What method do you use?

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Registered: 12-31-1969
What method do you use?
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Wed, 09-19-2012 - 2:44pm

I have a very basic system for budgeting my money and I'm starting to think that it might be part of the problem why I am always so stuck at the end of the payday (that's about as long as the money lasts).

I normally make a schedule a few months out.  I put how much I am getting at the top and what bills need to be paid and subtract from the top number.  Then something comes along and it screws me up, like a birthday party for one of my daughter's friends or a super expensive car payment.  I know from years of reading that you should have an emergency fund of 1000 but even with an emergency fund, it wouldn't have helped me this past year with all the unexpected expenses that I had. 

This is what I have a problem with when it comes to the 1000 EF.  Let's say I save up the 1000.  Then I spend about a month paying my bills and blamo, here comes a 500 dollar bill.  Now my EF is down 500 and I have to stop overpaying my ccs to get that fund back up to 1000, which means putting my paying off the ccs are on hold - first to reach the 1000 and then second to get it back up again.  Of course, I know that it is counterproductive to not have the EF and end up putting the stuff on the card.  That is completely illogical.  But I hate how it interferes with getting the debt down.  However, if you say that is the way to go, I think I should bite my own bullet and just try it once.

But back to my original question - how do you budget and more importantly, how far in advance do you budget?  Do you use an envelope method?  Any help is appreciated since I am really a mess lately.

Thanks!

Michele

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iVillage Member
Registered: 04-16-2008
Wed, 09-19-2012 - 3:22pm

I do a very rough 5-year budget, a slightly more detailed 1-year budget, and then refine each month about a couple weeks before the 1st of the month.  Even if you don't do a 5-year budget, it is important to do a 1-year budget.  It may not account for every single cent you need to spend, but do your best to include everything, and like everything else, practice makes perfect.  Eventually you will minimize/eliminate the surprises.

The reason I stress for an annual budget is it will allow you to account for seasonal spending and plan ahead bettter.  For example, you may only get billed for your insurance once every six months.  If you could pull off paying it using what your income for those two months, great.  If not, you then need to save up something each month to pay those bills.  Same with holidays, birthday, etc. spending.

One last thing, perhaps the most important one, is learn to say NO.  There are true emergencies, such as some medical or dental procedures, that you have to get even though you do not have money to pay for them.  A daughter's friend's birthday party is not an emergency.  I know it is hard, and most parents like to give their children what they want, but it is an important lesson for your children as well that we should not spend money when we do not have any.

iVillage Member
Registered: 10-09-1999
Wed, 09-19-2012 - 3:48pm

We get paid the same amount every week so I set my budget up monthly & then break it down weekly so I know exactly what we HAVE to do with every weeks pay...It is important to set up that $1000 EF savings.  I would recommend paying only minimums on everything until you get that fully funded.  Then list your smallest debt to your largest & start tackling the smallest first.  Pay minimums on everything but the smallest, throw as much extra at that one as you possibly can to get it paid off!!! Then start on the next smallest paying the minimums on everything but that one...eventually you will be debt FREE!!!  Then you can start building a big fat savings account & saving for retirement & paying off your mortgage. 

You really need to try to estimate what those bills are that are catching you off guard & start building them into your budget.  If you spend $600 a year on haircuts/colors etc...then you need to build in $50/mth...either take the cash out & put it in an envelope to draw from when its time to go to the salon or build a cushion in your checking account to cover it....you could do the same with gifts, misc DR appts, prescriptions, dentist, eye dr., etc. 

Best of luck with your spending plan!!!  Just being aware is half the battle!

cindylee

iVillage Member
Registered: 07-24-2001
Wed, 09-19-2012 - 4:03pm

The first thing I thought when I read your post is that a bday party, and a car payment are not unexpected expenses.  You really shouldn't be touching your EF for those sorts of things.  An EF is for a true emergency - like if you lose a job and need cash to flow through until you find another job.  It's not for buying birthday gifts and paying toward expected expenses (like home owners insurance, etc . . .)

So my first thought is that if you get $1,000 set aside, leave it alone.  If dd doesn't have a gift for a bday party, sadly she is either going to have to skip the party or you are going to have to get creative about how to come up with a gift.

It sounds like you already have a good idea on what you owe and where your money is going to.  When I started this process,  I have to admit that when people told me to sit down with ALL of your expenses from the last year or so and build a budget, I just wanted to cry.  I was already overwhelmed, and that just overwhelmed me even more.

What I did instead was just got myself a notebook and wrote down our income at the top (much like your are doing).  Then I wrote down all the monthly bills I could think of (I got the previous months bills to work off of).  Then I left a space, and I wrote down all  the annual bills (home owner's insurance, property taxes) I could think of.   I added due dates for all the bills onto a regular paper calendar.  

