Big B's Budget Part II

OK, get out your virtual pen and check off the items that are complete:

___   Excel
___   Bank account for personal escrow funds
___   Summary of fixed, variable, and non-monthly expenses

If you don't have checkmarks in all 3 slots, this articles won't be much help.  Head back to Part I of Big B's Budget Blog for your homework assignment right here. 

Now for the big question, how did the budget turn out?  Mine had a few surprises (like negative cashflow).  Assembled below are some of the best tricks I've come up with since living on a budget.  Nope, none of the concepts were stolen from Dave Ramsey, Wikipedia, or mint.com.  They all came from the school of hard knocks.

You need a suitcase full of these to buy anything.

Fun Money

This is the toughest budgetary item for most folks out there.  First, decide how much money to spend on the frivolous, unnecessary items.  For people making tons of money, you're probably OK putting all the money in one line item and discussing the items as you go.  If fun money is a very low amount, or you can never agree on how to spend the money, give everyone in the family an allocation of cash.  My budget had this issue early on.  We had a puny $100 to dump in this bucket.  Well, it was really more like a thimble.  The spreadsheet had 2 line items:
     Me           $50
     Her           $50

Her

The money could be used for eating out, computer games, or setting a fire in the back yard with $1 bills.  If we went out to eat, she could have the $35 lobster tails with a glass of wine.  I could suffer through the $6 meatloaf, but pick up a copy of Diablo II at Best Buy on the way home.  You get the drift.  As an added bonus, the leftover fun money carried into next month's budget!  That way, we could eventually buy stuff that cost more than $50.  Small loans into next month were also permitted for special occasions.

Me

Windfalls

In the pre-budget days, my first windfall was about $1,000.   WOW!!   My first thought was that we had plenty of money to do anything in the world.  Fun stuff got slapped on the credit card like mad until the statement came in. A quick calculation showed that the windfall was spent approximately 2.5 times. I don't remember pondering this one over a bourbon, but it was probably the case. After the "windfall disaster", a new worksheet appeared in Excel named "Bonus Money". The after tax amount is listed at the top, line items summarized, and the remainder is computed right under the amount.  We take great care these days in planning bonus money, and doing it is fun to boot. All of the money is either spent on things that are agreed on or put into an interest bearing account. How do we pick things to spend the money on? Check out the "Long Term Projects" tab. Yes, future house blog articles are listed in priority order here with an approximate cost. 


Scratching your head and wondering how you get windfalls?  Here are a few ideas:

• If you get paid biweekly, only budget 2 paychecks each month.  That way, 2 paychecks each year are windfalls!  (well, technically you get 3 every 7-8 years)
• Set federal and state withholdings, so you get a tax return instead of paying.  Don't go crazy, Uncle Sam doesn't pay interest.
• Get a credit card that pays cash back, like my Chase Rewards Visa.  Withdraw the money for a windfall when the money builds up.
• CHRISTMAS MONEY!!!

What is the HSA tab?

Up until recently, my company had a Cadillac health insurance policy that included $10 doctor visits, $15 prescriptions, and no deductable.  My first son was born to the tune of $100.  Seriously.  Fast forward to corporate cost cutting ideas and high deductable health care plans.  Family plans with a $3,000 deductables are common now.  That's tough on a monthly budget, but Uncle Sam has a program to assist with some of the cost.  If you have an HSA plan at work, an account can be opened to pay for medical bills.  Any money deposited into the HSA savings account is pre-tax, so the money doesn't make it to the Taxable Earnings column of your paycheck.  We deposit enough money in this account to pay for 100% of medical costs.  Doctor bills and prescriptions are entered in this tab and paid with the Chase Visa card (earning us a 1% rebate), and money is moved out of the HSA account to cover the bills. 

Short Term Savings

Lots of the expensive stuff in your house has a tendancy to break over the long haul like hot water heaters, A/C coils, microwaves, and TV sets.  Cars have the same problem. Most monthly budgets can't handle a $2,000 repair bill, even if you eat refried beans all month.  While we still had 2 incomes, my wife shoveled money into an account to pay for expensive, incidental items.  Ours is set up in a brokerage account that is invested in bonds and a money market cash fund.  Unless you have a bigger pile of money than the picture, stick to funds that are easily liquified.  Sure, Verizon stock pays a great dividend, but what if you need $4,000 to pay for a new roof when the Dow is down 1,000 points?   If you don't have a rainy day fund, start one now.  Either take a windfall and sock it away or allocate money each month to build one up.

Donations

Last but not least, the donations tab keeps track of money that we donate to charity.  We give money to several causes throughout the year, and I print this tab before going to the tax guy. 

Parting Thoughts

Big B's budget has evolved over nearly 20 years, and it works for our household like a charm.  Feel free to take any of the ideas in the article and add new ones that pertain to your own personal life.  Managing your money with a budget over time can greatly reduce the stress in personal finances.  What if the greatest stress in your budget was how to spend a windfall?  That's my dream.

