Monday, December 16, 2013

Budgeting

We live pretty frugally in our house, but I know there are some who can pinch a penny tighter.  Every time I see an article on how to save money, I always read it, hoping for some nugget we hadn't thought of.  This got me to thinking of what we do.  So here are the biggies:

1.  Don't spend money.  I mean don't spend money that isn't a need.

2. When spending money, ask if it really is a *need* or if it is a want.  I think this is where 90% of people get into trouble.  What we need is somewhere warm and safe to sleep, food to eat and clothes to wear.  And if you have kids, books to read and some fundamental toys to play with.  Those are needs.  Anything else is a *want*.

3. For 1 week, track every.single.penny that leaves your hands.  Track how it was spent--cash or credit card or check, or whatever.  Put them into categories of type of expense--be precise.  Great if you can do this for even longer, but it is surprisingly tedious to do, so I only ever last a week, but it makes me stop and think.  Do this periodically or if you ever ask yourself 'where did the money go'.

4. Keep a budget--write down all the expenses that come every month regardless of what else is happening in your life.  At the top, put the month and year and then on the left side each of your categories.  If you don't know an amount to start, you can take the average of the last 3 months and add a little.  Doing this in a spreadsheet is great because you can play with the numbers.  Even if you don't have excel knowledge, there are some simple things you can do--such as adding columns--and hey, you'll learn a new skill.  I always have a 'play' column for each year.  So that I can say, what happens if we add 'x' to our monthly budget, what does that do for us.  I have a general 'cash' category that loosely tracks the amount of cash we spend each month.  This is a great place to add a cushion.  If things are too tight for you to add a cushion, try adding just a $5 cushion somewhere.  I like the cash category because it's more flexible.  If you are able, try adding a couple hundred to the budget in the form of a cushion.  I do try and keep the 'regular' monthly bills accurate, so don't cushion there.

If you have credit cards, that is a GREAT place to build a cushion.  I always put in a larger amount and then aim to spend less.  Then I can be proud of myself when we are successful.  Set your budget up so that psychologically you can feel successful, not stressed. You could for instance include a line item for how much you have saved, if you want either a cookie jar or a separate account, or whatever, but after you have written your budget, see if you have extra money each month and if so, take a portion of that and 'save' it. 

Try and fill out the budget at the same time each month, but don't stress if you don't.  A good time to is either right when your bills come in, or right after you paid them.  Set a reminder.  It's okay to fill in historical data--even if it is not complete across all areas, it gives you more info than if you don't.

Include a section for your bank account balances.  It's very telling to look back over time and see where you are.  Try not to do it right after your paycheck is deposited because then your balances will be artificially high.  Try and cluster when your bills are due.  If you need each paycheck to pay the next bills, try and cluster for instance, your utilities and your rent/mortgage so they are due at the same time.  And maybe have your credit cards all due/bill at the same time, or whatever works for you.  It's easier to keep track of and you are less likely to make a mistake.

5.  My mother in law is a master at the following:  take a base meat and make it last several days in a variety of meals.  I will never forget showing up one year and having a big turkey dinner.  The next day, we had turkey Ala king, then turkey noodle casserole and so on.  This went on for 3 or 4 nights.  Meat is expensive and there are other ways to get protein.  Buy fresh or fresh frozen when possible.  The least processed the food is, the cheaper it will be.  Think about it: the more times your food has to be processed, the more hands that touch it, and the more people who have to get paid.  If you are just eating an apple, far less people did something to that than if you eat flavored applesauce. 

6. This ties into the above, but pick a day each week and make a menu for the next week. It works, I swear.  Be flexible, but if you have kids, involve them in the planning.   You can even think about what might be good to have for leftovers.  So we might cook chicken one night and the next have a quesadilla the next. 

7. Hire a babysitter when you go shopping.  Taking kids shopping and teaching them about money is one of the most important responsibilities of being a parent--start it early--like baby early.  That said, I try very hard NOT to take my kids to the store with me and when I do, I prep them and say that I will not be buying anything that is not on my list.  BEFORE you go in the store, say, 'Here is my list, is there anything that needs to be added?'  Have those debates at home or in the car, not in front of the BBQ potato chips that are on sale.  Invariably, while we are in the store, they think of something that to me we logically need and I cave--not always, but more than I'd like.  This brings me to the point of a sitter.  I can pay a neighborhood teenager less money for me to go shopping by myself for 1.5 hours than the cost of the extra stuff I buy if I take my kids.  Or swap with a friend on the kidsit duties--otherwise known as playdates.  Offer to pick up milk or similar for friend.  You are still ahead even if they don't reimburse you.  When you DO take your kids shopping, use it as an educational trip.  Depending on their age, they can do all sorts of things--learn how to pick the fruits and veggies--there are all sorts of articles on how to pick them, or an employee can help.  Or if they are older, have them help you find the cheapest salad dressing.  Teach them about the price tag--cost per unit and how that can be deceptive.  Check the ingredient list on store brand versus name brand and give the cheaper one a try.  If you are organized enough for coupons, bring those and add another layer of education.  Explain the trade offs, if you buy 'x', you can't buy 'y'.

8. Lists.  We maintain a list of stuff we need.  When the circulars come out, we see what is on sale, and that's what we buy that week.  We've been known to be down to the last roll of tp because it hasn't been on sale for a while.

9. This contradicts the first point:  splurge on something for yourself.  By this I mean, buy that fancy coffee once per week for yourself.  Or a similar treat. 

10.  Plan your spending.  There are certain times of the year when certain products are cheaper to buy.  It might only save you a couple hundred, but if you are trying to stick to a budget or save for something, that can translate into an extra night of vacation.  TVs are good to buy right after the superbowl.  Clothing sales are huge in late July and in January.  Perhaps you save up so you can go crazy then.  Buy seasonal decorations at the END of the season or after it has passed.  Oftentimes, retailers are unloading Christmas stuff by mid-December, but the discounts really fly in the days after Christmas.  Is your Dishwasher acting crazy?  Start researching NOW what models are out there and what features are available so that when it dies and can't be repaired, you won't make a rash decision. 

Tons more ideas, but those are the big ones.  In a culture where we are made to feel we need to spend, I'm always amazed to learn that those are build wealth aren't not making millions of dollars, but are making smart decisions with the money they do have.  I love to shop and spend, but I don't love to throw money away.