Category Archives: Budgeting

An element of the Financial area in which you monitor, control, and plan your income and expenditures in order to apply your financial resources more effectively.

Asking the right questions

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Nick True at Mapped Out Money often has good budgeting and personal finance advice. This episode looks at the questions we ask ourselves regarding money and suggests maybe we’re asking the wrong things.

I find there’s a lot of value in what he says, especially in comparing yourself to others. My wife and I could drive ourselves crazy if we were to compare our grocery budget to others. We’re vegans, which tends to be more expensive for base ingredients, but we don’t eat out very often, mostly because of the expense. On a strict analysis that doesn’t make sense. If we’re really interested in saving money on food, why shell out for vegan food? Or, if we’re so interested in health, why not go even more expensive and buy everything organic? (That’s not why we’re vegan, but that’s another story for another time.) The answer lies with our values. We do value vegan living, and we also value saving money. This is the balance we’re comfortable with.

At the end of the day, if we don’t live in accordance with our values we’re going to be dissatisfied with whatever other choices we make. Granted, values can–and sometimes should–be changed. If your primary value is to live as large as possible regardless of income, then you’re headed for trouble and either need to to not disregard income so much or decide not to live so large. But on the whole, money needs to serve our needs and not the other way around.

Who is this really for?

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I recently came across an address by Robert D. Hales that shared valuable insights into money and how we perceive it. I thought I’d share some of it here.

All of us are responsible to provide for ourselves and our families in both temporal and spiritual ways. To provide providently, we must practice the principles of provident living: joyfully living within our means, being content with what we have, avoiding excessive debt, and diligently saving and preparing for rainy-day emergencies.

…

How then do we avoid and overcome the patterns of debt and addiction to temporal, worldly things? May I share with you two lessons in provident living that can help each of us. These lessons, along with many other important lessons of my life, were taught to me by my wife and eternal companion. These lessons were learned at two different times in our marriage—both on occasions when I wanted to buy her a special gift.

The first lesson was learned when we were newly married and had very little money. I was in the air force, and we had missed Christmas together. I was on assignment overseas. When I got home, I saw a beautiful dress in a store window and suggested to my wife that if she liked it, we would buy it. Mary went into the dressing room of the store. After a moment the salesclerk came out, brushed by me, and returned the dress to its place in the store window. As we left the store, I asked, “What happened?” She replied, “It was a beautiful dress, but we can’t afford it!” Those words went straight to my heart. I have learned that the three most loving words are “I love you,” and the four most caring words for those we love are “We can’t afford it.”

The second lesson was learned several years later when we were more financially secure. Our wedding anniversary was approaching, and I wanted to buy Mary a fancy coat to show my love and appreciation for our many happy years together. When I asked what she thought of the coat I had in mind, she replied with words that again penetrated my heart and mind. “Where would I wear it?” she asked. (At the time she was a ward Relief Society president [ed. leader of the church’s women’s charity auxiliary] helping to minister to needy families.)

Then she taught me an unforgettable lesson. She looked me in the eyes and sweetly asked, “Are you buying this for me or for you?” In other words, she was asking, “Is the purpose of this gift to show your love for me or to show me that you are a good provider or to prove something to the world?” I pondered her question and realized I was thinking less about her and our family and more about me.

After that we had a serious, life-changing discussion about provident living, and both of us agreed that our money would be better spent in paying down our home mortgage and adding to our children’s education fund.

These two lessons are the essence of provident living. When faced with the choice to buy, consume, or engage in worldly things and activities, we all need to learn to say to one another, “We can’t afford it, even though we want it!” or “We can afford it, but we don’t need it—and we really don’t even want it!”

My wife has often been my backstop on financial issues, questioning the criticality of some of my desired purchases. I may not always have appreciated it at the time, but I do appreciate her keeping me grounded. I’m grateful for the partnership we’ve built through the years around managing our money. I do the bulk of the management and bill-paying, and she the bulk of the household shopping. This works well primarily because we share the same goals and we continually communicate.

