Budgeting 101

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Registered: 12-31-1969
Budgeting 101
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Mon, 09-24-2012 - 8:22am

Hi all.  Over the weekend I gathered up as much information as I could on my expenses and today I want to try to tackle creating the budget the right way, since I have been doing it wrong for so many years.  I know that in my other post, people raised concern that all the budgeting in the world won't help if I am not ready to be committed.  I can tell you that I am, otherwise I wouldn't be here.  For a very long time, I was not only budgeting wrong but I wasn't committed either.  That's a terrible recipe.  Things are different now.


I made mention in my introductary post that my weight issues and spending are the same in that in both cases, I have a hard time delaying gratification.  In both instances, however, I have learned that I need to make them into games.  Everyone knows themselves best and so far, this is what is working for me.  I turn things into a competition - not a cutthroat competition or anything like that but where the loser had to tell the winner on the winner's FB page how great they were.  lol  It sounds silly and it was, but let me tell you, so far, it has worked.  My first competition involved giving up soda.  That was in February 2010 and the other person lost in November 2011.  Since November 2011, I have had 4 sodas meaning in 2 1/2 years, I have had 4 sodas.  My next bed was with my brother.  He lost that one.  Since April of this year, I haven't had candy or cookies.  We started up again in June.  Since June, I haven't had chips.  Also in June I could only use cash for my grocery shopping and I did it just fine.  No this weekend but the weekend before was a wrestling PPV.  I soooo wanted to order that ppv, especially since there was a rumor that my favorite guy might win a belt, but I held strong and didn't order it.  Last night I wanted to order a ppv movie but didn't.  So yes, my will power is much stronger than it has in the past and now I'm ready to begin.

So here is my question.  Let's pretend my monthy combined income is 1,000.  Its not but lets just say.  Is this how it works?

I pay rent, gas and electric, phone, cable, food, gas, laundry, child support, transportation every month.  Let's say total it's 400.

1000-400 = 600

CC1 minimum is 50

CC2 minimum is 75

student loan is 100 

100 + 75 +50 = 225

600-225=375

I have a car maintnenace category, a gift category, a personal care category and a clothing category.  I determine how much I want in each, divide by 12 and that's how much I put in there.  So for the purpose of this, lets say each category is 25 bucks.   25 x 4 = 100

375 - 100 = 275

I put 275 into the EF. 

Next pay I get a haircut at 20 bucks.  I take the 20 bucks out of personal care.  I put 45 next month and then only put 255 into the EF fund (I would have put 275 into the EF but since I had to use 20 bucks out of personal care, I had to put the already budgeted 25 and then additional 20 so the EF is 255 instead).

Is this how it works?  Sorry for being so long winded.  In order to get the best advice, I know I have to be honest about everything.

Michele

iVillage Member
Registered: 04-16-2008
In reply to:
Mon, 09-24-2012 - 9:21am

I hope I understand what you wrote correctly. 

You do not take money from E-fund for a hair cut.  If you budgeted $25 for personal care, and took $20 for a hair cut, then you simply have to limit your spending on personal care for that month (or however long your budget period runs) to $5.

I think it goes back to prioritization.  Building up an E-fund will help you from dipping into credit cards when there is an emergency, so it is important to do so.  If you need to "rob" another category of your budget because you under-budgeted for something, you need to "rob" it from things that are "wants" and not "needs".  So the questions would be:  do I need this haircut now or could I wait till next month?  If I get this haircut now, do I have enough personal care items on hand to last another month?   If not, could I spend only $5 and get the generic shampoo/soap/etc. instead of the brand I prefer without breaking into a skin rash (I mean, some people are sensitive)?  If I need to budget more for personal care, could I spend less in food and still give my family nutritious meals?

Instead of paying the minimum on credit cards, you also need to decide how long you want to carry the debt and work out how much you need to pay a month to reach that goal.   For example, if only paying the minimum is going to take 5 years to pay off the credit card, and your plan is pay it off in 3 years, then you need to pay the minimum plus $__ a month.

In some instances, you may have to temporarily cut out some categories, such as gifts, COMPLELTELY.  When I was obsessed about making a dent to my student loan, for an entire year I spent zero dollar on entertainment and gifts.  It was not easy, but it worked.

