Budgeting, Investing, etc.

As a recently wed couple, Veronika and I are looking forward into our future and trying to plan accordingly (maybe buying a home someday - which is basically impossible in this area - as well as children, and then of course tithing/giving, spending, saving, etc.).  We're hoping to figure out a budget so we can start wisely planning for our future together.

Also, our parents have given us some financial gifts for our wedding (which we did on the super-cheap) and to help get us started.  We don't have a ton of money, but enough that it'd seem wiser to invest somewhere rather than getting the 0.01% interest from my savings account (which is so freaking pathetic IMO...).

I'd love to hear the thoughts and suggestions of folks here!  First, is there a software you recommend for budgeting?  Mint is the most popular one though many people seem to not like it.  We tried a similar program called Count About and it wasn't quite what we're looking for.  Many people swear by Dave Ramsey's stuff but that's a) expensive and b) seems to be more made for getting out of debt but we are not in debt.  We're hoping to track our income/outcome and come up with budgets for different areas of spending and saving (gas/car expenses, groceries, dining out, tithing, heavy metal CDs , etc.) and have it as automatically as possible determine from our spending how we're doing in those specified areas as the month or year or whatever is progressing, etc.  And secondly, I would love to hear your recommendations on investing for n00bs who will probably want the bulk of our money "liquid" in case we're able to miraculously buy a home here in the quasi-near future and for children.

Thanks!

I know this isn't what you're looking for, but: I would just use a spreadsheet. It'll be a pain to setup, but you'll know how it works and it can be done rather elegantly. You also won't have to worry about trusting another company with your information, you're in control of backups, etc. You may be able to find a template that will get you started. For example: https://www.smartsheet.com/top-excel-budget-templates
Smartsheet may do what you want (I've only used it for project scheduling so I can't say) but it's $10/month. The main reason for the link is the free (but branded) budget templates which could be modified for your needs. They may require significant modification...

Oftentimes when I go looking for specialized (budget) tracking software, I get fed up because nothing does quite what I want and I spend the same amount of time searching for somebody else's software (and then learning it) as it would have taken me to come up with something in Excel or even Google Sheets.

^ What he said.  I'm even more old school and use paper/pencil.  I've not found a pre-made system that's perfect for me so I made my own.

Budgeting is just a combination of common sense and discipline.  The common sense part is money in vs. money out.  How much money do you need per pay period for tithe, rent, utilities, car expenses, groceries, etc. and how much do you have coming in?  Then divide it up accordingly (hopefully with some leftover for savings and metal).  Discipline is harder: If you have $100 "extra" in the bank budgeted for car repairs you didn't have this month, don't spend it on CDs.

Also, don't be afraid to be wrong.  I found out we spend WAAY more on certain things than I thought we would and had to alter the budget to fit that.

You're spot on about Dave Ramsey.

I can't help much with investing.  We use a guy at our church who works for Edward Jones.  He set up a small investment account for us and a small amount of money goes into it monthly as a direct withdrawal from our checking account.  I know less about it than I should.

I got five figures in a Roth IRA and a mutual fund. ...but I won't be able to do anything with that until the magical age of 59 1/2.

I also, of course, plan on adding more to it as I get older. I'm hoping to get a better job once I'm in remission from cancer, but no matter what I do as a career, I'll never be as successful as my wife.

As humbling as it is, she's why I have money right now.

The first 2 posts are very good. I too use a speadsheet that I made myself. I continuously improve it and make changes as needs be. To say it again what has been said, don't spend more than you make and be disciplined with needs vs wants.

Investment. You can play the stock market, but you need to know what you are doing. I don't. I think you are on track to look at real estate. You know that you are priced out of this area and I really don't believe that will change, so I wouldn't wait. You might want to look at places like Catroville, Salinas, or Hollister to be sort of in the area. Or, start small with a townhouse. If you are stable in an area, work, family, and such, owning beats renting. Often monthly mortgages are less than rent prices, if not immediately then later from the force of inflation. We may be in a bubble in the Bay Area now, but I don't think that real estate will drop as heavy as it did in 09 when it pops. About half of the home purchases in the area since 09 have been foreign and local investor cash purchases. So a mortgage default crisis wont hit it as hard this time.