Of course you don’t need a significant other to establish and maintain financial discipline. One of the key skills is to learn to distinguish between needs and wants, and when considering wants, understanding the root of that want. Developing the ability to police yourself and say, “I may not want this thing for the right reasons” is invaluable.

The bottom line with money is that either we learn to master it, or our money will become our master–or rather, those to whom we end up owing money. The more control we gain over our finances the greater freedom we will enjoy.

Your money or your life? It’s not that simple

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About a month ago I began discussing an article from Wikihow.com on “4 Ways to Be Self Reliant,” by Trudi Griffin, LPC, MS. The article is more about relationships than what I would consider self-reliance, but she still makes some valid points. Today I want to look at her second point, managing money independently. She breaks money management down into six areas:

  1. Learn how to manage money
  2. Get out of debt
  3. Pay cash instead of using your credit card
  4. Keep cash on hand at all times
  5. Own a home
  6. Live within your means

To begin with Griffin warns against allowing others to manage your money. I agree with her basic premise, that you can lose your independence if you lost control of your money, but that depends on the nature of your relationship with that person. In most marriages one of the two usually assumes responsibility for managing the money. If you are good at communicating, have compatible financial goals, and trust one another it’s actually easier to have one partner take primary responsibility and keep the other informed. Her second concern is more valid: if the primary money manager is unable to continue in that role it may be very difficult for the other partner to step in. Even if you are not the money manager in your relationship, make sure you know how to access everything and are comfortable managing money yourself.

Griffin also encourages everyone to get out of debt, though what she really focuses on is keeping your debt manageable. According to her, your total long-term debt payments (mortgage, auto and school loans, and credit card debt) shouldn’t exceed 36% of your monthly income. If your debt payments exceed this level you should make every effort to get that debt load paid down as quickly as possible.

As a corollary to that, Griffin also advocates paying cash for everything, and to keep cash on hand (and in savings) at all times. This seems primarily to be to keep your credit card debt low, and I somewhat agree with this. If you have difficulty paying off your credit cards, or can’t resist charging more money on them, then by all means you should avoid using those credit cards. But if you have developed financial discipline and never miss making your payments because you’re able to set money aside to make those payments, there may be a way to make your credit cards work for you.

I recently read I Will Teach You To Be Rich, by Ramit Sethi. The man has some good ideas about acquiring, building, and managing wealth–and some ideas I’m less keen on. But one suggestion he makes is to put your regular expenses, as much as possible, on your credit cards and then set that money aside to pay the bill off quickly. If you get the right credit card you can earn travel miles or cash back rewards that amount to free money. I’m disciplined with managing my budget, and so I decided to try it. I haven’t put as much on my card as I could, but already within the past several months I’ve picked up nearly $250 of cash back rewards. It’s free money. But if you’re not so good at managing your credit card debt and paying off your account monthly, it’s best to follow Griffin’s advice and avoid credit cards altogether.

Griffin’s next suggestion is to own a home. I’m not as sure about this one as I once was. Right now interest rates are low, so you may only pay about 50% more than the cost of your house in repaying the loan. Depending on how long you live there, the value of the home may increase well beyond that. Our first house did just that. But you don’t always control how long you live somewhere these days. We had to move when I lost my job ten years ago, and the timing was terrible–the housing market had collapsed and I owed considerably more on that house than I could sell it for.

There’s also the maintenance costs and hassle of a house to consider. So far since moving into our house nine years ago we’ve replaced the roof, replaced the furnace, air conditioner, and water heater, and bought high-efficiency windows. Granted, that last purchase was voluntary, but that was easily an additional 30-40% the cost of the house we had to find within the first six years of buying it. That, on top of a myriad of other maintenance expenses through the years. If you don’t like or can’t afford doing your own maintenance, or if you can’t be sure how long you’ll be staying where you live, a house may not be the best option. Everyone needs to evaluate their priorities themselves in this area.