Then I wrote down all our debts (medical, cc, student loans, etc . . .) and their min payments due (later I added the interest rates and total amounts owed, but I didn't worry about that the first few months because it was just too overwhelming).  

Luckily, when I looked at the numbers it looked like there was enough income to cover the minimum bills.  HUGE relief.

So I started paying the bills the best I could as they came in (paying the mins on bills that allowed it).

At the end of the first month, I took the left over money and put it in a newly created EF.

For the first two months or so, I was surprised by bills I hadn't even thought of (like a gas card that had been run up to $900), and had to also add them to my notebook and calendar.

Then 

1) I gave myself a weekly discretionary spending budget of $240.  It was somewhat arbitrary really.  It just felt like the right amount to cover all discretionary things like groceries, clothing, entertainment, etc . . . I don't do cash envelopes for specifics because when I tried that in the past it was too overwhelming and difficult for me.  Like everything when I started, I just thought I'd try it and if the amount was too much or too little I would adjust later.  At first I took this amount out in cash, and only used cash.  Now I just keep it in my checking and use my debit card - but keep careful track of it.  

But I think it was VERY important for me (and H) to be clear that this weekly amount was ALL we were allowed to spend.  So if I stocked up on meat because there was a particularly good sale one week, I would have to be very creative about what I could give someone as a birthday gift - since I had depleted the fund. Or if H wanted to eat out for lunch one day, then I would have to forgo something else in order to not overspend the fund -- get what I'm saying?  

2) I reviewed each bill carefully when it came in and put it's due date on my calendar (so I had clear visibility when things were coming due)

3) I calculated gas milage and price to come up with a reasonable weekly gas allowance and added that to my notebook also (to keep track of).

4) I counted the weeks remaining until the annual due dates (for things like property taxes / home owners insurance/ car registration / water & sewer bill, etc)  and determined how much money I would have to set aside weekly in order to have the cash on hand to pay those bills in full when they came due.  (I started in Oct and had my home insurance due in Nov and my property taxes due in Jan so I had to put away a substantial amount of money at first in order to meet these dates.)  

I transfered these amounts to my savings along with my weekly E/f payment - and kept account of how much money was earmarked for each in my notebook.

5) I reviewed my notebook with my husband weekly.  "This is what I paid this week, this is what we still owe this month, this is what I've put aside to pay this in the future, this is what we now have in our e/f".

6) At the end of the month, I sat down with my Dh and said, "this is what we have left over.  How do you think we should use this money?  To pay down a cc?  To put toward the EF?  To waste on entertainment?"  (obviously "wasting on entertainment isn't the answer, but I think it's important for ALL options to be on the table when you are working as a team.)

7) Then I worked down my list of monthly bills and called each and every provider to see if I could bring these bills down (I met with my car insurance company, I called my cable provider, I increased my home insurance deductable, I opened a new cc card with a zero interest grace period and moved my other cc balance over to it etc).  This process took several months and remains somewhat ongoing.

Anyway, these are the steps I took when I started.  I haven't changed how I do things much.  I thought I'd eventually put my budget, tracking, etc . . . on a spreadsheet but I've grown to like my notebook.  And H and I don't sit down every single week, but I still try to make sure he's in the loop at all time (ie; "We only have $12 left in discretionary this week, so you can buy a six pack on your way home, but we can't afford a 12 pack").

I hope this helps somewhat.

I wish you much luck!!! 

 

Avatar for mahopac
iVillage Member
Registered: 07-24-1997
Wed, 09-19-2012 - 4:35pm

I don't think you really get a handle on what you're spending until you track EVERY SINGLE PENNY for at least six months.  You need that much time to see all the many unexpected expenses that you failed to budget for but that always come up.

Your EF should be used for *real* emergencies.  A birthday party, a car payment, a one-time school expense - none of these are emergencies.  They are all things that can be covered in a regular budget if you track all your expenses for 6-12 months, categorize them, and average them over six months.  Otherwise *everything* is an emergency.

Examples of real emergencies are:  the oil burner died on the coldest day in January; you hit a pothole and not only did the tire go but the rim is bent; your dog ate a razor blade cartridge and required emergency surgery; a tree fell on your house and it's an act of nature that your insurance didn't cover; your son had a seizure and the ambulance took him to a hospital that doesn't accept your insurance; etc.  REAL emergencies, not things that are a normal part of living, like birthday parties and car payments.

iVillage Member
Registered: 07-24-2001
Wed, 09-19-2012 - 6:07pm

Michele,

I think you are right about the "tough love".  I think you are getting a bit of it here, and I think that's good because it'll help you shift your thinking and hopefully be successful at paying down your debt.

So your H past on the hotel room to see his son off at first.  That was his decsion.  So you hadn't put the money aside (and sacrificed in other areas) to pay for a room for that occassion.  And then he changed his mind at the last minute.  Unfortunately, his changing his mind didn't change the financial situation for you guys. If he wanted to get the room, he should have worked with you to set money aside to do so.  Unfortuately, it's one of those "too bad, so sad" realities of life.  

