5 Steps to (Financially) Running a Household

Today I want to lay out everything I know about running a household. I will focus on the finance aspect of household operations, as my lovely wife Kristina runs the personnel side of the house.

So, what are my qualifications to speak about running a household? My wife and I have been married for 15 years. We have two kids, ages 15 and 10. We are debt-free, own three homes, and have a $200,000 dividend portfolio. 

Things weren’t always so rosy. I am in the military, so I have been gone for half of our marriage. We started with nothing, so we feel blessed to have everything we’ve built. 

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Being married as a young person can be difficult. We haven’t learned how to use our adult voice and communication as these skills come with time and understanding. Also, money can cause unseen stress, especially if you don’t grasp how money works.

The three types of income. The three types of income are earned income, portfolio income, and passive income. Earned income is money from your job, portfolio income is from stocks and bonds, and passive income is from rental property and a business.

The goal of life is to convert earned income into a portfolio and passive income. You are financially free once you make enough income from your portfolio and passive income to pay your expenses. The world tells you to wait until age 65 to achieve this goal, but we can get there much sooner.

Becoming financially free with a family. Many people online share how they are financially free, but these people are single most of the time. You are running a household that requires a lot of money to function correctly. You will have to use all of your skills to run your home and effectively prepare for a fantastic retirement. 

Build Wealth Slowly

The sooner you understand the steps to running a household, the faster you can achieve financial independence. I didn’t have this blueprint during our life together, so hopefully, I am saving you a lot of grief and heartache; finances are at the heart of a successful marriage and household.

The five steps to (financially) running a household. The five steps to running a prosperous household are:

1. Control Expenses
2. Prepare for Maintenance
3. Multi-level Savings
4. Invest for Retirement
5. Create Passive Income

These steps don’t necessarily have to flow in this order, but they may naturally play out this way. As you read along, figure out where you stand. It’s also a great idea to create a separate banking account for each of these steps so you have a visual of your holdings. Let’s begin.

1. Control expenses. The first step is getting into the mindset of limiting costs. We live in a society of toxic consumerism, and we have to prevent it from seeping into our lives. 

Life is Not a Game

I keep a very detailed budget of my expenses and send a lump sum from my paycheck to cover them. This helps me visualize how I spend my money and not get complacent. 

For example, if I had $1,000 in expenses, I would send $1,300 to my checking account for expenses. I have a little cash for the unknown costs, but I need to tighten my expenses to prevent going over budget. Controlling expenses is the heart of everything we do moving forward. 

Wealth is having excess income versus expenses, so keeping costs to a minimum will lead to massive success as you increase your revenue. 

2. Prepare for maintenance. Maintenance sucks. You will have maintenance on your vehicles and homes. Also, you can consider this unforeseen medical costs and animal care. I like to separate my maintenance cost from my savings because maintenance is almost always a recurring monthly expense.

Every month, something random will happen, such as an increase in property taxes, termites, or a broken air conditioner (all in 2021 for us). I always set aside $1,000/month into a separate maintenance account. 

The Wealth Creation Phase

Again, this is not my emergency savings but almost a recurring expense. It is almost like money that I know will get burned away. Sad, but it keeps you mentally ready for the unknown. Maintaining a healthy mindset about “life” events helps you deal with them and move on. 

3. Multi-level savings. Having a considerable amount of money in savings can be counterproductive. Currently, a high yield saving account pays 0.4% interest, which is ridiculous. We need to keep our savings safe but growing.

I like to use a multi-level approach to savings. Of course, use my methods as a guide because your risk tolerance will differ from mine. Here is how I conduct business:

1. First level: $50,000 of available credit card limit
2. Second level: $3,000 in a high-yield savings account
3. Third level: $10,000 government bonds
4. Fourth level: $2,000 (one day $100,000)in USDC stable coin at 9% interest

Since I am debt-free, I use credit cards as my buffer in an emergency. Right now, inflation is a huge concern that the safety of a credit card can help alleviate. 

J.O.M.O. The Joy of Missing Out

I keep my high-yield savings account with $3,000 if I need random cash to send to family or something else. I hold US Treasury bonds that earn roughly 2% interest. 

Finally, I use USDC as my primary savings. I don’t have much there yet, but I will make a concerted effort to build this account. The main reason is the 9% interest rate. I can now keep my emergency money safe, earning 9%, and quickly access it with my crypto debit card. 

4) Invest for retirement. Now that we have our expenses, maintenance, and savings under control, we need to invest for retirement. No, saving 10% in your 401K will not be enough to create a cash flow retirement. 

Our investing rate needs to be closer to 40%. You have a few choices of ways to invest outside of your 401K. I consider index funds, dividend growth, and income investing different techniques to invest for the future.

You will have to read and understand each to build the right portfolio for your risk tolerance. I use all three because I love them equally. You can also keep your funds in a Roth IRA to achieve a tax-free status. 

I Live Paycheck to Paycheck

5) Create Passive Income. Once you are all set with the other four steps, it is time to increase our income. By increasing our income, we can significantly accelerate our timeline for retirement. 

There are so many ways to build passive income that I will link to written articles. “How to Create Passive Income for the Average Person” and “21 Passive Income ideas” are good places to start. 

Remember to pick passive income sources that keep your attention. Very few people can create an income stream, so ensure you do something you love. 

Once you start earning income, invest it back into your income stream or your retirement portfolio. We call this a wealth generator, and it can make your dreams come true very quickly.

Conclusion. These steps may look simple on paper, but they are challenging to master. The world tells us the opposite in everything we do. The more we spend on consumer goods, the more the economy grows.

However, we have to take care of our finances first. If we do this correctly, we will have unlimited cash to spend at the mall. But chances are, by then, we won’t want to purchase much. 

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing