“I can find you a house with more bathrooms if you raise your budget by about $20,000 more,” our real estate agent told us. She explained, “It will likely only increase your monthly payment by a bit. Can you come up at all in your budget?”
I could, but I wouldn't.
We were living in New Jersey but searching for a three‐bedroom, two‐bathroom house in Michigan, where my husband matched into a residency program.
We made the 10‐hour drive from New Jersey to Michigan twice to go house hunting with both two‐year‐olds in the car. So, you can imagine how crazy the process was—it was not like you see on HGTV!
Although we wanted a three‐bedroom, two‐bathroom house because we'd all been sharing a bathroom since the twins were born, those houses seemed to be out of our price range or snapped up quickly overnight.
I never dreamed the Detroit metro market would be so hot, but it was. Every house we looked at had multiple offers on it. We lost the first house we decided to make an offer on to an all‐cash buyer. And, these were all small bungalows, what some would call starter homes. Most of the houses in our budget had one bathroom, not two, and I quickly realized I would have to compromise on what I wanted if I was going to stay under budget.
When my real estate agent asked me if we could raise our budget by $20,000, she was trying to help us. As a busy mother herself of young kids, she knew buying a home with one bathroom would be inconvenient for us. She also knew that if we could raise our budget by a little bit, it would open up several new houses to tour that we hadn't considered yet. But, here's the thing: I wasn't in a rush to have a “dream home” or exactly what I wanted. I'm still not. I wanted to buy what I could very easily afford with plenty of room to spare.
When we found our home, I didn't love it at first. The layout wasn't something I would have picked, and it was showing its age, as it was built in the 1950s. But, it had a big backyard for our kids and dog. The kitchen was updated with granite countertops, and it definitely had potential. My husband told me that we could save up to finish the basement to add some square footage and that we could eventually upgrade our appliances to stainless steel. The bones were good, and despite the fact that all four of us would be sharing a bathroom, I knew we could make it work.
We decided to put an offer on the house, but four other people had the same idea. Again, we couldn't believe how many people were trying to buy a house in the same area. I remember our real estate agent called us shocked when the buyer chose us. “I can't believe it, but you got the house!” she exclaimed.
Part of why we got the house was that we were very flexible with the buyer. We allowed her to rent it back from us for 60 days, which greatly complicated our own schedule. However, in the end, it enabled us to be the ones to get the keys. I also wrote her a nice note with my offer with an adorable picture of my family telling her how it would be our first home and how much our pup would enjoy her very first fenced‐in backyard.
Having lived in our 1950s bungalow for over four years now, I can say with confidence that it was the right choice for us. I don't mind that it's a bit small because of the peace and freedom our low mortgage payment brings us.
I've never once worried about not being able to make my mortgage payment because I simply didn't buy a house that was a stretch for me. After all, being a business owner means I have a variable income, and I have to be cognizant of that. When we bought the house, my husband was still in training, and I was still in the early stages of full‐time business ownership. We bought a house that was appropriate for us at the time. We weren't trying to pretend we were wealthier or further along on our financial journey than we actually were.
Most financial experts recommend you buy a home with a payment that's around 25–30% of your monthly take‐home pay. I agree that's a reasonable percentage, especially if you have a large emergency fund. But, I took an even more conservative route. Our house payment is less than 15% of our monthly take‐home pay.
That came in handy when our property taxes went up the first year of owning our home. It also helped when our hot water heater needed replacing to the tune of $1,600. Then, my husband said he wanted to do one extra year of training after he graduated from residency. The catch was he'd have lower pay for that year, and the fellowship program he wanted to do was in the next state over. That meant he needed to rent an apartment for a year and come home on the weekends. The only reason he was able to take that opportunity and pay for an apartment without worrying was because we bought a house we could afford on one income.
Right now, there is a lot of pressure on millennials to buy their dream home right away. Society is very good at convincing people they “deserve” the very best. Many families tend to upgrade to bigger and better homes throughout their lifetimes. Rarely do people stay put like my 96‐year‐old great uncle who's lived in his house for over 60 years. (It still has the same furniture and pink carpet that it did decades ago, and he takes excellent care of it.)
