Commandments of Personal Finance
Hello all readers from MSN! Welcome, and thanks for visiting!
I’ve been talking to my boyfriend about my budget journey, my research, what I’ve been doing, and how i’ve done so far. I’m also trying to convince him to get in on the game, as he needs it as much as I do, though he doesn’t have the debt I do. I realized in talking with him last night that there’s several things that every PF blogger out there seems to recommend or follow, and I’m going to save you all a bunch of effort and tell you what they are! Drum roll please…
Track your spending habits
Compile the past 3-4 months bank statements, and start figuring out where you spend your money. This will tell you what expenses you have, and where you spend money, and also where you probably need to rein in your spending (I’ll give you a hint, eating out is probably high on the list).
Make a budget
Determine what expenses you absolutely HAVE to pay (rent, utilities, car insurance, food). Figure out what you don’t have to pay, but may be able to cut, or may need to cut in the future (cable, entertainment such as books, movies, going out to eat, sports or theater tickets, etc). Figure out what yearly expenses you may have that may not occur every month, such as car tab renewals, car maintenance, yearly subscriptions, etc) so you can budget some per month to save up for the big expenses. If you know about them in advance, it won’t wreck your budget when they happen. Don’t worry if it seems overwhelming. Do it, live it, and see how you do. I guarantee you’ll make adjustments and then tweak as necessary. Many people seem to have an internal competition to see how well they can beat their budget from month to month. And remember to not worry if it doesn’t always work. Over time it will!
Start an emergency savings plan
It seems to be a $1,000 for those last minute unexpected bills. Your car is towed; you had to go to the emergency room; your car broke down and needs a repair; a death in the family – plane tickets last minute.
Open an online ING orange savings account
With a $25 bonus, and a high APY rate of return (between 3-4%), it’s a great way to save. Plus, since it takes a few days to take money out, you’ll be less likely to relie on it as a safety net and spend it.
Take stock of your debt
Figure out what debts you owe and make a plan to pay them off. Don’t just pay the minimum – pay as much as you can while balancing saving up an emergency fund. There are 2 school of thoughts on paying them off. Either pay off the smallest ones first to feel like you’re making headway, or pay off the largest percentage rates first to reduce what you owe faster (I like this last one best).
Talk to the credit card companies and see if they will reduce your interest rates (they may or may not until you start aggressively paying them off). Consider moving debt onto lower or no-interest credit cards (be aware that transfer fees may affect your decision to do this, or not).
Snowball debt payments
In your budget you’ll have regular monthly interest payments due to your existing creditors. As you pay them down, these will get smaller. Rather than reduce what you pay, keep paying the SAME amount. The debt will reduce even more!
Increase your income
Get a second job. Work overtime. Do online surveys for cash payments (they add up over time). Have a garage sale, or more than one! Put all additional income and all found income (gifts, tax returns, etc), straight into debt payments.
Build up a 3-6 month budget reserve
What happens if you lose your job or become injured? After saving up an emergency fund, and starting the debt repayment (if you have any), start thinking about saving up 3 to 6 months of your budget for life’s “what if” situations. Not everyone can do this; if it doesn’t seem possible, save up a larger emergency fund, or pay off your debt first.
Become frugal
Eat out less. Cook at home more and make meals for work, rather than eating out. Buy bulk. Clip coupons. Shop at thrift stores rather than the department store. Do without, or make do with what you have.
Stop spending
Do you have credit cards? Stop using them. Put them away and pay them off. Live off your income (“spend less than you earn”) only, and don’t incur additional debt. This should probably be the number one item on the list.
Comments?
Research & Budget Update
I’ve been reading up on lots of PF blogs lately – as I find good ones, I’ll add them to my blogroll. I know my current debts, I’m paying close attention to my statements, I’m making sure I don’t run out of money in my checking account and then have to resort to my credit cards or have transfer or overdraft fees. I’ve prepared a beginning budget. I’ve applied for a 0% interest rate card and gotten a 5K limit approval.