Interested in tips to lower your electricity bill?  Click here

Big B's Budget Part I

How do you pay for all the things that you do your poor house? Simple, I cashed in a Powerball ticket for $100 million. 












Well.........  Not really.......  Winning large sums of money isn't really something I'm good at.  My luck is pretty good with insignificant things like parking in the food court at the mall on Christmas Eve, but winning money isn't a big strength.  This story begins with a couple trying to save for their first house.  After 2 years of "saving", our household had actually racked up about $2,500 in credit card debt.  After a particularly bad confrontation about not owning a house, I figured out something that most people don't understand.  Unless you're Britney, Oprah, or Donald Trump, you need a budget.

A budget?  Won't that force me into living like a pauper?  It could, but if you do it right, you'll feel wealthier than ever.  How to get started?  First you need Excel.














My journey at budgeting started with Excel 4.0 (man I'm old), no bourbon (too poor), and no Google (it didn't exist yet).  You're lucky today, because you get a head start with the latest and greatest gear.  Microsoft Office Home and Student 2010 runs for about $100 on sale at Best Buy, Staples, or Office Depot.  Pick up a copy even if you're not an IT guy.  You don't even need to start from scratch, because I've included my budget template.  Click right here to open it up: budget_template.xlsx.  Note: The values in the spreadsheet have been changed around a little to simplify the exercise.

Next, separate your expenses into 3 categories: fixed, variable, and non-monthly.  My list goes something like this:

Fixed: House Payment, Gas, Phones, Power, Netflix, Cable TV, Security, Newspaper, Discretionary Money, and Savings
Variable: Sewer/Water, Groceries, Vehicle Maintenance, Gasoline, Pets, Clothing, Kids, Misc, , and Cell Phones
Non-Monthly: Car Insurance, Property Taxes, Homeowners Insurance, Preschool, and Springtime Yard Work

Tip: something that my household does to make the numbers more predictable is allow the utility companies to put us on a "budget" plan.  They check recent usage, and the bill is the same every month.  They'll also have a settle-up month where you get a credit for money not used or a bigger bill for a shortfall.

Monthly Expenses
Open the template and click on the "Bills" tab.  The fixed expense amounts are on the left and variable expenses on the right.  Pull out your last month's bills and fill in the numbers.  Make a good guess on the variable expenses.  They can be fined tuned as you go along.  The "fun+save" tab has a place to keep track of discretionary spend and non-monthly bills.  Let's leave the discretionary money alone for now and head to the non-monthly expenses.

Your Personal Escrow Account (Nonmonthly Bills)
Punch in the non-monthly bills, add up the total, and divide by the number of paychecks you get in a year.  The spreadsheet has a spot to work this equation for you.  People that get paid biweekly have 26 pay periods as a rule.  Some years are 27, but let's not get that complicated.

Now, take a break from Excel and head to the bank.  Open up a savings account that draws interest. We'll call this your personal escrow account.  Take the "Escrow Budget (Pay Period)" number from the spreadsheet and set up an automatic draft from your paycheck or checking account into your personal escrow account.  Each paycheck will deposit money into the escrow account.  My company has a credit union that works well for this task.  This new account separates your monthly budget money from the non-monthly money and also draws interest.  All your non-monthly bills get paid from here. Note: The spreadsheet has a calculation to show deposits into the account.  Depending on where the non-monthly bills fall, you may need to start the account with an initial amount.  That's so you don't go negative during the year.  My example needs an initial $1,100 to keep it running.

Tip:  If you get paid biweekly, try as hard as you can to live on two paychecks a month.  That way you get an extra two paychecks to spend each year.  We take one paycheck to spend on Christmas and apply the other one towards a family vacation. 

Setting Up The Budget
Head back to the main page of the spreadsheet, and let's get started on income.  Add the "net" amount of money you typically get from paychecks and other income (like tips).  This amount is after taxes, insurance, 401K, and pretty much everything else that drains your check.  Next, subtract out the escrow account money from each check.  The template uses $1600 per pay period for budget income ($265 is taken off the initial amount).  This amount is your budget income.  Summarize your fixed and variable expenses and add them up to get the "budget expense" number.  Subtract expense from income.  If the number is positive, that's really good.  You have leftover money.  If the number is negative, it could explain why you're getting deeper into debt.  (Don't feel bad, most of us have been there before.)

Now what?  Punch in your expenses into the "actual" column during the month.  The spreadsheet will calculate your total spend at the bottom.  Monday night is my time to pay bills and type receipts into the spreadsheet.  I use "save as" to make a copy of this spreadsheet for each month.  Printing a copy out in the middle of the month for the wife/husband helps keep the budget on track.  You'll also want to make some adjustments to the budget after getting all the numbers on the computer for a few months.

Hey, what are those other tabs for?????  Click here for the budget blog Part II, which has more details and lessons we learned from living on the budget for over a decade.

Got a question?  For the first time, I'm soliciting feedback on the house blog.   Go ahead and email suggestions, questions, and comments to: houseblog@theroysefamily.com.

Interested in tips to lower your electricity monthly bills?  Click here.
Read this article to see how to lower your phone bill to $25 a year.