I’ve lost count of the number of budgeting plans, techniques, strategies, programs, apps, and so on that Shona and I have tried over 23 years to get our finances in order. Sometimes we’ve come close to mastering our money, but it just doesn’t seem to last. A few times we’ve just given up, but most of the time we’ve worked really really hard to plan, budget, keep accounts, and practice accountability. And yet, no matter how much income we have, savings never seem to rise, unexpected bills bomb our beautiful budgets, and we just about survive from month to month.

Dave Ramsey’s plan has brought us closest to getting a handle on our accounts over the last couple of years, but we kept finding the micro-categorization so complicated and time-consuming. Also, when we blew it on one category, we kind of lost heart in keeping the other categories under control. And it was always difficult to figure out exactly how well we were doing overall at any stage of the month. Usually we got to the end of the month and just about squared things away with savings in some categories compensating for over-spending in others. But neither of us felt much motivation to really try to save money in our daily expenditure as we didn’t see our decisions making any difference to the overall picture.

Until a few months ago, when we stumbled upon a modification of the Dave Ramsey system, let’s call it the Dave Murray system, that has absolutely revolutionized our finances.

The Dave Murray System

Step 1: Estimate how much income from all sources in the course of the month.

Step 2: Calculate how much fixed expenses for the month.

Fixed expenses are predictable amounts that come off every month and includes items like tithe, mortgage (including property tax and insurance), car insurance, cellphone, Internet, YMCA, College tuition, Covenant Eyes, utilities, pension, health insurance, and so on. We also include a small fixed amount every month that goes into savings.

Step 3: Calculate the difference between Step 1 and Step 2 (Total income minus Fixed expenses = Variable expenses budget)

The amount left here is what’s available for all the variable monthly expenses, amounts that go up and down each month depending on so many uncontrollable factors. We take this out of the bank in cash.

This is where I leave the Dave Ramsey plan and start the Dave Murray plan.

At this point, Dave Ramsey would have you start putting this money into multiple envelopes for numerous categories: gas, groceries, stationery, pharmacy, doctor/dentist, car repairs, clothes, house maintenance, furniture replacement, and on and on it goes.

Instead, my wife heads to Costco.

Step 4: Monthly Mega-shop

Shona takes a large chunk of the variable expenses budget calculated at Step 3 and does one mega-shop in Costco and Walmart at the beginning of the month to get best prices on items that cost so much more in a weekly shop at the local grocery store. This has been a huge game-changer for us, especially with a family of seven, and has greatly reduced our monthly expenditure on food and non-food items.

Step 5: Variable Expenses minus Monthly Mega-shop = What’s left to spend (divided by 30)

Here we subtract Step 4 (mega-shop) from Step 3 (variable expenses budget) to find out what we have left to spend in the month. We then divide that by 30 (or 31 depending on the month). This gives us a daily budget amount, a fixed sum that we work really hard to save from each day. We then put together a spreadsheet with 30 columns and enter this fixed daily amount at the top of each column. That’s what we have to spend each day on everything we need – gas, groceries, books, clothes, etc. This step has been the second and biggest game-changer for us.

Step 6: Daily Accountability

Every evening after our family meal, Shona and I get together and write in the spreadsheet how much she’s spent we’ve spent that day. Our aim is to have savings each day from our daily budget that will accumulate more and more momentum as the days and weeks pass. It’s been incredible how working with this limited daily amount has made us so much more conscious of every spending decision, motivating us to really ask if we need to buy this or that right now, with every saving making a visible and felt difference to the cash pile in our money box. If we go over budget a day or two, then we work extra hard to recover quickly. It’s so encouraging to see how quickly $30 saved one day and $20 another quickly mount up to hundreds of dollars each month.

With this method, unlike the Dave Ramsey method, you know exactly where you are each day of the month, either exceeding budget or saving from it. Also, it is so much quicker to do each day. When we were using the Dave Ramsey system we ended up spending up to 30 minutes a day getting all our categories sorted. That often put us off actually doing it for days at a time, making it difficult to remember, frequently leading us to give up.

With this scheme, there’s just one category (daily budget) and all daily expenditure is debited from that. Usually we’re done in 5 minutes. And for the first time in our lives, we feel in control of our finances, we’re saving as we’ve never saved before, and we’re even enjoying it!

I’m including this in my New Student Tip series because although my family circumstances are just a wee bit different to most students (you can probably skip the Costco mega-shop!), the basic framework of this system, especially the daily budget idea, can be used by anyone, including students.

UPDATE: You Need A Budget Is Offering their App free to students. More details here.

  • HomeschoolontheCroft

    Calum has been reading the Dave Ramsey book- Smart Money Smart Kids – for the past couple of days, and is really struck with all the concepts! He’s loving it! He has actually spent the past hour making a list of ALL his outgoings (annually, and with my help!), in readiness for him to begin taking responsibility for all his own spending (givings, clothes, gifts, holiday/camp etc). We began doing this with the girls a number of years before they began earning (which was at 16/17), though they didn’t follow Dave Ramsey’s model.
    I have tried to tweak Ramsey’s methods to suit our own situation…. not particularly easy when costs vary so much in the UK (eg, I think his recommendation is that food ought to be around 15%(?) of income, but for us, it’s more like 30%+)

    Having both of you on board is so helpful to you – probably essential – to the whole plan to work.

    However, I love the *principles* in his writings, and in essence, THIS is what I want to have, and what I’d love to pass onto our kids.