What Thomas talks about is also an option. the trouble with those kind of savings is that you need to manage them. It's like playing the stock market-lite. There are tax advantages, but I do question as to how long those may be around when you consider how hollow the dollar truly is. Back to realestate, even if the dollar crashes, you have a piece of land to live on and even grow some food on.

Jokingly, you may consider an alternative to owning real estate. You can go live in the goonies community in Boulder Creek in one of the abandoned homes left after the 89 quake.

d@v!d wrote:
What Thomas talks about is also an option. the trouble with those kind of savings is that you need to manage them. It's like playing the stock market-lite.

Not necessarily. You can play high risk high yield which requires some interaction, but most people don't do that passes their 30's. ...at least that's what my financial advisor claims. Roth IRAs are low risk high yield and the options I've picked are set it and forget it.

Your best bet is to put your eggs in different baskets. ...that way the one that doesn't pan out is covered by another one that does pretty well.

I've had a pretty consistent 8% interest gain.
___________

Another thing I wanted to clarify. It's not just because of my wife that I have money. The day before my first major surgery to remove my cancer, my grandmother wrote me a check. She said I have enough to worry about, I don't need to worry about money either. I've been able to live off it this whole year.

Probably a chunk of next year too... I might be done with chemo, but I still have scans and checkups. Gotta get my infuseaport removed as well, I'm guessing April...

When I first got married, I also developed a spreadsheet for our budget.  It was really helpful.  I'd say being diligent in updating the budget and reviewing it was the #1 method of saving money.  Basically knowing where your money is going, and being smart with your spending (based on your knowledge from keeping the budget) helped us save money more than anything else.  It was a lot of work though - there's no question about that - but it was worth it.  Especially since two different people are coming together with two different spending habits and ways they've been taught about money.

One thing that we did was allocate a certain amount of money per month toward our own spending money, and kept a separate budget to keep track of that.  For example, if I wanted to buy some CDs or something like that, I would have my own separate budget for that, and so would my wife.  That way one person in the relationship isn't spending more money on their desires than the other.  It also takes away all potential for arguments in that area.  You still have to decide on what falls into the "desires category" though since some items might be a gray area.  If somebody has a really expensive desire, and they don't have money in their personal spending budget to buy it, it's not meant to limit people.  In that situation you can have a conversation with your spouse and see if it's worth making that purchase.  But for the small, day to day desires, I personally found it really helpful.

Some things I'll disagree with, but a lot of wisdom in this thread.

For budgeting software, we (mostly meaning my wife!) use an ap called Every Dollar.  It's simple and free and links both of our phones together, so when we spend money we just enter it into the ap and it updates both of our phones on what we've spent and what we have left for each/any category for the month.  I believe there's also an upgraded version for a small fee where it will update automatically if/when you use your debit card.  The only hard part is working out the budget in the first place, especially with all of the changes in your household, so that will take some time and trial and error, but after a few months you'll learn what to expect and only have to make minimal changes month to month.  I'd recommend it.

Investing.  I can appreciate your desire for liquidity in investments.  I mean, what if something happens and you need money, right?  The Dave Ramsey plan is one size fits all, which of course means that it's basic and general, but it's good for what it is and only the first (I think) 2 "baby steps" have to do with getting out of debt (really only step 2, I think).  His recommendation, which I think is reasonable, is save 3-6 months of basic, bare-bones living expenses so that you have a significant buffer against crisis.  If there's a job loss or an injury that puts you out of work, you have some time to figure things out or make whatever changes have to be.  This isn't "investment" in terms of something that you're looking at for growth, but once it's in place you can invest without worrying about an emergency -- you're reasonably well covered.

So investing!  I know some stuff, and IMO I think I know enough to know what I don't know, and this is all pretty much what the "experts" say as much as what I say. 

The first/best place to start is if your employer has a 501(k) with employer matching.  If so, do whatever you have to do to get every possible dollar matched.  That's like an automatic return before you even factor in the market, and anything you leave on the table is really being left on the table.