Having said that, be aware of "debt fatigue".  You can only live with just needs and no wants for so long.  It is important to give yourself a break every now and then or otherwise you could breakdown and spend out of hand.  It is like a diet.  I know I can have one piece of dark chocolate once a week.  Sometimes I don't even feel like eating that.  But if someone were to say to me that I cannot have chocolate ever again in my life, at some point I may go on a binge.  I know what works for me (the proof is I have maintained a size 2/4 for the last 20 years and have no debt other than the mortgage on a rental property).  For you, it may be something else as you mentioned, you know yourself best.  So do schedule some "debt holiday" accordingly.

iVillage Member
Registered: 04-10-2003
In reply to:
Mon, 09-24-2012 - 9:39am
I got a bit lost on your post, so I will help the best I can. I think everyone does things a little differently, but I can completely appreciate the idea of “playing game’s” with yourself. All I can do is share with you my experience and my budget. Maybe it will help (or not, who knows).
The first thing is to come up with the budget itself. Sounds basic I know, but often the hardest part. Sit down with your bills (which I think you’ve collected) and a list of all the non regular expenses (like insurance) as well as an idea of variable expenses (Christmas for example). For all those non- variable expenses figure out your monthly contribution (i.e. You plan on spending $1200 over a year for gifts, you need to save $100 a month). Subtract all your expenses from your income. If you have money left over, you’re golden. If not, then you need to cut back until it balances. This is your budget.
Now, here is how I do things (and everyone is completely different so take what you want from it). I need an emergency fund to feel okay. I want it to be minimum $1k (for the record, it’s not at $1k right now). So I have worked into my budget $50 a paycheck minimum towards the efund. I have also committed that any extra money that I get will go towards that efund until it is at least $1k. Once it is at $1k I will keep contributing the $50 a pay. I am single and only have myself to rely on, so I need a little bigger efund to feel okay. For me and efund is for emergencies only. House blows up, lost my job, fence falls over (yes, this actually happened). Everything else is not an emergency, its planned spending.
Next, I took all of those variable expenses (pets, house repairs, car repairs, Christmas, vacation, haircuts) and created “sinking funds” for each. So each pay I am putting away $60 for the car and house, $50 for the dogs, $40 for vacation, $30 for me (includes hair cuts, clothes etc), $40 for gifts (Bdays, Christmas etc). So if I need pet food, I take the money from the dogs account and pay for it. I don’t touch the efund if I can avoid it. It may take 2 or 3 pays to get the dog fund back to where it was, but that’s the purpose. To have it there when you need it.
And I also play games. I give myself $100 a week for food and whatever else I want. Some weeks I cocoon and don’t even come close to spending it all. So I keep the extra cash in a jar. Then if I need something (say dog food) I will pay for it out of the extra cash, so it’s really like “saving” and extra $80 in the dog fund (because I didn’t take it out in the first place). I also do this with my bank account. I check my balance every day and if always transfer change to my vacation fund (i.e. if I have $12.43 then I transfer 0.43 into my vacation account). It’s little but it adds up (for far over $20 extra!)
So to sum up, I tend to put money away each pay and then take it out as I need it rather than reducing the amount that goes in by how much is needed. Partially because I have it set up so that these things are automatically transferred into my savings accounts so I don’t want to start messing with that.
Wow that got long! Hope it helps a bit.

Bex -

Avatar for mahopac
iVillage Member
Registered: 07-24-1997
In reply to: mahopac
Mon, 09-24-2012 - 12:08pm

I have several online accounts - some are with ING, some with my credit union.  I'm self-employed so any time I pay myself, I put 40% of it into an ING tax account, and then transfer it back to my checking account four times a year when I have to pay taxes.  I put the kids' college money into another ING account when their CDs mature, so I don't spend inadvertently spend it on anything other than college tuition (I have one in college and a senior in HS).  I have a third ING account for general savings where I keep money for big stuff like vacations, home improvements, etc.and move it back to checking when I need it.

I have a checking account at my credit union, where my money normally flows into and out of.  I have a savings account which is where I keep what others might call sinking funds.  And I have a savings account I call "Retirement" where I accumulate cash until there's enough of it to invest.

You do have to find the right balance between being overly specific and being too broad.  When I move money around online, I always enter something in the Notes field so I know what it was for.  I keep handwritten budgets and plans in a folder so I have a general idea of what should be in each. 