This has absolutely nothing to do with your brother's wedding - or the plans you made to attend your brother's wedding - and (hopefully) the sacrifices you made to make these "plans" into a reality.

I think it's important to start seeing things differently.

iVillage Member
Registered: 04-10-2003
Wed, 09-19-2012 - 6:23pm
Hi Michele,
I agree with PPs about tracking spending. Its really an eye opener. For me it was takeout. I don't spend a ton on clothes, but holy mother do I spend eating out (happy to say this is coming down).
I used to have two jobs with irregular paychecks like you (one was biweekly, one was twice a month). I would sit down with all my bills and write down on a calendar what was due when, Then I would write the days that I got paid and how much. Then it was simple math. What did each pay have to cover? If a pay wasn't enough to cover the bills that were due then I had to make sure to save some from the pay before kept aside. I work from a zero balance budget meaning every penny goes somewhere. Any "extra" left over is assigned to something.
I also use sinking funds. My bank offers 0 fee online accounts so I have 5 of them: house/car, vacation, gifts, dogs, other. Each pay I put money into those sinking accounts so that when something comes up (i.e. car repairs) the money is there. When I started my sinking funds I was only able to put away $20 a pay. I am now putting away $260 a pay (because I have paid off other debts, gotten raises etc). WIth my hopefully soon to be raise I am planning on upping it again!
Hope this helps You can do this!

Bex -

iVillage Member
Registered: 05-08-2006
Wed, 09-19-2012 - 6:27pm
This might sound like a simple concept, but if you are in debt because you are charging the things you use in normalevery day life, you are spending more money than you make, and you are paying for that privilege with credit card interest. Some people are in debt due to job loss or medical expenses, and they can 'catch up' by temporarily tightening their belt until the crisis is past. Same with student loans or mortgage, you can build those payments into a budget. But if you are spending, say, $5000 more a year than you make, you need to cut your spending by $10000 to pay it ff n a year..you have to stop overspending and cut deep to find the extra money to pay omorrow for what you spent yesterday. Some people dig out by selling things that they do not need. Some get a second job. Some can cut the expenses. If you have been trying to catch up and you can't, you might not have enough income coming in to support the life you want to live...it is critical to determine whether your issue is that you are wasting money on things that do not matter or add value, or whether you truly don't have nough money. For example (not saying you do this) but some people use the irst ATM they ome to, and take out just enough money for their immediate needs...they are spending money on convenience...where instead, you can plan how much money ou need, go to your own bank, and get it for free...those people can find money to pay down debt. If you truly do not make enough to live on and you are charging groceries rather than go hungry, then you might need more income. I think you might want to figure out the cause of your debt and tat will help with the solution...
iVillage Member
Registered: 04-08-2008
Wed, 09-19-2012 - 9:47pm

You might want to check out Gail Vox Oxlade. She has spreadsheets and explaining for budget line items. A great place to start if you don't already have a budget worked out.

You've taken the first step by coming here. So just keep taking steps.

GL,

Dee

 

iVillage Member
Registered: 11-14-2008
Thu, 09-20-2012 - 10:59am

Hello,

Have you tried cooking once, eating twice? Meal prep on the weekends(cooking some chicken breasts or browning ground beef and leaving in the fridge to heat up for salads, tacos, or to add to other meals), there are many options here. And make a list before you go shopping for specific dinner meals, it helps tons and takes the stress out of what to make!

Til Debt do us part on Slice.ca(check left hand side) has lots of seasons of shows for people that don't know how to manage their money. I am currently re watching these episodes. I find them quite addictive and Gail(host) is awesome for tough love! You will love it!

Avatar for mahopac
iVillage Member
Registered: 07-24-1997
Thu, 09-20-2012 - 12:04pm

Thanks for taking my response the way I intended it.  Afterwards I thought I might have been a little gruff, as I sometimes am.

I was in the same boat as you for a long time.  I had to be really tough on myself to get out of it.  I had already tracked every penny, cut spending way back, and coudln't do anything more to stanch the flow of money.  DH got a weekend job (he's a SAHD), we didn't go out, we didn't buy anything new, etc. etc.  It took me a long time to realize that what I needed to do was earn more, or I would never ever get out of debt, let alone buy a house, pay for college for my kids, or be able to retire.  I was very hard on myself for a LONG time - from 2004, when I started tackling this, to 2011, three years after I'd paid off all the debt.

Honestly, now I'm not tough enough on myself.  But that's another story, LOL.

Keep posting here, and keep being honest with yourself.  It's the only way, because if you're not, you will never understand why you are where you are, and therefore you'll never get away from it.  Tough SELF-love!

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