Demystifying The Budget - Don’t Be Afraid

Posted on May 10, 2008

I am not sure many other finance terms inspire more fear than the word ‘BUDGET’. Ok, well maybe bankruptcy, foreclosure, and a few others, but you get the point. Some people even will physically squirm when they think about having to adhere to a budget.

I am here to squelch some of those fears and I am not even a fervent budgeter. A budget is nothing more than a plan for your money. That’s it! There isn’t anything magical, nothing scary, no straight jacket, just a plan.

Here is the formal definition :

Budget : a scheme or method of acting, doing, or making developed in advance

That captures what a budget it beautifully. You decide were your money should go before you spend. You can be objective and rational about were you money is going, rather than being ‘forced’ into decisions at the cashier’s counter. You also have a metric to help keep you accountability and give you feedback on how your spending is proceeding. Just, list your all your bills, debt, and goals like savings and divide up your monthly take home pay between the categories however you see fit.

One of the big concerns people have is that it will take the joy out of spending and turn them into a cheap miser, but the only way that will happen is if you let it. You are free to budget however you want. If you want to spend $500 a month on movies and eating out, by all means. I think what most people realize when they start to budget and track their spending is that you have more money than you think, or at least it will feel like you have more money.

Another concern is that you will miss something or not budget enough money. I am hear to tell you that a budget is a continual process. You will make mistakes. You will blow the budget, but with each mistake you will be able to budget better and better. Adjust and tweak is the name of the game.

So don’t be afraid, be willing to try it for a few months. Here is an online budget calculator from Crown Financial that will help provide a little context.

» Filed Under Debt Elimination, Financial Succes, Planning

Easter Spending Without A Plan

Posted on March 24, 2008

I have a small confession that I need to make. We spent almost $50 this month on Easter supplies and candy. That was just for our 2 year old, since the 2 month old isn’t old enough to partake. Some of you may laugh, saying “I spent way more”, but to me that is a large sum on items that have almost no lasting purpose.

What happened? Two things, lack of planning and lack of communication. This is the first year that The Rockette and I were forced to mesh our individual preferences into our own special tradition. This normally takes some intentionality or you end up avoided the issue or fighting. We didn’t fight, so we default to each of trying to accomplish our own separate goals. Even more The Happy Pebble was inundated with stuff to the point that I think he only saw a bunch of stuff rather than a few select special items.

If we had talked about Easter spending before hand we would have had a plan for our money. As it is, the spending will come out of the money we have been putting away for adoption lawyer fees. The key here is intentionality. Even though this is a tiny sum of money, if we aren’t being intention about these decision then we set the stage for problems on larger purchases like homes and cars.

So what do we do about it. First, since we can’t return the perishable items we need to let it go. Stewing and/or blaming really won’t help. Second, we will make sure that the we have a spending plan in place before the next Easter comes. With a plan in place, I will be able to avoid the $25 spent in the local Chocolate House and come out with the one Dark Chocolate Coconut Cream Egg with my son’s name on it as I had intended.

The key is to have a plan for your money. This intentionality may look different to each person, but it will really change your finances!

» Filed Under About Me, Planning, Psychology of Spending, Spending

4 Reasons We Rush Into Replacing Our Cars

Posted on September 26, 2007

Got an old car that is giving you problems? Scared that your junker is going to leave you stranded? Well, then you might be struggling with the question of when to let go of the old car and get a new one. It is a question I often see people struggle with, and one that people seem to make decision based on emotion or to justify their desire for a newer car.

Deciding that your current set of wheels is more hassle than it is worth isn’t an easy decision. I am not even sure that there is a correct answer, just like most personal finance questions it is a very personal choice. But let’s look at the top few reason people ditch their old cars two quickly.