    • HomeschoolontheCroft

      Oh, and interestingly … Calum Stewart (he’s 11) has been amazed at how *expensive* everything is! In many ways, it’s been worth going through this simply to show him how all the clothing necessities add up. Even knowing that makes a difference to the attitude kids have towards “I want/need trainers” etc

      • David Murray

        Totally agree. We decided last year to start being totally transparent with our older boys about income and outgoings. It’s made a huge difference to the way they view our spending (and not-spending) decisions.

    • David Murray

      Great to think of “wee Calum” doing Dave Ramsey. Just love that. You’re right, Ramsey’s principles are excellent, but you do need to tweak them to your own situation. Like you, I wish I’d learned this three decades ago.

  • Rhuiden

    Dave Ramsey is great. I love the 7 steps. But for strictly budgeting the best program i have ever come across is YNAB (You Need A Budget). You can find it here: http://www.youneedabudget.com/ Give it a look.

    • David Murray

      Thanks for the tip!

      • Hanneke

        I second ynab. We’re sem students and so money is very tight and since I download all my transactions into YNAB reconciliation is easy! The phone apps are really good also. Try it for free! I also download report for our deacons since we’re 100%funded.
        Hanneke

        • Ian Tyrrell

          Hi Hanneke,
          Just wanted to let you know that we offer YNAB for free for students. I don’t know if you’ve already purchased a full copy, but if you know any other seminary (or you know, regular college/university) students who we can help out, they can use YNAB for free while they are studying.

          More details here:http://www.youneedabudget.com/blog/2014/ynab-is-now-free-for-college-students/

          Cheers,
          -Ian Tyrrell
          Senior Code Wrangler
          http://www.YouNeedABudget.com

          • justmerach

            Elegant software indeed.

            Thanks for all your hard work, Ian! I was just going to give your plug for you… I’ve pointed quite a few students at that offer.

            I’m not a student myself – I’ve happily paid for your software after trying the free trial and it has been worth every penny and more. Thankyou again!

          • Ian Tyrrell

            Thanks for the kind words – I know the whole team appreciates hearing that we’re helping people out!

            Cheers,
            -Ian

          • David Murray

            Thanks Ian. I’ll add that to the post.

      • Ian Tyrrell

        Hi David,
        I’m one of the YNAB developers, if you’re interested in a demo and want some help getting going (we do a few things differently than most budgeting methods), feel free to email me (ian AT youneedabudget.com).

        I’d be happy to help get you up and running.

        Cheers,
        -Ian Tyrrell
        Senior Code Wrangler
        http://www.YouNeedABudget.com

  • Brent

    Thanks so much for this. You sound exactly like me and my family with the struggling yet making no progress, even down to the five kids! We are going to start trying this immediately.
    Question on the daily amount… If your daily amount is $30 and you spend $20, do you carry the $10 forward or leave it as a savings? And the inverse, if you spend $40, do you try to make it up the next day or just count it a loss? I imagine that there will be single purchases that will be greater than your daily budget.

    • David Murray

      Brent, if we save $20 we carry it forward in a running total of savings. So, for example, if we save $20 on Monday, $40 on Tues, and $5 on Wed, then we will be showing a running total of savings of $65. If on Thursday we spend say $15 over daily budget, then the running total will show $50.

      Yes, there are single purchases bigger than our daily budget. That’s why we do a mega-shop at the beginning of the month in order to reduce the likelihood of exceeding our daily budget. Also, we try to make sure we have enough “savings” from our daily budget before we make a bigger purchase. So for example, we will wait until we have maybe $100 saved from our daily budget before going to buy shoes for the kids. Hope that makes sense.

      • Peter

        Dave,
        What do you do i for example if you have to go to the mechanic and have a $500 car bill. How do you deal with that on your daily budget?

        • David Murray

          Peter. See #3 on this post http://headhearthand.org/blog/2014/09/23/new-student-tip-12-money-management/
          If you don’t have that emergency fund saved up, then you have to try to pay it out of the daily budget – hopefully you’ve got some saved up from the month – and then really tighten up for the rest of the month. But ideally, these expenses should come out of an existing emergency fund.

  • justmerach

    I’ve been motivated recently by better grasping my personal financial priorities: integrity in prompt billpaying, saving, productivity (tool purchase/maintenance), charitable giving, generosity, health (proactive investment), etc. All competing for the same pie.*

    For example, my grocery budget won’t go down, but I’ve decided that is ok with me as I am attempting more hospitality lately, and that takes more money than feeding one!

    Budgeting awareness has surprisingly given me more freedom to spend in the areas I want to spend in, rather than always worrying “do I have enough to try something new”? Tightening the belt never feels fun, but if it is being tightened in some areas in order to dedicate to other worthy and diligently chosen endevours, it takes on a more positive flavour in my perception.

    *To give credit where it is due: I’ve already given a plug to YNAB as software. I think some of their step tutorials, like “Give every Dollar a job” have helped in changing my mindset. The guidance is about as helpful – if not more so – than the software is.

    • David Murray

      I’ll have a look at YNAB. Thanks for your comment.

  • Kim

    Hello, Dr. Murray,
    Just an observation –> most people get paid bi-weekly, at the seminary we get paid monthly. It makes it more challenging but more essential to have a budget.

    Kim

    • David Murray

      Didn’t know that! Thanks for advancing my Americanization :)