When we were looking for houses, I thought about my great uncle, who raised six boys in his modest house. I also thought about my husband, who grew up in a small house that belonged to his grandmother, and their family of six all shared a bathroom until my husband was in the seventh grade. Then, they moved into the home my in‐laws still live in today, one they built over the course of several years and paid for in cash despite having a modest income. My great uncle and my in‐laws knew what it meant to delay gratification, to wait, and it has served them well.
My own parents bought an old fishing camp not long after I was born and renovated it. When I was in the eighth grade, they added on to the house. They didn't do it all at once. They waited years until the time was right. So, I know that in the future, I can upgrade my home if I want to. I had no illusions that I had to purchase the biggest, most beautiful house on the block as my first home. There's a huge advantage to waiting until you're financially ready for the next step.
And, for the record, there's nothing wrong with wanting a big, beautiful home. Put it on your dream board and go for it! I'm emphasizing that many young people want perfect, Pinterest‐worthy houses right away when they're just getting started in life. I would never expect my first home to be like my in‐laws' or my parents' house, because they worked 20–30 years to get to that point. If I tried to be at their level now, before I'm financially ready, it could put me in significant financial hardship. Instead, I'd rather enjoy the journey along the way and see where it takes me.
The difference between how older generations grew up and today is millennials experience a barrage of billions of dollars of marketing dollars designed to make us buy. No longer is advertising limited to newspapers or commercials. I can't pump gas or walk through the grocery store without being assaulted with an ad on a blinking screen. I can't even browse a pair of $50 shoes online without a website reassuring me that I can break up the purchase into “three easy payments.”
The problem with this is that millennials can afford just about anything these days if it's broken up into enough monthly payments. And the more payments you have, even if they're really tiny, the more it disrupts your cash flow. There's a common refrain that “cash is king,” and I'd like to rephrase that to “cash flow is king.”
Paying attention to cash flow is one of the most important skills you can master when becoming a boss with your money. Cash flow is the money you have flowing in and out of your bank account every month. What you want is more money flowing in than out. So yes, I could have purchased a slightly more expensive house with an extra bathroom, but that would have meant more cash leaving my bank account every month. And, I don't want my cash to leave. I want it to stay, because then I can use it to save, invest, and grow my wealth.
When it comes to cash flow, there are three main expenses that can make or break your budget. I call them the three anchors.
When it comes to buying a home, it's very important to know that banks base the amount of home you can afford on your gross income, not your net income. We've already established that your gross income is your income before any benefits or retirement contributions get taken out of your paycheck. Banks also look at the amount of debt you have (so they can calculate something called a Debt‐to‐Income—DTI—ratio) and your credit score. What they don't know is how many vacations you like to take a year. They also don't know that you spend money taking care of your mom or that your daughter is a competitive gymnast (and gymnastics costs you $500 a month).
Only you know your real monthly cash flow numbers, and only you should be the one to say what house you can afford. Just because a bank is willing to give you a big mortgage loan doesn't mean you should take it.
Too much house means too much cash flow going out. You have to decide what your priorities are in your life and how homeownership fits into that. You don't want too much of a house payment to take away the ability to go on a family vacation or pay for your child's extracurriculars.
While I'm on the topic of homeownership, I also want to say there's absolutely nothing wrong with renting. The American Dream really pushes people to feel like they aren't successful unless they actually own a home. However, buying and selling houses is an expensive process. Ideally, you should save 20% down on a home to avoid paying something called private mortgage insurance (PMI), which is an extra bill you have to pay if you put down less than 20%. Private mortgage insurance provides no real benefit to you; it's intended to protect the bank if you default. Additionally, PMI can sometimes come at a high monthly cost, although certain types of mortgage loans, like VA loans, will waive PMI if you put down less than 20%. Home maintenance is also expensive, especially if you have little kids who find joy in seeing just how much maintenance they can create for you.
You will never hear me say that owning a home is essential to building wealth. It's certainly one way to grow your assets in that net worth column, but it's not the only way to do it. Many people choose homeownership using the argument that in their area, having a mortgage payment is cheaper than their rent payment. And, while that may be true on paper, make sure you fully understand that the house payment you're comparing is likely less than renting because you will put thousands of dollars down on a home first.