The biggest mistake is to quickly ditch a car at the first major repair. If the car is in reasonable shape, it will almost always be cheaper to fix the car. From the outside it also seems that they are using the repair bill to justify our underlying desire to drive a better car. Evaluating our materialistic side and keeping it in check is a big key to making a wise decision.
We need to dispel our irrational fear of the car leaving us stranded. I have had it happen a few times, and it is not that big of deal. Today in the age of cell phones, you won’t be sitting helpless for hours upon end. You will be inconvenienced for an hour or two, but it isn’t the end of the world. There are personal factors like criticality of your job or income on the car that do make being stranded a lot worse.
People look at the future payments rather than the total cost of the situation. Paying $2000 a year in repair bills and a little hassle is still cheaper than getting a five year loan shiny new or used car. A $15,000 loan at 7% interest for 4 years will cost you almost $1000 in interest and $3300 in payments just in the first year.
The last big issue is lack of preparation. If we know our car is nearing the end of it’s life, it is extremely helpful to add a new car item to a monthly budget. If you can afford a $400 a month car payment, start saving that amount and you will be able to buy a $5,000 car for cash in a year.

If you don’t think a $5,000 car will last, think again. My Japanese made Nissan Sentra was 7 years old and had 50,000 miles on it when I bought it for $5,500. 6 years later I am still driving it without ever having faced a major repair.

Sometimes we need to let go of our cars, but often we sacrifice some financial success and prematurely rush into a new car purchase.

» Filed Under Cars, Materialism, Planning

Follow The Shopping Calendar For Big Savings

Posted on August 5, 2007

Most of us intuitively know that when the first big heat wave hits our town, good prices in the air conditioning and fan aisles will be few and far between. The question remains though, when is the best time to buy an air conditioner? Well, now we know. The best time to buy air conditioners is August, along with computers, lawn mowers, and camping equipment. New cars are cheapest in November and December. Save on iPods in February or September. Where am I getting this you ask, Consumer Reports Calendar of Deals article.

Consumer Reports experts have taken the time to compile a calendar that reveals when we historically see the best sales for certain items. It is general guide that doesn’t preclude us from watching weekly circulars, but it does provide us with some valuable guidelines for getting the best sale price.

Save money now with the Consumer Reports shopping calendar.

The article also mentions three other tips that didn’t fit well into the calendar format.

Airline tickets tend to be cheapest on Wednesday when airlines try to sell the unsold seats for the next week
CDs and DVDs usually come out on Tuesdays and stay on sale for 1-3 weeks.
Jewelry is rarely on sale before Valentine’s and Christmas.

Has anyone else noticed any other price patterns that aren’t listed on the calendar?

» Filed Under Frugality, Money Savers, Planning, Spending

Vending Machines Can Cost Us 580% More

Posted on July 2, 2007

I go to the vending machine maybe once a month. Each time it gets more and more painful knowing that the item is has such a huge markup(I still buy). I realize that am paying for my lack of planning and laziness. Let’s take a look at how much we are paying for convenience.

I compared the price of a couple items out that could be purchased at Costco or Sam’s club to the $0.80 cents that you would pay in a vending machine.

$0.138 cents for Austin’s Crackers - 580% more in a vending machine

$0.226 cents for Microwave Popcorn - 354% more in a vending machine

$0.38 cents for 3 Musketteers - Better, but still 210% more in a vending machine

$0.709 cents for a 20 oz. Pepsi - 176% more in a vending machine at $1.25

Just for fun, $0.0226 cents for gum balls - 1109% more

If you were to buy a soda and a pack of crackers just three days a week, you would be spending 320$ a year. This is almost $200 more a year than buying it yourself. Is $200 worth changing your habits to visit Sam’s or BJs a few times a year? This isn’t even taking into consideration the fact that if we put just a little upfront planning in, we would probably make better choices than a Mountain Dew and a pack of Peanut M&Ms. Some people even take it a step further and capitalize on the situation by having their own mini-snack stores.

Are you vending too much?

» Filed Under Health, Planning, Spending