Budgeter Status, we have a long way to go in improving our finances. We regularly ask if we have wasteful spending, if we could or should earn more money, and how we can invest or give more money than we've done before. We also make sure that our prioritized spending is still in line with our values.
One of our biggest wins recently has been in the area of medical spending. We figured out that my husband can get his prescription medication and his regular appointments through his on campus provider. This is a solid 90% cheaper than the specialist he was visiting before.
Our Measures of Success
We have created a dual success metric. We view growing generosity and growing net worth as a measures of our success. One of our Financial Independence goals is to give 100% of our active income to poverty relief and missions causes. But why wait until financial independence to start working towards this goal? Right now, we are working on growing both our giving muscles and our investing muscles. These have opposite effects on our net worth which is why we've chosen that if we are actively achieving either goal, then we're pretty happy with our progress.
Truly, we just want to be faithful with our money, but success metrics help us to understand our long term trends.
Continuous attention to spending to net worth ratio
One of the common tenets in the pursuit of financial independence is that if your net worth exceeds 25 times your annual spending then you have achieved financial independence. This is a great definition, but we find it very important to recognize a spectrum of financial independence. Even if we haven't achieved true financial independence, a high net worth in combination with low expenditures unlocks many options.
At a low enough expenditure rate and higher net worth levels, my husband and I can choose many different lifestyles, including a lifestyle where our active incomes are not very high. At this point in our journey to financial independence, I think that we could earn just enough to cover our annual expenses, and never invested a penny more, and we might be in a good situation when it comes time for us to retire (thanks to the power of compound interest). This is the exact path we are considering for the next two or three years, as we seek to just meet our expenditures while my husband completes his degree.
The higher our net worth to spending ratio, the less we "have to" work to meet our financial goals. If we want to pursue work that doesn't pay well (or at all), then we can pursue that work for quite some time without concerns or anxiety about what "tomorrow" might hold.
How we don't fight about money
Money fights aren't fair. It's so easy to attack each other's values, to blame, and to otherwise make your spouse feel like crap. To avoid money fights, my husband and I prepare each other, for emotional discussions. We bring up topics that we want to discuss at our next budget meeting, and then don't bring them up again for a week or two (whenever the next budget meeting is). I don't want to work at my job anymore is something that you shouldn't spring on your spouse. Instead, I prepare my husband to let him know what I've been thinking, but I give him enough time to gather his own thoughts on the topic before we have to talk.
In case you're wondering, if you are two introverts, this might not be that big of a deal, and if you are two extroverts it might not be that big of a deal. However, I'm an extrovert with an introverted husband. Any discussion where he hasn't had time to think feels like an attack to him. Any discussion where he doesn't answer my questions feels like an attack to me. Therefore, we compromise and have discussions, but we put them off until we're both prepared, but we don't put them off too long because otherwise I would go crazy!
Tell me your principles for treating your family with respect as you tread through financial waters! I would love to hear them. If you're single, how do you treat yourself with respect?
I'm a wife, a mom, an employee, and a personal finance nerd who is devoted to spreadsheeting my way through life.