Additionally, you will likely have to pay thousands of dollars to close and ideally have thousands of dollars in savings for maintenance. Oh, and don't forget random things like the $400 sidewalk tax bill we unexpectedly received one week before Christmas just a few months after we bought our home.
Yes, homes do typically appreciate in value, so they're nice to have in the asset column of your net worth spreadsheet. But, it's important to run all the numbers, as homeownership might be more expensive than you realize. In fact, according to a 2019 survey, 63% of millennial homeowners expressed regrets about their home purchase, citing unexpected costs as the biggest issue they encountered.1
When you own your home, sure you can paint the walls any color you want, but all repairs will come out of your bank account. When you rent, you usually have a set monthly payment, and your landlord is responsible for repairs. There are pros and cons to both, and when you decide which is right for you, make sure you consider your available cash flow as part of it. It might seem like renting costs more when looking at monthly payments, but it's likely that it's less overall when you factor in home‐buying costs, maintenance, and general upkeep.
Don't be afraid to downgrade into a more affordable home to improve your cash flow or pursue other financial goals. Similarly, don't let society convince you that you need to be in a rush to buy a home. When my best friend got pregnant with her first child, everyone assumed she would buy her first house (you know, because the world expects you to check all their made‐up boxes if you're going to be a mom!). Several people were very surprised when my friend said that she had no intention of buying a house until they were ready. She was perfectly content with bringing her baby home to her apartment.
I reminded her that I lived in a house that was converted to two apartments for the first two years of my twins' lives. I walked up and down a flight of stairs every day carrying both car seats, and our downstairs apartment neighbors often complained once the twins learned to walk and started running around upstairs. It was the right choice for us at the time, though, and no one should dictate how you spend your money or raise your children. Can I get an amen?
The next budget anchor when considering cash flow is cars. According to data from Experian Automotive, the average car payment for a new car as of Q1 in 2019 is $554, and for a used car it's $391.2 Plus, now you can get a car loan for eight years! In the past, five years was more commonplace as the loan term when financing a car. According to Experian's data, the amount of car loans between 85 and 96 months used to finance new cars increased 38% in Q1 2019.3
The problem with having car loans of that length is depreciation. According to a study that analyzed over 7.7 million used and new cars, on average, a car's value will depreciate almost 50% over the first five years of ownership.4 Because of that, if you have a long car loan term coupled with a high interest rate, you can see how very quickly, you can owe much more on your car than what it's worth.
Of course, dealerships aren't worried about your cash flow or your personal pursuit of wealth. They will happily let you trade in a car, even if you owe more on it than it's worth. They'll roll that difference, called negative equity, into a new car loan for you. Unfortunately, that means you drive off the lot with a huge new loan and monthly payment on a car you still owe more on than it's worth. Once you start that cycle of rolling negative equity into new car loans, it can be extremely difficult to get out of it.
If you want to make a change with your car and lower your car payment, consider this. You can always buy a nicer car one day once you get to a better financial position. Your car is just a car. Society has made it a status symbol and a sign of success. For most people, though, it simply represents a big loan and a big car payment every month. Don't let the car illusion funded by other people's debt make you feel like you, too, have to have the newest, nicest car on the block.
I'm not saying you have to drive a car that's falling apart or breaking down every mile. You're a mom and many of you are driving little kids around. I know you want something reliable and safe. I also realize that while you're new on your financial journey, many of you might find it difficult to buy a car in cash, at least initially. So, start by downsizing.
Here's an example. If you currently own a newer car with a $500 monthly payment, sell it and buy a reliable, normal $10,000 used car. If you take out a 60‐month loan (not an 84‐ or a 96‐month loan) for this vehicle at a 4% interest rate, your monthly payment would be $184 per month. That immediately frees up $316 of cash flow every month, money you get to keep. You can use that to pay off debt or put it in a sinking fund for car maintenance so getting new tires won't break your entire budget. You could also set it aside and save up to buy your next car in cash because the only thing better than lowering your car note is not having one at all.