After that, a Roth IRA is the next best thing.  That's an individual retirement account that has specific tax advantages, so much so that the government restricts the amount that you can put in to $5,500/year per person (you and your wife can each open one, so $11,000/year between the two of you).  The account can be in basically whatever you want, with the standard wisdom to be in a professionally managed low-cost mutual fund through a company like Vanguard.  The downfall with these is, as retirement funds (much like your employer match) they're hands off until you're old, or you have to pay penalties.  Again, that should be ok if you have liquid cash set aside, as noted above.

If you're able to max out both your employer match and the Roth IRA, from there I think the best place left is just regular plain old mutual funds that won't be as tax advantaged as a Roth, but on the upside you can sell them at any time and have cash for whatever you need with no penalties.

As you probably know, mutual funds are funds that you buy into that contain a number of different stocks, and very often other investments like bonds, utilities, real estate, etc.  There are plenty of different "mixes" available, but the idea is that if one company or sector of the economy tanks, the rest will be ok and your risk is minimized.  Of course this also minimizes the reward if one shoots up, but over time the net result should be solid gains.  It's not exciting or sexy, but if investing is exciting you're probably more gambling than investing.

As for what exactly to buy, I don't know how to beat the market or they system, and I don't think very many people do.  Things go up, things go down, within ethical bounds the day-trader who's out to game the market, the professional fund manager, and the monkey throwing darts are all going to come out in a similar place in the end.  Think of it as the exact opposite of sports betting.  For as much as I (and thousands of others) think that I can spot a betting line and put my money on a few games, I (and the monkey throwing darts) are likely to end up at about 50%, which means after paying bookie fees I consistently lose money while the casino/bookie stays open.  Buying mutual funds puts you on the other side of that -- things go up, things go down, but over the long term stocks are your best/safest investment.  That's why I (and the "experts") recommend low-cost professionally managed funds.  Trying to outsmart the system generally just doesn't work -- but they system itself generally DOES work.  Go with it and you're likely to win.

Of course I'll recognize that the world isn't safe, and there's no such thing as a safe investment.  Anything can tank, the world economy can crash in a day or with one wrong war or unforseen event.  This is life.  But our world's been through a lot, and if it comes to a Mad Max scenario, I'm not going to do well anyway.

Since buying a house was mentioned, if you can I do think that's a great idea.  It's a great combination of investing in what should be an appreciating asset and something that you can sell and get your money out of if you need to -- plus interest rates are still very low.  Conventional wisdom is that you need to stay in it for at least 3 years to make it worthwhile, though, and I have no idea whether you're life is headed for continued transition or solid roots.  But if you're looking to stick, I'd personally strongly consider putting money into a house before I'd buy retirement accounts.  Just my preference, and I know bay area (that's you, yes?) real estate is ridiculous.

So that's a novel, except without storyline, plot, climax, resolution. . . .

Ooop, here's the part I left out.  What/how to buy for mutual funds?

I went to a financial advisor not too long ago, the kind of guy who buys/manages investments for you.  The fee was something like 3%.  I found that horrific.  Will the funds that he chooses have returns more than 3% better than I can do without him?  Typical good returns (as Thomas notes) average around 8% -- can he get me 11% over 20 years?  I don't think there's any reasonable expectation that's possible, and I don't think he could honestly disagree.  Losing 3% just for the privilege of investing is HUGE -- it means if the market is steady, you lose 3%.  If the market goes up 3%, you're only at even.  If -- check that -- WHEN the market dips. . . your red went REALLY red. 

Reputable companies where you can buy your own professionally managed funds (again, like Vanguard, TIAA-Creff, probably others) dodge those fees completely.  There are still fees that go with managing the accounts, but they're low and would have to be paid through an advisor anyway.  So these companies have professionally managed funds set up that you can just choose based on your age or how far from retirement you are.  While you're young, they'll choose stocks with more risk/reward, and then as you age they'll slowly back those out and replace them with safer, lower-upside investments.  My theory, at least (and I think I'm right), is that you're not going to outsmart the experts, and you don't want to pay an advisor to buy them for you.

I hope that all made sense.

My financial advisor didn't ask for a fee, but then again, he was employed with the bank I use, which probably explains that...

Wow, thank you guys!  There's a lot of good stuff to be gleaned in here for sure.  I'll definitely be sharing all of this information with Veronika.    I'm so glad I have such wise and knowledgeable friends!