I’ve decided since starting this blog (all of 8 days ago) that I should have an emergency fund after all instead of expecting to use my credit cards for unexpected large expenses. I went and got a copy of my credit report to look at – it looks pretty good, nothing unexpected. I didn’t actually pay for my credit score; I don’t really care at the moment and I’ve been told that “it’s quite good.” I know I have a lot of debt, but I’ve always paid what I owe and I’m not usually late on payments. I don’t expect to purchase anything large for several years, so I don’t need to repair anything, just pay off those darn debts!
I’ve made an estimated stab at my debt-free goal of 6 years, but it’s not all that scientific; I’ll adjust it as I continue the journey. I have begun to live much more frugally, and I’ve updated a bunch of widgets on the side of my blog (showing the charts of percentage paid on my various debts). The visuals were fun and I think will be really useful to chart my progress (I know it’s the first thing I look for on other blogs!).
Now I’m anxious to start paying them off! I have had a few setbacks this month. I have been horribly sick and missed 4 days of work. That caused me to lose a lot of hours (I usually have 1-3 hours of overtime every day). It’s also a really short month on both paychecks – 10 days in each (payperiods are on the 15th and end of month). I expect I’ll be $3-400 short from previous months. Next payperiod is also short (10 days) and I’ll be on vacation for the entire weekof thanksgiving, that looses me about 7 hours of overtime, so next month’s first paycheck will also be significantly less than what I’ve come to expect as “normal.” Previously this would have been a disaster on my finances, but I’ll make do and be ok, just be paying less on debt.
Still, I’m looking forward to paying my first payments on my personal loan and paying off my credit card completely! I’ve also learned that my budget will need some tweaking! I think I’ve allotted too much money to food, entertainment, and restaurants. I also realize that I’ll have fluctuating amounts of spending in photography, but I’ll save that category for another post. I’ve also decided that the next budget update (to be done at the end of every month) will have to be in a table-based format.
Here’s to all my co-PF bloggers out there, and thanks for the wonderful motivation and help!
What is budgeting?
To get out of debt you’ll need to be on a budget. That is clearly one of the main tenets of the debt dissolution religion, from what I’ve been reading on other personal finance blogs. But what exactly does that mean?
The very start of this whole process started with seeing a debt lawyer. Bankruptcy is what she was espousing. I didn’t really want to (I’m not one looking for the easy way out, nor was it an attractive proposition – I would have had to do Chapter 13 since due to my recent raise and mega-overtime, I’m now just over the maximum of the Chapter 7 income cap). I’ll save the details for another post sometime, but the deciding factor was my income, and the idea that I would be put on a set budget. For 5 full years. The paperwork to qualify for the debt required that I look closely at my spending habits. Over the next week that’s what I did, as I looked at whether or not I should do bankruptcy.
I looked at my bank statements and credit card purchases for the last 4 months and compiled them into the following categories. Over several months it became obvious that my restaurant spending was out of hand, and also what average and regular payments I needed to make. Here is what I’ve budgetted for:
Food ($400)
Restaurants ($100)
Gas ($110, which lets me do a roadtrip if I want to)
Bills ($1190, includes rent, garbage, electric, gas)
Credit Payments ($355 on personal and SBA loans)
Pets ($100)
Coffee ($25, down from $60, and I’m trying to be under)
Liquor ($35, down from $60)
Entertainment ($50, down from $70, but realistically I’m trying for $0)
Photo (I do fine art photography, $40 for film and processing and printing)
clothes ($50)
fees/subscriptions ($30 average per month – this will cover my web hosting plus other misc. expenses)
home ($30)
car ($125 – I estimated I’d need to spend about $1500/year on maintenance & tabs)
cash (which I couldn’t track, but had and spent – $0 now, I like tracking everything on statements, so no cash spending for me), Medical ($500/year is what I have in my flexible spending account, so I hope to have none out of pocket).
Total: $2640. My income is $3000-$3300/month. That leaves me $360 – $650 for debt payment beyond the minimum payments. If I go under budget on anything, I could include that extra in my payments, but I think I will put it in savings for big emergency spending that sometimes occur and for deberred payments like semi-annual car maintenace. I can pay both loans with bank transfers instantly, and transfer unused money into my savings account, so I don’t need to write checks or anything.