Your kids are going to put crushed goldfish on the floor of your car whether you drive a used Honda Accord or a new BMW, so you might as well purchase a car you can easily afford. Your car says nothing about you as a person, and anyone who treats you differently based on what you drive isn't worth your time and doesn't have your best interests at heart.
Interestingly, researchers found that while it may seem like driving a luxury car would make you happier, it rarely makes a difference once you get used to driving it day to day. We all like things that are shiny and new because they're fun and exciting. But, once you are sitting in traffic and your focus is not on the newest tech features in your car, the car itself no longer produces the same level of happiness.5 In sum, the study concluded, “The car matters when the car is on the driver's mind, but not otherwise.”
Most of us are driving, dropping kids off, and trying to merge into traffic at the same time kids are asking the same question for the seventh time. I don't think many of us have a moment to sit and marvel at how nice the steering wheel is in a luxury vehicle.
As I said, there can always be a time and place for driving expensive cars in the future. Until then, there are many safe, affordable options you can buy that can get you from Point A to Point B, all while improving your cash flow substantially.
If you currently lease a car, I'd encourage you to consider shifting to owning a car once your lease is up or trying to find someone to take over your lease. Even though I know monthly payments on a lease are low and the cars are new and nicer, you never actually own your car with a lease. You never gain it as an asset. You can never pay it off; it belongs to someone else. You can't sell it or put it in the asset column on your net worth spreadsheet because it does not belong to you. You're borrowing something shiny that looks nice to other people and then you eventually have to turn it back in. You'll always have a monthly payment to make with a lease. You can't ever delete it from your budget spreadsheet and free up that cash flow because you can't pay it off because it's not yours. For those reasons and more, I'm an advocate for buying a car over leasing one.
The third and final anchor in any budget is food. I really struggle in this category because I don't enjoy cooking. The good news is this is the easiest category of the three anchors to improve quickly. Selling your car takes some time and mental effort. Finding a house you like within a reasonable budget can also take time and be a mental drain. But food? That's something you can improve today.
I'm not going to spend a lot of time on this category because I think it's pretty self‐explanatory. Plus, I get really tired of a lot of personal finance advice geared toward moms that only talks about saving money at the grocery store, using coupons, and shopping around for the best deals on your Sunday roast (as if that's all we're capable of doing to get ahead financially).
Because I think moms are incredibly smart and savvy, I'm going to give you a lot more credit than that. If you want to save money at the grocery store, I trust you can log onto Pinterest and find dozens of affordable recipes. If you want to use coupons or shop your grocery store sales fliers, I trust you can do your research and figure that out too.
Really, what this category comes down to is planning and discipline. I find that it's better to allow yourself some ordering out and restaurant trips rather than try to cut it out completely. We all need a break every now and then, and I'm the last person to try to tell you to stop buying food out.
What's helped me is allowing myself to order food every Saturday night. Ever since the pandemic started, we've begun a family movie night tradition. My kids are allowed to sleep on an air mattress in our room, and they get so excited. We usually order a pizza and sprinkle M&Ms on our movie popcorn to make it extra special.
My goal is to try not to order out or hit a drive‐through during the week to keep my restaurant/takeout spending in check. I know throughout the week that movie night is coming, so even when I'm tired during the week, I try to rustle up something for dinner at home, even if it's simple. This “rule” of ordering out only once a week keeps my food spending in check while also allowing me to be human and give myself a break every now and then.
Over the past few years, I've done plenty of experiments where I've spent a month only using food from my pantry or have tried to only spend $50/week on food (it involves a lot of soup!). I've also had months where I've spent an astonishing amount on food when my husband and I did rounds of the Whole30 program or stocked our basement with some items at the beginning of the Covid‐19 quarantine. I think it's good to know what type of food you can make when you want to save money so you can always dial down your food spending during a tough month. Trying different spending challenges and putting your focus on cutting food spending, even if it's just for a month or two, can help show you what's possible and just how much cash flow you can free up if necessary with just this one category.