For budgeting, I think we're going to end up doing a bit of a hybrid.  We signed up for a free online budgeting software called Personal Capital.  It tracks all of our spending and puts it in different categories automatically, etc.  What it doesn't do is compare that with our desired budget.  So I think that's where the spreadsheet will come in...  I already have a few ideas of how I'd like to format it haha.  (I do a fair bit of spreadsheet stuff at work so I'm well familiar with creating equations and all that.  I'm afraid that if we had to manually add every single transaction into our spreadsheet, we'd miss a few and then give up.  But if all the data is collected from the software, data-entry into our spreadsheet will be minimal and simple.  We're also considering using Mint which is similar to Personal Capital but has budgeting abilities.  However, it has some other less-than-ideal things with it so I'm not sure yet...  But seeing that spreadsheets seem to be the preferred method of keeping track, I'm encouraged that we can do it that way too.

As for investing, wow, Grindboy, you rock.  This is all extremely helpful.  Other than financially being ready to make babies... buying a house is one of our highest priorities/hopes.  First we gotta figure out just what we CAN afford (hence the budgeting...) but that's also why we want our investment money to be available to us were we able to find a home in our budget.  Unfortunately, my employer doesn't match 401k but I do have one - though I've been putting in a pretty minimal amount into it.

The other unknown is taxes...  With Veronika's money still being in Europe, once we bring it over here, I'm not sure how that'll work tax-wise.  Not something we need to figure out right away (since for now at least, we're able to get by solely on my income), but once we're ready to buy a home or whatnot, I don't want to be gouged by some unforeseen taxes...

Quick thoughts on buying a house:

My wife and I have bought two, and they've both been good decisions, so it can be a great thing.  It's not that simple, though.  Here's what I've learned.

1) It can be a great financial decision, but it doesn't change life.  I grew up not quite "poor," but without much extra.  When we went to buy our first home (in KY where real estate is like Mexico!), I was amazed at the incredible (to me, still very middle-class, please understand) home and neighborhood that we could get into.  I'm embarrassed to admit how much I really believed that moving into that house/neighborhood would change my life.  It WAS nice, and I DID enjoy it -- but I remember feeling very dumb about a month after we moved in when I realized that my life was still exactly the same, it was just in a prettier box.  I absolutely knew better, but still fell for the illusion that somehow I'd be more important or more successful or whatever garbage because of a house.  Buying was a good idea and I'm glad we did it -- but it's nothing more than a financial decision and change of scenery. 

2) With the above in mind, play conservative.  Banks, if you have good credit (I'm guessing you do) and certainly real estate people will push you to buy the nicest, most expensive thing that the bank will approve you for.  What they show you will look awesome!  And they'll say how it's your best investment (which even has some truth to it).  Dial it down.  It's really just a house -- there's no good at all in stressing over bills and life because you bought more house than was wise, and it's awfully tough to go back after you sign on something like that.  The thrill of the cool house wears off WAY before the mortgage is paid off.  Keep the payments easily manageable.  We looked at a couple amazing homes, but held off.  This year I've had some really tough things and my income has been cut considerably.  I'm SO happy that we stayed modest and haven't had problems keeping the bills paid. 

3) Here's the mistake we made -- pay attention to schools.  Especially as you mention having babies, schools are a big deal.  We didn't have a kid when we bought.  Then we adopted and suddenly realized that our public school is absolutely unacceptable.  Too late!  Learn from our regret here.  By the time he's out of high school, we'll have paid $30,000+ for (cheap!) private school.  We'd have been MUCH better off to buy a home that's $30,000 higher in the next town over where the schools are fine -- then at least we have that $30,000 in our home rather than just writing checks to a school.

4) Don't buy a house just because people tell you to.  If it doesn't make sense in your situation or it's so high where you are that you can never cobble together a down payment or whatever -- just rent.  Don't be pressured by the "you have to buy, you're throwing your money for rent away!" mindset.  It's too big of a commitment to jump into before really making sure it's the right way to go.

I'm absolutely no help whatsoever on international tax stuff or whatever.  WAY out of my pay grade!

Anyway, hope some of this helps!