I don’t carry cash in an envelope for each category and then when it’s done, oh well. I just keep track in my head or on paper and spend intelligently. I buy food when I need it at the grocery store, but I try to be under whenever possible, and I always shop with at list now. I have an entertainment budget but haven’t been to a movie in like 6 months, and stopped buying books to read (my achilles heel) by borrowing them from the library (their online system is an amazing thing).
For me, a budget is an educated knowledge and application of my spending habits. It’s not being rigid, but living responsibily, within my means, and trying to do better. I hope it works; the coming months will see!
Oh, and I think when I do my end of month budget I’ll have everything in a table format for easier reading.
Saving Money Costs More
One of the biggest ways I’m trying to trim the budget is by cooking more at home and eating out less. I have to say it’s been working, at least in the 1 month that I’ve starting budgeting. I think I’ve eaten out once a week, and usually for lunch on the weekend, which is usually pretty cheap. It generally costs $10-15 each time. I initially had budgeted $100 for restaurants and $400 for groceries per month and I think I’ve been more than meeting that (at least for the restaurant part).
So to cook more at home you have to buy more foodstuffs. This means lots of bulk foods, and cooking from recipes. I’m finding there are certain kitchen goods I’ve been doing without that I’m starting to really need! Measuring cups, a good 9″ square bake pan, and a good seasoned cast-iron skillet. Glassware to store extras in, freeze, and/or take to work. I did without previously but now that we’re cooking and baking at least every other night, it’s become a necessity. J even started canning, and he had to buy a bunch of mason jars and racks for boiling. I had to buy a bunch of mason jars for bulk goods. I bought the jars at the thrift store, but still have to go buy the new lids.
These are short-term purchases, so I’ll need to be spending some money in the home goods budget category – I think I’ll portion one of these per month until I’ve gotten them all.
Cutting Expenses
How do you cut costs on a budget?
1. Don’t buy new, buy used whenever possible. This takes much longer, and the selection may be much more limited. I have been running low on everyday clothes. Rather than buy brand new t-shirts at $13-24, and needing a few more pairs of jeans ($40-60/pair), I’ve been visiting thrift stores every weekend. This lets me shop, and keeps it cheap.
Two weeks ago I spent ~$50 on 7 pairs of socks (my main goal for the day’s expedition), 1 pair of jeans, 1 tshirt, 1 polar-fleece zip up hoodie, my entire halloween costume ($12), sand ome props for a photo project. Today I spent $14.01 for 2 tshirts, a bunch of kitchen supplies including ball jars for storing bulk good, a book, and another photo project prop.
I think I’ve got enough stuff to last me, but I’ll still haunt some other stores from week to week; I have a penchant for destroying shirts by getting oil stains (that never ever come out) all over them!
I’m also starting to pay really close attention to what items cost at different stores and only get them when I’m needing a bunch of stuff from that particular store or when I’m nearby – I no longer drive somewhere just to get because I want it at that time (I think this term is called batching your trips, to save gas). My preferred pet food is $7 cheaper at Petco than at the natural pet store. Cans of food are cheaper at the natural place (and I don’t think Petco offers case discounts like the other store does). But now I know and now I know not to buy something just ’cause I’m there. I think that’s one of the biggest pitfalls for spending money when you don’t need to: not having comparison shopped and not knowing your options!
Household of 2
I’m in a relationship, we live together, and share expenses. That’s great, but there’s an element of stress involved when it comes to divvy-ing up the expenses. Here’s the scenario: I think ahead, know we need x+y+z from the store, petfood, etc, and go get it. Then I come home and bring up that I spent money on xyz +lmn. Here’s the total, he owes me half. He looks like he’s thinking about it, but he doesn’t say anything, and he doesn’t respond. I know he heard me, but there’s no reaction.
Should I be asking for cash in advance, cash when I get back, or what? I hate having to ask again, plus, it makes it a bitch when it comes to budgetting – I mean, I have a receipt for $60, but really only $30 of my own money is going towards it. Do I put the total or half the total down on my budget sheet? And then I have to go and ask again. He looks almost annoyed, but what can I do? We needed it and he’s going to use half of it…
I know, I know, I’m stuck on the details, but how do you handle this???
DebtMaven 