Ultimately, when you review your spending on the three anchors and make changes in even one of these three categories, you can dramatically improve your cash flow to the point where you won't have to feel guilty about an occasional small purchase like an Amazon dress or a Starbucks cake pop. The more you go after the big payments, the more you increase your cash flow. The more cash you have, the more opportunity you have to actually grow your wealth.
This isn't free rein to go wild on the small purchases because it's important to watch those too. But, if your sole goal is to free up cash in your life, look to the three anchors first. Then go about improving habits on your smaller purchases.
If you're feeling some resistance when it comes to improving the three anchors, take a minute and remember your big goals. If you free up cash flow, you can pursue other financial goals, like saving for your kids' college and your own retirement. Find a goal that's bigger than you, one that gets you fired up, one that helps you make those hard choices now so you can have a much better life in the future.
Once you get into a new groove and become someone who has more cash flow, you'll notice you're thinking about money a lot more—in a positive way. Perhaps you spot new opportunities to make money or find yourself returning items you've been meaning to return for days so you can get a refund. Maybe you're reading more about investing and you start to read stories of others who win with money. Eventually, you'll become someone who is aware of their money on a daily basis.
The next step to improving cash flow is to get one month ahead. I know this seems like a big ask, but bear with me for just a moment so I can explain why I manage my money in this way. Hint: it has to do with saving brain space.
One month ahead budgeting means that you have all of the money you need for the month in your checking account on the first of the month. Then, as the month goes on, you pay all of your bills as usual. I prefer to pay my bills automatically so I just keep tabs on them throughout the month to make sure the correct amount comes out.
While money flows out of your bank account to pay your bills, it also flows in when you get paid. So, if you're disciplined and stick to your budget, you should start the next month with everything that you need on the first of the month again.
You can do this even if you have separate accounts from your partner or if you're single. If you have separate accounts from your partner, I recommend assigning bills to each person so your partner might be responsible for the electric bill and the daycare bill and you might be responsible for the water bill and your rent or mortgage. If you split bills down the middle, you can set up a system where one of you sends the other half of specific payments.
I have tried just about every budgeting system there is, and I've found that automating my bills and being one month ahead is the most stress‐free way to budget imaginable. That's why I'm recommending it to you because as a mom, you have enough on your plate. You don't need a system that requires a ton of time and upkeep. When you're one month ahead, your only job is to make sure you have all the money you need for the month on the first of the month. If you can do that and automate your bills, you don't have to worry whether you have enough money in your account to pay them. You don't have to worry about overdrafting, and you don't have to worry that checks will bounce or your cards will get declined.
How many times during the month do you worry about a bill that you have to pay but you don't have enough money to pay it? Or, how many times do you have the money to pay a bill but you completely forget to pay it because you're so busy? Perhaps you remember but then notice it's a bank holiday, which might make a payment late. When you budget one month ahead and automate all your bills, it really eliminates all the stress associated with making money and paying your bills.
Now you might be wondering how in the world you get one month ahead. If you're not used to being one month ahead, it might feel impossible. You might be thinking that it sure sounds really nice, but never would something like that be possible for you. It takes a bit of discipline and patience, but I want to encourage you to try.
First, complete the exercise outlined in Chapter 3, where you know all of your expenses and your income in great detail. You have to do this because you have to learn what number you need to start the month with in your bank account. If your bills and debt payments equal $4,000 a month, you will need $4,000 in your bank account on the first of the month in order to fully embrace this type of budgeting.
It might take you some time to reach this goal. I know that $4,000 won't fall out the sky so you can start next month budgeting one month ahead. However, you can sell some high‐ticket items, you can cut back on ordering takeout this month, or you can try your hand at a side hustle with the goal of getting one month ahead. Doing this a few months in a row can enable you to slowly but surely build up your account enough to where you start the month with all the money you need for that month.
When you're trying to shift your bills to a one‐month‐ahead system, remember the acronym ROADSS.
Here's what it stands for:
Here's a little bit more detail about each step.