Last, but by no means least, we should live within our means. That usually means several things that have to happen. First, you need to know (or learn) exactly how much money you spend each month and where it goes. Second, where at all possible, and perhaps not matter what the sacrifice, you need to adjust your spending to where it is less than what you earn. Third, you need to continually monitor your spending and your justifications for spending and see how you measure up against your budget. You need to be willing and able to adjust your spending to remain below your means–and save the difference religiously.

Frankly, learning how to budget and how to stick to that budget is one of the most important skills one can develop for self-reliance. That’s pretty much the key to achieving financial independence and taking care of “future you.” Or perhaps your spouse and children after you’re gone. Usually in life there are only two choices: either your master your money or your money masters you. Money is seldom a kind master, but it can be a real friend when you learn to master it. Mastering your finances is a key step toward true self-reliance.

Controlling your money? or just monitoring it

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I’m a budgeting fanatic. Or at least I have been before, and I am once again. For the previous several years I’ve been more of a monetary monitor until I finally realized what I was doing and decided I had to stop it. I’ll get to that in more detail later. But let’s start from the beginning.

I love to organize things. Not everything, mind you. My desk is a mess, and I’m pretty sure my poor mother despaired of my room ever being clean. But some things were worth organizing and tracking. Like Halloween candy. I always found Halloween to be something of a letdown. It’s fun getting the candy, and it’s fun glutting yourself on all that candy, but then it’s gone, and you realize you never really appreciated what you had.

One year, probably around the time I was eight, I decided to change that. Rather than eat all my Halloween candy I instead ate some, and saved the rest. I actually inventoried my candy, and found places in my room where I could hide small stashes of it–partly because I didn’t want my older brother to find out and eat it, but also because I wasn’t sure if my mom would approve. The goal was to eat only one piece of candy a day, and I mostly stuck to that plan. I’m pretty sure there were some days when I allowed myself “just one more” a time or two, just as I’m also sure there were days I forgot. In any case, I stretched my Halloween haul out past Valentine’s Day.

I wasn’t as good with money. Around that same time period I got a newspaper route–with my mother as a partner, since I wasn’t actually old enough. We’d split the monthly take, and according to our deal, I’d set some aside for tithing and for savings, but the rest was mine to do whatever with. Sometimes I’d see something I wanted to save up for and do so, but most of the time I could have it all spent by the next payday.

Though I changed jobs and increased my income, I continued that pattern pretty much through college. I always made sure I set aside enough for tuition, but I wasn’t overly great at saving for a rainy day.

Then I graduated, got a real job, and moved in with my older brother for a few months. Consciously or not, my brother became my financial mentor. He and his wife were making good money, and were in firm control of it (much to my surprise; my brother could spend money even faster than me when we were younger). He’s the one who taught me to budget.

Then I got married, and to borrow a colloquialism, “excrement became concrete.” I married a gem of a wife who had lived in the former Soviet Union, which is the more recent equivalent of having lived through the Great Depression. Twenty years, three kids, and several pets later we are still amazed we were able to live on what we had then. I’m pretty sure we spend more on groceries in a week now than we spent in a month back then.

As time passed our income increased, but we managed to keep our expenses from increasing to meet it. Then I lost my job in the Great Recession of 2009-2011. We tightened our belts and cut back on the budget, and were able to make it for two years before I found another job that came close to matching our previous income. We had to relocate to another state, but everything looked fine once again.

But about that point something went wrong–or perhaps a number of things all went wrong. The area we moved to was more expensive than we thought. The house we bought needed some work. Part of my income (residuals from a business venture I had to leave behind) was unpredictable. The kids started getting expensively older. I had grown weary during my prolonged unemployment of worrying about money. I don’t know; one or all of these played a hand it it. The bottom line is I stopped paying close attention to money.

I was still tracking it. I still had my budgeting tools. But so long as we had money left over at the end of the month I was okay with it. I didn’t worry too much beyond that.

A few years ago that began to change. I think my kids were the main catalyst. My oldest, a daughter, was about to graduate from high school and wanted to go to an art school in Canada. I didn’t want to be the one to crush her dreams, so I told her if she would focus on getting good enough at art to get accepted, I would worry about paying for it. I had another son who took tennis lessons, and another who discovered competitive mountain biking. We were covering it all, but I could see the time was rapidly approaching when we wouldn’t be able to keep up.

