Money and finances is an uncomfortable subject, but it’s a necessary part of life. I learned from personal experience there is more to life than living in the city or suburbs focused on earning an income and pursuing the common idea of “success”. Like many, I had a dream of homesteading and spending more time managing my home, gardens, and living a creative life with my family. Focusing on these five steps to financing a homestead drastically changed how I live my life. If I can do it, you can too!
Planning for the Unexpected
I wouldn’t claim I live frugally. Actually, “frugal living” is such a relative term. I feel like I am a “yo-yo dieter” when it comes to spending. Some times my ‘financial diet’ is strict and I feel good about our spending, and sometimes I go off my budget and need to refocus and apply discipline to get back on track. I am by no means an ‘expert’ or the wisest when it comes to finances, but I do have some experiences to share.
I know what it feels like to live under the burden of debt. Like many people, the recent recession years were difficult for me, especially as a single mother of two young children, with divorce attorney fees, and a house that wouldn’t sell. Even though some of the circumstances during that difficult time were beyond my control, many were, and as I struggled, I learned valuable lessons. Probably the most important lesson learned was to have a plan for the unexpected.
Fortunately, I recovered from my financial crisis and made savings a priority. Both my personal and financial circumstances improved, and I began setting new goals for myself.
Financing a Homestead – Creating a Budget
The budget is not just a collection of numbers, but an expression of our values and aspirations.
After remarriage and a new baby, I started re-focusing on achieving my goal to live a simpler life in the country, growing and raising more of our food. Starting in 2009, my husband Carl and I began planning our escape from the crowded and expensive suburbs of Washington, DC.
With a goal of moving to a small piece of land with a modest home, we began making further changes in our spending habits and started a new savings plan for our future homestead. The steps we took were very basic, but required consistent discipline. We focused on the following five steps for financing a homestead:
- Record All Spending
- Eliminate or Reduce Unnecessary Spending
- Eliminate or Reduce Debt
- Set up Automatic Savings
- Review and Reassess
Let me share some details of this plan, and offer personal examples.
Five Steps to Finance a Homestead
1. Record All Spending
These days it’s so easy to spend money – we have debit and credit cards to swipe, automatic payment accounts, and we need not even track our balances to spend our money. With two people sharing an account, it was difficult to know exactly how much we were spending and what we were spending on each month.
In order to know where our money was going, we switched to making nearly all our purchases on our bank debit cards. This way each month I could check our bank statement to track our spending. I created a spreadsheet with categories for expenses. Some categories were fixed – they stayed the same every month, and others were flexible – they varied from month to month. For example:
Home Owner’s Association Fees
Phone and internet bundle
If you have never done this before, let me tell you, it can be eye-opening! The small things add up quickly. After recording our spending, it was easy to see the areas where we could make adjustments, which leads to the next step.
2. Eliminate or Reduce Unnecessary Spending
There were clearly some areas we could make immediate changes. Money on restaurant meals, movies, and impulse purchases were our biggest weaknesses. We decided on a reasonable amount for these categories, and created a monthly and weekly budget.
This was hard in the beginning, and required some discipline. For example, instead of enjoying the convenience of restaurant meals, a weekly meal plan was necessary to plan, shop, and cook meals at home. We kept a supply of healthy snacks to carry with us when we were away from home to reduce the temptation for eating out, and we enjoyed special picnic lunches and candlelit dinners at home. The money we saved was applied to the next strategy.
3. Eliminate or Reduce Debt
Paying interest on debt is not something I want to do with my hard-earned money. It seemed pointless to start a savings plan if we were spinning our wheels on the slow payoff of debt with high interest. You can get a better picture of just how much interest adds to your total payment, even on a small debt, using interest calculators like this one at Money Saving Pro .
Treat high interest debt as an emergency, and work toward reducing that principle!
4. Automatic Savings
We are all creatures of habit, and bad financial habits can be hard to break. If we are not in the habit of saving money, we might always find things that we “need” to buy with that little bit of extra money coming out of our budget plan. The most convenient way to save consistently is to make it automatic. Just like IRA funds are automatically deducted from a paycheck, you can set up an automatic savings from your checking account.
We set our checking account to automatically transfer a set amount of money into our savings account on a specific date each month. Other than in the beginning when we had to decide how much we could afford each month and choose the best date for the transfer, we never had to think about the savings. Each month our savings account grew and we were closer to reaching our goals.
But it didn’t end there.
5. Review and Reassess
Like the diet we continually go on and off again, staying diligent with our spending habits requires consistent self-discipline. This is something I struggle with now, as I work full-time outside the home with a long daily commute. More and more I find myself slipping into old habits, mostly for convenience as well as simple lack of motivation.
But I find motivation by creating new goals and imagining a different future. Things are always changing, whether we want or plan for the change or not. Do I want to let myself be completely swept along by life, or do I want to influence future outcomes?
Having a clear goal and a vision of that goal helps us to stay on track. Being too general, like simply saving for the future, or saving for the sake of saving, is not always a strong enough motivator when we are making spending choices from moment to moment.
Knowing that the hard work and discipline we put into our finances and savings will help us achieve a specific goal is a great way to stay motivated.
At least once a year, review your spending and budget, and look for areas where you are slipping. Create an improvement plan and then begin implementing those changes. Your future self will thank you!
- Do you track your spending and budget?
- Do you have specific financial goals?
- What is the biggest change you have made in your spending habits?
Wishing you a happy, healthy, and prosperous year!
For more on financial goals:
The Elliot Homestead talks about the reality of funding their homestead – http://theelliotthomestead.com/2014/07/how-we-fund-our-homestead/
Books recommended by my readers:
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