As I've mentioned a few times in this chapter, the most important piece of information you need is how much money you spend on your bills and expenses every single month. Comb through the past two to three months of your spending and organize them into categories. If you primarily spent cash without logging your expenses, this can be a little challenging to do. But, if you use a debit card or a credit card for the majority of your expenses, you should be able to pull your last couple of statements and see how much you spend each month. If you prefer to use cash, keep detailed records of your spending for two months to help you understand how much cash actually leaves your hands.
When you go through your past spending, you are going to come across some cringeworthy purchases. You're going to see exactly where your weak points are and where you're doing the majority of your spending. If you start recording your cash spending, you might notice you're much less likely to actually use your money. That's because tracking your spending actually brings a lot of awareness to your habits. If you find that you'd like to spend less, go ahead and omit unnecessary expenses. This will help you to reach your one‐month‐ahead goal that much faster.
Now you can take some time to make phone calls about the services that you pay for including insurance. Pick up the phone and speak with your cable company and your car insurance company. Ask them if you qualify for any discounts or if there's anything else they can do for you. If you pay for things like having someone cut your grass or shovel your snow or landscape, consider taking on at least one of these tasks yourself to save money on that expense. Remember, we don't have to do this forever or give up the things you like forever. We're just trying to reach the goal of getting one month ahead and that might mean temporarily giving up a gym membership or calling customer service at a few different companies in order to free up some cash.
Once you've negotiated down your bills and have more awareness about your spending habits each month, you should have a more exact number of the amount of money you need every single month in order to be able to automate all your bills with ease. This is your goal number, the number you want to see in your bank account on the first of every month.
In order to make your goal of getting one month ahead a reality, it's time to sell everything in sight. Get down in your basement and let things go. Have a garage sale. Post a huge children's clothing purge on Facebook Marketplace or in one of your mom groups. Will it be a lot of work? You bet. Is it worth it so you can get one month ahead? Absolutely.
The last thing you can do if you still need a boost to get one month ahead is to side hustle temporarily. This isn't something you have to do forever, but side hustling for a couple of months can give you the necessary funds you need to start the first of the month with all the money you need for the month.
So, there you have it: ROADSS can help you make this financial shift.
The last thing I'll say about getting one month ahead is that doing this is a gift to yourself. It's hard work to start managing your money this way, but it can give you great peace of mind. I don't know about you, but with all the worry and anxiety that comes with being a mother, it's really helpful to know that whether or not I can pay my bills isn't among them.
I know it's hard to conceive of having all the money in your account for a whole month, but I would argue that it's harder to worry about money every day and not know if you have enough to pay your bills. I know it's hard to think about automating your bills, especially if you're someone who regularly pays bills late and it gives you anxiety to think about the money automatically going out. But, I would argue that it's harder to go every single month of your life worrying about not having enough. The idea of getting one month ahead is nothing new. It's not something I created. It's something many people do across the world because it offers great peace of mind.
And, because I am writing to help moms especially, I want you to know that I know you have a lot on your plate. I know that you have many responsibilities. And I know that while your partner falls asleep instantly at night next to you, the worries about your kids and your day and money often keep you up at night. But, there is one thing you don't have to worry about and that's your monthly bills if you can learn how to get one month ahead.
Ultimately, it takes time to improve your cash flow and develop the habit of monitoring your money. Budgeting takes work. Being mindful of cash flow takes practice. You won't be good at it right away, and that's perfectly okay. This is not something that magically changes overnight.
If you wanted to run a marathon, you probably wouldn't wake up tomorrow, put on your running shoes, and run 26.2 miles right away. Rather, you'd take it slow, training a little bit at a time. You'd run more each day and get better at it each day. You'd make a choice to eat less bad food and instead choose food that energizes your body to run. Eventually, over the course of a few months, you'd likely reach your goal because you worked toward achieving it inch by inch, even when you wanted to quit, even when it seemed hard.
The same is true for budgeting and money management. It's entirely possible you will hold a budget meeting next month and you won't see much change. What's important now is that you make small decisions every day to improve your financial situation.
So, start with paying attention to your three anchors and getting one month ahead. In the next chapter, I'm going to teach you how FICO calculates credit scores and what you can do to raise yours. A high credit score can help you refinance high‐interest debt, which can also free up cash flow, so it's an important part of taking the next step toward financial freedom.