It was about then I realized that tracking our expenses wasn’t cutting it. It was about the same as standing on the corner of a busy intersection counting how many car crashes occurred. I knew where our money was going, but I was doing nothing to determine whether that was the best use of it, let alone trying to slow the spending. Something had to change.

First step was to start paring down our budget. Little extravagances had been creeping in year after year, along with quiet increases in the cost of living. I got as brutal as I could be and found a couple hundred dollars a month that we didn’t need to spend. We made the kids start getting jobs to cover some of their fun on their own.

But I still wasn’t using my budget correctly. I was still only keeping track of where the money was going. Finally, around six months ago, I decided my tools weren’t cutting it any more. I started looking around for something better.

Enter my older brother, again.

He told me about an online tool he used, one that he paid a small monthly fee for. Double red flag! In spite of my career in IT (or perhaps because of it) I don’t really trust “the cloud”, and definitely didn’t like trusting my financial information to it. And I didn’t like the idea of paying a monthly fee, however small, for something I could do for myself for free. But my brother recommended it, the first month was free, and Quicken was going to force me to a subscription plan as well soon. I decided to try it.

The tool was called You Need a Budget, or YNAB. And I didn’t really “get” it. Yeah, it was similar in approach to an old spreadsheet I’d built once, but as the end of the free trial rolled around I didn’t really see the benefit, other than it was easy to use. And about that same time I learned my job of eight years was going away at the end of the year. Subscription software? No way.

But I gave it one more month, partly because my brother would get a free month if I did (and I was already sponging off him for several streaming services), and because something told me that, even if I wasn’t “getting” YNAB, there was still something there to be gotten. I kept going. The monthly fee wasn’t that big, and even cheaper if you signed up a year at a time. And I could still cancel it.

The year and my job ended, and then suddenly I had landed a new job–with a nice jump in salary. And over those two months I’d learned some more things about YNAB that made a huge difference. I changed my way of thinking about money, and found that YNAB along with some other strategies (also from my brother, come to think of it), was giving me what I had been missing before: control. I was no longer a passive observer, dutifully noting the flow of money toward bills. I was making conscious decisions about each and every dollar, and was finding that more and more of them were going into savings and into investing.

When we first moved and I got started in my new job I swore to myself that I would carefully control my budget so that the residual I was making from my former business would always be “extra money.” Everything I needed to be spend would be paid for from my regular income. In hindsight I’m not sure I ever achieved that goal, except perhaps a month here and there during the subsequent eight years.

I’m pleased and relieved to say I’ve finally accomplished that goal. And just in time, too, as my business is in budgetary freeze right now because of the Coronavirus. It’s getting by, staying afloat, but there are no residuals coming right now, and there probably won’t be for several more months yet. I realize I’ve been quite fortunate that my new job hasn’t been impacted, and I’m very grateful for that. But I’m also very glad to have my budget back under control again.

It really feels good.

I’ll be reviewing YNAB at some later date, but if you’re already interested and would like to check it out, use this link. If you like it and sign up, I get a free month (worth $7), but don’t do it for that reason. Also, check out their videos on their YouTube channel, so hopefully you’ll “get it” quicker than I did.

Step Two – Financial baseline

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When starting a new job simultaneous with moving into a new home in a new state there is a certain amount of chaos wrecked on the home finances. There are unexpected expenses in moving out, unexpected expenses in moving in, and extra start-up costs for all the new services, not to mention replacing all those things you threw out before you moved thinking you wouldn’t need them in your new place.

And there’s always the unexpected house repairs for things that the inspector missed.

It suffices to say that for the first month or two you’ll be doing well just keeping track of whether or not you have money, let alone how much and where it needs to go. Chances are your paycheck will fluctuate for awhile, too, as taxes, shared costs on benefits, and other items kick in.

