Even though we recently joined the personal finance community, we have seriously procrastinated at looking at the breakdown of our own finances. We know we have saved some money by cutting spending (the usual eating out less and binge-watching Netflix for entertainment), but we have never looked at the exact numbers. As month two of DWD comes to a close, it is time to finally look at how we are spending our money and where we can improve on our budget.
My husband and I are fortunate enough to both work full-time jobs in dentistry. With the dual income, we have more flexibility with making large payments toward student loan debt. At the start of this year, we moved forward with refinancing my federal loans and made our first payment in March (see how we decided here). We are currently spending 20% of our income on paying student loans.
DAVE RAMSEY’S ZERO-BASED BUDGET
I wanted to know what else we are spending our money on. I recently read about Dave Ramsey’s zero-based budget and decided to give it a try. Zero-based budgeting basically means your income minus your expenses equals zero. This allows you to follow exactly where every single dollar is spent. The first steps: write down your total income for the month and list all of your expenses! I was excited for this part because I LOVE spreadsheets on Excel, but it was surprisingly difficult to find a free budget spreadsheet that I wanted to use. I finally came across this article by Huffington Post: 5 Household Budget Templates That Will Help If You Actually Stick With It.
I downloaded a very detailed spreadsheet from Enemy of Debt (EOD Deluxe Budget 2.0). It was very helpful to have a list of preset budget categories. I changed some of the categories and made a custom list to reflect our expenses. For example, we are DINKS so I replaced childcare, school tuition, school supplies etc. I used the month of March to test out the zero-based budget. We did have some unusual expenses in March, such as paying our accountant for taxes and renewing dental licenses. When I was finished, I learned that we spent about 71% of our income and the rest of unaccounted for.
WHERE DOES ALL OUR MONEY GO?
Apparently, this is how we spent our money in March:
Surprisingly, we only spent about 15% of our income on housing. This was reassuring that we can afford to live in the San Francisco Bay Area, however also a reminder of how much more we could be saving if we moved to a city with a lower cost of living.
Our most unnecessary purchases (which neither of us knew about):
Mr. Debt Wise Dentist – $236.75 spent on Amazon for various electronics like a WiFi extender
Mrs. Debt Wise Dentist – $215.23 spent at Nordstrom Rack for clothes, including a dress to wear to a wedding and alterations for said dress
It seems one of our first budgeting moves will be agreeing on how much “me” money we get to spend per month. Even Dave Ramsey says you should have fun money, as long as it is in the budget! Also, since we have been priding ourselves on eating out less, I was shocked to see that half of the money we spent on food went to restaurants/fast food. To be fair, my husband took a trip to Los Angeles during March, but it definitely showed me that we could save a bit more on eating out.
From the chart, you can also see we spend 0% on savings and investments. Technically our “unspent income” of 29% is sitting in a checking/savings account, but that isn’t our intention for this money. I knew that our income/expenses would not equal zero, but I didn’t know we had 29% left to manage.
HOW SHOULD WE SPEND THE LEFTOVER 29%?
I wanted to see how quickly we could pay off our debt by using the remaining 29% to pay off our student loans. If we continue paying 20% toward student loans (the other 2% debt above is for our car), then we will pay our loans off in about 15 years. However, if we dump all of our extra money toward the loans, then we will be debt free in less than 5 years!
After discussing with Mr. Debt Wise Dentist, our current plan is to spend all of our extra money on paying off debt. Fortunately, we already have an emergency fund set aside and given that we don’t have any children yet, we feel comfortable paying off the debt as fast as possible. However, I’m sure our “budget” will evolve over time, especially once kids are in the picture. Our next step will be learning how to invest a portion of our income, as well. As dentists, we do not have 401Ks or any benefits for that matter, so we have a lot to learn! Our next huge step will be deciding how to invest our money and sharing with you along the way.
How have you budgeted your expenses? Is it better to pay off loans or invest or both? When should you start investing? Please comment below!