I strongly recommend that you start managing money online.  It is the best way to keep track of what you have.  I sit down every weekend and review all my accounts.  I'm also the money manager of my business, which if anyone had told me I'd be doing seven years ago when I was $100K in debt, I would have laughed myself silly.

iVillage Member
Registered: 04-10-2003
Mon, 09-24-2012 - 12:31pm
I use a combination. Up until 3 months ago it was ING direct. I have no CC balance so if something came up (i.e. hair cut) then I would pay on the CC, transfer the exact amount from ING and then pay it off when it came in. I also had some extra savings accounts at my bank.
I switched banks a month ago and they offered free online only accounts (just like ING) but there is no delay and no minimum to transfer over (this is how I am able to transfer over less than a dollar at a time).

I read you replies and now I understand what you are saying. If you pull from the sinking account, you don't have to "make up for it". It's there to be used. Just keep up with your monthly/weekly/biweekly contributions and it will balance out in the end. Initially you might have to flip some funds around while you are growing your funds (i.e. Christmas is 3 months away so you may not be able to fully fund the account) and this is okay (I am notorious for this . . . Karen calls me her fund flipping friend!!!) But eventually it will even itself out.

Good luck!

Bex -

iVillage Member
Registered: 01-02-2008
In reply to:
Mon, 09-24-2012 - 12:34pm

Hi;

I live on a very tight strict budget and last week I was walking around my neighborhood for exercise. Cant afford a gym so this is what I do.. As I was walking around I noticed a sign in the hair cutting place outside. It was today haircuts are 10.00... so I went in and got one... The woman said they normally charge 30.00 and that is def. out of my budget .... and I wont be going there again unless they keep having this sale to to speak............

Things are pricey where I live but once in a blue moon I find bargains and freebies and it takes effort but they are out there,.

I dont go out much because I cant afford it and its not in my budget but next week there is something called free museum day where I live so I will take advantage of that..

I also do alot of things that are free and save my money for food because I eat healthy and that is more important to me than going out and spending alot of money.

Good Luck on your journey.....

 

Avatar for mahopac
iVillage Member
Registered: 07-24-1997
In reply to: mahopac
Tue, 09-25-2012 - 12:34pm
madisonismom wrote:

Hi freeatlast2008.  It's extremely frustrating that healthy eating costs so much money.

Michele

Actually, healthy eating doesn't cost all that much.  Organic foods can be expensive, yes, but if you shop for foods that are as close to their original state, organic or not, you will be eating better than if you eat packaged foods.

My diet - before I developed intolerances to gluten, raw vegetables, beans, nuts, and most fruits - was as cheap as I could make it.  My breakfasts were eggs, cottage cheese, oatmeal (the canister kind, not the packets of sugar) w/ brown sugar & raisins, Shredded Wheat (the big kind, not the minis), and on the weekends, pancakes & waffles from scratch.  Lunches were PB&J, carrot sticks, yogurt, milk, fresh fruit.  Dinners were often chili, lentil soup, salads, frozen veggies, potatoes, rice, pasta w/ meat sauce.  Snacks were fruit or homemade goodies.  I stretched my budget so thin you probably heard it screaming where you were. :smileywink:  And *I* was thin, too (not so much these days, LOL).

BTW when I referred to managing your money online, I wasn't thinking of budgets, but rather banking.  It is great to be able to see what is going where.  We always use our debit card for buying food, so I can add up all our food costs over the year, and American Express for everything else so I can categorize everything and see over the course of a year what we are truly spending.  (Not to mention that you can use Amex points for Telecharge - that's how we go to concerts and plays!)

iVillage Member
Registered: 04-08-2008
In reply to:
Wed, 09-26-2012 - 10:34pm

1) If I take $25 out of the annual monthly expenses, I don't add it the next month. The whole idea is that if I have 1200 of "yearly" fees...haircuts, sewer, etc...then I put $100 in each month and take it when it's needed.

2) your budget has no long term savings. I save 9% of our income off the top for retirement. I *usually* have a shorter term saving strategy as well - but right now DH is working PT to develop a new career field and our children are preschool age - so I settle for paying down debt & retirement.

3) I am assuming your budget doesn't have entertainment and discretionary spending bc you were just simplifying it :smileyhappy:

All you have to do is start! After one month, you adjust based on what you find works for you. Then the next month you learn more...until you know your household well.

GL,
Dee

Community Leader
Registered: 08-25-2006
Thu, 09-27-2012 - 7:34pm

Good luck!  Only you can discern how detailed you should get with the "sinking" categories.  The only thing I have had any luck with so far is saving for Christmas in my credit union account (not where my regular checking account is) and saving bottle return money for some weekend fun. 

I do get a small bit of joy watching the balance go down on my auto loan and my personal loan for the transmission though. 

 

Serenity