The sooner you can make sense of the chaos the better, of course. Any and all information you can collect will be helpful. Start up a list of all the recurring bills that have come, along with any you are still waiting to come. At the very least you’ll be able to establish what you don’t yet know.

Then as your bills start arriving, start recording the amounts, noting what expenses are one-time start-up costs and what are more likely to be the ongoing amount. Start using this to put together a baseline of what you think your monthly living expenses will be. Then over the next few months start validating your list, adjusting as needed as you get more data. If you’re lucky you’ll have a fairly solid baselin within a month, but expect it to take at least three months for things to really even out.

Obviously if you see problems popping up (ie. more expenses than income) you need to start making adjustments. You may wish to over time anyway, even if your cash flow is positive. For example, our original plan in moving in was to get cell phones and skip getting a land-line this time. But further research quickly showed that IP phones, cable DSL, and other potential money-savers weren’t such bargains after all. And our cell reception at our home is a bit spotty. So now we have a land-line and cell phones.

Even when we just had the cell phones we didn’t use nearly as many minutes as I had expected. Chances are we’re going to pare back our service. It’ll only save us $10-20 a month, but every bit helps. $20 a month toward food storage goes a long way, for example.

Right now we’re not through our first month, so our baseline is still fairly unstable. But I’ll be tightening it up as quickly as I can. It’s driving me nuts to not yet have a reliable budget. I must have ORDER!!!!

The lure of "bulk"

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As a general rule, buying bulk is a good way to save money. But one has to be careful. Take for example my recent toilet paper shopping for my business. We have a regular catalog for a business supplies, so I first looked there. We could buy TP by the case, getting a case of 96 rolls for about $50. Sounds good.

But then I compared it with our household brand. We get that stuff in packs of 24 rolls for about $4.80. That’s about 20 cents compared to about 50 cents in the bulk case. Not so great. But then I remembered that there are different sizes of rolls. I quickly checked the stuff we use at home, and it worked out to 88 square feet per roll. Armed with that information I checked the bulk stuff again. They didn’t give any figures on square footage.

Comparing apples and oranges–the bane of bargain shopping.

Fortunately they did list sheets per roll, and so did our household brand. It turns out the bulk stuff has about 500 sheets per roll, whereas the household stuff only has about 175. Simple math reveals that with the bulk stuff you’re paying about .112 cents per sheet, where the household TP comes in at .114 cents per sheet. Woo. Big difference. You’re not really saving much going bulk in this case.

Now the supply catalog gives even bigger discounts the more cases you buy, but we’re a small business. It’ll probably take us a year to use up the entire case. It’s worth it to always have some on hand–we can’t exactly close the shop while we run to the store for more TP–but really, it’s not that much of a savings.

Far too often that’s how it is buying bulk. Rather than really providing savings, they will mask information to make it only look like you’re getting more for your money. They make it as hard to compare with the “regular” quantities as they can. You may save some money, but you have to buy a lot before you really start to see any significant savings.

Do your homework and your math. There are real deals out there. But now that bulk is big business, it’s still very much “Let the buyer beware.”

Managing money requires visibility

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Many people will tell you the first step in managing your money is to create a budget. While I do believe budgets to be important, for many people the first step is something much more basic: getting in the habit of tracking your money.

This is not as easy as it sounds. In our highly-competitive society, there are more options for anything than we really need or know what to do with. For example, consider all the different options for simply paying for a purchase:

  • Cash
  • Check
  • Credit card
  • Debit card
  • Money order
  • Gift card
  • Credit
  • Electronic Funds Transfer
  • PayPal

I’m sure there are more, but you get the idea. Most of us use at least three of those options. I personally use all but two between my personal spending and my business. With so many different ways to buy something, each with a different means and rate of tracking, it can become very easy to at least temporarily forget where your money has gone.

It can be very easy, for example, to charge something on your credit card and then forget you’ve made that purchase until the statement comes up to a month later. It can be nearly impossible to stick to a budget if you spend money in a certain category, forget you spent is, and then spend that money again thinking you still have it available. When the bill comes you will likely find yourself surprised and over budget.

