How Deep are YOUR Pockets: Budgeting

Budgeting is something young folk like myself and my dear fiance tend to disregard completely. We thought we had it under control for a long time. Turns out our way of 'budgeting' was hurting us more than it was helping us. A typical day of 'budgeting' might have gone something like this:

"How much do we have in the checking account?"
"Three hundred sixty-five dollars"
"Okay, I have to make a car payment, so we have like 200"

And that week, that $200 would act as spending money. That is how we went about our weeks. We kept a mental note, never writing anything down, and on weeks we didn't have a bill to pay, spent like we actually had money to spend.

Then the checks started bouncing. Rent checks, which, if that has happened to anyone else here, knows that it's far more embarrassing to bounce a rent check than a store check because, I mean come on, it makes you look like irresponsible to the person who is giving you a place to live.

So we started cracking down. Now I know that budgeting is extremely personal. Everyone has different income, different expenses, and different ways of keeping track of things. However, for those of you who might be with nary a guideline like we were, my method might be inspirational, helpful, or maybe just a base to your own plan.

The first thing you need to do, before money even comes into the equation, is make a list of all your expenses. All of your expenses. Don't leave out your before work Dunkin' run because it's only 'a couple bucks'. List them all.

Second, take a big hard look. Do you really need to order Chinese for lunch every day, or do you think you might take a little extra time to make a cheaper (and healthier!) lunch. For those of you who are super tight on money, or even those of you who aren't, examine everything on that list and decide if you absolutely need it or if you could come up with an alternative.

Remove from the list what you are willing to sacrifice. Don't panic yet, you still might be able to do some of those things, but for the time being, give them up.

For the sake of convenience, all my examples are going to come from my own budget, with a few slight changes to make it easier to understand. (And because I am terrible at math so making up an imaginary budget might just confuse me a little too much)

After we made our list, our expenses were as follows:

• Gas
• Car Payment
• Car Insurance
• Cell Phone Bill
• Groceries
• Ceramics
• Sewing
• My Student Loan
• Adam's Student Loan
• Internet
• Dining Out
• Nikolai's savings account

Next, put monthly dollar amounts to the expense. (Gas can be weekly. Who keeps track of monthly gas anyway?) With some, it might be just a guess, but don't worry.

• Gas $45/wk
• Car Payment $165
• Car Insurance $135
• Cell Phone Bill $120
• Groceries $120 (see entry on grocery shopping)
• Ceramics $45
• Sewing $20
• My Student Loan $50
• Adam's Student Loan $50
• Internet $35
• Dining Out $40
• Nikolai's Savings $25

Set that list aside. You're going to need it to compare/adjust/what have you.

Now you want to break down those monthly payments into weekly payments. Things like Groceries, Ceramics and Sewing all got put into a weekly 'household' allowance in cash. Paying with cash is a big deal because once it's gone, it's gone. Do not be tempted to 'keep track' of you allowance on your debit or credit card. It won't be worth it.

• Gas $45
• Car Payment $50
• Car Insurance $50
• Cell Phone $30
• $80 cash (Groceries, household, and spending money)
• $20 My Student Loan
• $20 Adam's Student Loan
• $10 Internet
• $10 Nikolai's savings Account
• $40 ($20 cash each) Dining Out

Wait a minute, $50 every week for a car payment is way more than $165 a month! For good reason. The thought of putting $50/wk towards a payment is doesn't seem as bad as putting $200 towards my car instead. If I were to pay monthly, and add the extra $35, I might be inclined to say, "Well, I sort of wanted that $35 for something else.." The same is true for Student Loans and Nikolai's savings.

Another thing you need to take into consideration is the 5th week every three months. That's 4 extra pay periods (if you are paid weekly) to apply to your monthly bills, so within a year, you should be a month ahead of your bills. Cool, huh? So there is a way to get ahead without feeling like you're falling behind!

Note: Rent is not included in my list because Adam has about 5 different jobs. Two of those get paid at the end of the month and those alone pay our rent so we do not factor that income in our budget at all.

Okay, now here's where you have to be diligent. Paying your bills by the week. What we did, because it was the easiest, is we signed up for online bill pay. It's a lot easier to keep track of for us and it saves us from writing checks every single week. We own a small business so we use that account as our main checking account through Citizens Bank and their online bill pay is very easy to use. If you are worried that you might forget to pay weekly, you can set up scheduled payments so you don't have to worry about a thing.

So now that we have our week squared away, let's add up our weekly expenses and compare it to our weekly income. (Total household income)

Income: $700* (this is a rough estimate for the sake of easy math.)  
Expenses: $355/wk
__________________
Remaining: $345

If you're like me and you see that big chunk of money that you have left per week and you start hopping around and thinking of paint colours for the kitchen, don't. Instead, open up an IRA and a savings account. It's good to start setting up for your retirement no matter how far off it may seem. It's also a good idea to have a household savings account for many obvious reasons. We, for example, are saving for both a wedding and a house.

Whatever you have remaining, put 10% of that into an IRA so in this case, $35/wk

Of the $310, put 25% of that into your checking account to start building a cushion, $78

• Having a cushion, does not mean having 'extra' spending money. The cushion is for unexpected expenses. Car repairs (oil changes sneak up on me every time), late fees (though hopefully you don't have any now), other life things

Put the remaining $232 into a savings account and do not touch it. If you do this every week, for one year, you can have $12,064 saved. Don't believe me?

$232x4wk = $928 for every month with 4 pay periods. There are 8 of these. $928x8mo= $7,424

$232x5wk= $1,160 for every month with 5 pay periods. There are 4 of these. $1,160x4mo= $4,640

Put that together to make a full year of savings and you have just over 12k. Plus interest.

I do recognize that we are fortunate enough to have low expenses and a (relatively) steady source of income. We also have the drive and the desire to have money and to save it. We live below our means so we are able to achieve this goals and give Nikolai and our future children the best that we can, and also for them to learn the importance of being smart with their earnings.

I think that our method of budgeting is the right one for us, but may not be the right one for someone else. I do encourage everyone to give it a try if you are having problems managing your money. I am in no way an expert at saving money (just ask my mother), but I do like think I have a handle on things.

So off you go now to make your lists and track your expenses.

Happy Saving!

:: Celeste

* As Adam is a professional musician, gigs come up. Taxes are also coming up! Any extra income we receive goes straight into the savings account. Except for my taxes, with which I am buying my dad's Jetta.