Family money

I have achieved two awesome milestones: (1) I know what our family assets and debts are (what we have, and what we owe). (2) I know our family's monthly/yearly income and expenses (where our money comes from, where it goes, and how much comes and goes each month/year). This is the first time I have ever known these things, which is embarrassing, but never mind that. I am incredibly satisfied that I know these things now!

I started this process because I inherited some money from my father, and I had some hopes and some fears associated with this inheritance. My hope was that we could afford to make some exciting new purchases: a rental property, or a new car, or solar panels, or... well, we had various fantasies. My fear was that we would spend all the money unintentionally, not even knowing where it went, and then it would be gone, and it would be saying goodbye to my father in yet another painful way. I felt very out of control of our money – I didn't know what we had or where it was going – and therefore I didn't know what to do. I didn't even really know what questions to ask.

I decided I wanted to consider hiring a financial advisor. I have friends who have a financial advisor and feel they have gotten great benefit from that, and other friends who feel it's a waste of money. I got some good recommendations and set up a free consultation. And what do you know: preparation for this consultation included documenting what we have. This was a fair amount of work, because it turns out our accounts are sort of all over the place – we have various checking and savings accounts, multiple retirement accounts, a bunch of insurance policies, and so on. But the financial advisor provided a checklist and a questionnaire, and that enabled me to get it all together. In the process, I found some money I didn't know I had! so that was rewarding. Most of the reward, though, was just the great feeling of knowing what and where it all is.

We did have an initial consultation with a financial advisor, and that was a hour very well spent in my opinion (especially because it was free). Without even doing an analysis he conveyed that we are nowhere near buying a rental property. He said, "What I see here is a wonderful opportunity to save," which I thought was hilariously diplomatic.

I learned that as part of his working with us, if he worked with us, he would be asking us to track our expenses to learn our monthly household cash flow. So after the meeting, I decided to just start on that on my own, and see how far I could get. I realized that if I knew our monthly expenses, I could designate an emergency fund containing six months' expenses, which would be a relief; then I'd know what we had "left," i.e., whether we have a pile of "other money" that we could spend on solar panels or whatever without jeopardizing our basic financial security. Also, if I knew our monthly expenses I could calculate the (monthly/yearly) gap between our income and expenses, which would address my biggest fear (that we are currently losing money without even knowing it).

I've tried to calculate our monthly/yearly expenses before and failed completely, because our expenses are so variable. Every month there's some one-time thing, and some expenses are seasonal (like summer camp), and it all just seemed practically unknowable. But I was energized by my good experience documenting what we have, and I decided I was not going to let this lick me.

The first step was to come up with expense categories relevant to our family. I started with some generic lists I found online, then spent weeks combing through our household transactions, adding and deleting and combining categories until it seemed like I had what I needed. It was important in our case to look at our paychecks, our bank statements, and our credit card statements (for multiple months), because different expenses show up in different places. And now I have it! I have about 12 major categories (such as food and education) and about 50 more detailed categories that facilitate tracking (e.g., groceries/restaurants, tuition for school 1/tuition for school 2/boychoir tuition/etc). This felt like a great achievement in itself.

The next step was to determine the amounts associated with each of these categories. Some were known exactly (tuition is the same every month), so that was easy. Some were variable but easy to average (the electric bill has accessible history). Many, however, were totally unknown to me. Groceries, for example, and entertainment activities, and vacations, and charitable donations, and after school care: I really had no idea of those amounts. So, courageously, I arranged to track these expenses continually and consistently over multiple months. I did this by systematically imposing my expense categories in Mint (all the stuff I need to track shows up there) and documenting the total in each category month by month, in a separate Excel spreadsheet. I did five months of this to begin with (from May to September). That's enough to see some patterns, like groceries. It's not enough for some seasonal categories, so the data is still noisy, but I'll just keep tracking and it will get better over time.

For the Big Moment, to see what everything adds up to, Dale and I sat down together and summed things up. It was exciting! My questions are answered! (With the above caveat about the data still being noisy.) How I love it when questions get answered. Avoiding reporting specific numbers (seriously none of your business), I can cheerfully report the following:

1. Our current expenses are a bit less than our income. Hooray for that!
2. We have enough cash on hand to designate an appropriate emergency fund. Yahoo!
3. There is not enough "other money" for any fantasy expenses. Oh well.
4. We are almost certainly not saving enough for retirement, though this needs more research. College is kind of okay.
5. Overall, our expenses reflect our values very well. We spend a lot of money on the things that we care about a lot. And we agree on those things, which is huge. Our values are perhaps a bit outside our budget, especially given the retirement situation, but it could be worse.

6. I do not currently feel a need for a financial advisor. I think I know what I need to know.

I am very curious to keep this up and see how things evolve as my data gets better!