So what is the solution? Well, there are two, actually, that work together: Simplify and Track

Simplify: Do you really need all those different payment methods? Do you really need, for example, to have your savings account at one bank and your checking account at another? Do you need to use three different credit cards? Do you really need to use both checks and a debit card? Look for ways you can reduce the number of “Outgoing Streams” you use. While I did admit to using nearly all of the payment methods listed above, there are only two I use with any regularity.

Look for ways to simplify. Use only one credit card if you can. Put all your accounts together at a single bank. Choose to use either your debit card or your checkbook exclusively. If you find it difficult to choose between some options, always select the one that is easier to track.

Track: Develop a habit of gathering evidence of every purchase you make. Hold on to receipts. Write down all checks you write in your check register. Check your credit cards and/or bank accounts online at least twice a month. Keep a running total of all your accounts and expenditures in a single place and consolidate all your records into that Single Source of Information (SSI) at least twice a month.

I use Quicken as my SSI, but anything will do, so long as it is simple and you’ll use it. I keep the books for my homeowners association in a paper ledger, for example. because it’s simple and portable (for taking it to meetings for the members to audit the books). I consolidate my records three times a month; mid-month, just before month-end, and after month-end when my bank statement comes. Others may need less often than that, and some may need more, but I’d recommend no less than twice a month or you’ll miss making important payments.

Once you Simplify and Track you’re in good shape for devising a budget and getting your finances under control. You can’t control what you can’t see and understand. If you don’t develop the discipline to at least track your money you’ll never be able to develop the discipline to create and stick to a budget. Tracking your money is the foundation to every other step that leads to financial self-reliance and, potentially, independence.

Frugality, financial compatibility, and the silver lining of unemployment

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One of the smartest financial decisions I ever made was marrying my wife. I’m a reasonably frugal guy, but she is great at it. I think it comes from living in Estonia under the Soviet Union for awhile. They didn’t have much, so everyone got used to getting by on very little. As a result she’s never been one to spend extravagantly.

When we got married I wasn’t making much money. It seemed like a lot at first because it was the first time I’d ever been on salary instead of wages, so thinking “lump-sum” made it sound so much greater than it really was. At any rate, when we got married things were a bit tight. We’d just barely squeaked our way into a home loan to buy my brother’s house, and it seemed like we were one major appliance failure away from financial ruin. Yet because we were frugal we got by, and even absorbed a few lesser financial problems.

In time, however, my income started rising. And that’s where my wife really helped out. My first instinct was to increase our budget to match our increased income. We could afford to live a little better now, I figured. But she was firm, insisting that we instead put that money into savings. I grudgingly went along with it at first, but after awhile I got a bit excited to see how much we were putting away and how we could endure minor setbacks more easily.

That became the pattern for the ten years we’ve been together. My income continued to rise, and as we were having kids, our expenses rose, too. But because of our frugality our expenses did not keep pace with my income. We were spending more money, but we were saving more, too.

Am I ever grateful for that savings now–and that frugality. I lost my job nine months ago, and though unemployment insurance helps, we still rely on our savings quite a bit. Our savings has been holding up amazingly well. That’s partly because we were saving so much, but it’s also because we know how to be frugal. The minute I knew my job was going away we went into “bare minimum” mode and were able to cut our budget by about a third. That really helps the savings go farther.

Eventually I will find work again, and then we’ll see the silver lining. Unemployment has helped us identify and eliminate some of the fat from our budget. When my income goes back up again it will be much easier to simply say “no” to letting our budget increase again rather than having to look for ways to cut back once we’ve gotten used to spending more. We can move forward with a much more efficient budget and with any luck rebuild our savings that much faster.

Of course first I have to find work, so our savings may continue to take a hit for awhile, but it’s comforting to know that I’ve got such a strong partner in my wife. It’s a big relief knowing that she’s working just as hard or harder to keep our expenses down right now. We’re under enough strain right now without having to clash over money as well.

Being married to someone I’m financially compatible with is a true blessing.