Thursday, November 1, 2012

What's in a budget

I intended my last post to be about building a budget.  My mind went off into a tangent about winning the lottery and now I need to get back on track.  The point of waxing on and on about how 20 million dollars is worthless, when I don't even have positive net worth is back to the mantra, "It's not how much you make, it's how much you save."

Since you get good at the things that you measure, you need a way to measure how much you save.  This seems relatively easy.  

Step 1 - Login to your bank account & check balance.  w00t!  $5 dollars!
Step 2 - Login to your bank account & check balance.  w00t! $10 dollars!
Step 3 - Login to your bank account & check balance.  w00t! $15 dollars!
Step 4 - Login to your bank account & check balance.  w00t! $16 dollars!
Step 5 - Login to your bank account & check balance.  errr...  $5 dollars.  wtf?!

When it comes to measuring your ability to save, you need the proper ruler.  The balance on your account is NOT the proper ruler.  The proper ruler is your personal cash-flow statement.

Eh?  Cashflow?  Cash wtf?  Flo?  

It's very simply, 3 things:
  • A list of $ going out.
  • A list of $ going in.
  • Totals of the $ in & out.
There's 2 things that are really friggin hard.
  • Remembering every place you owe $ to.
  • Being honest about who you owe $ to.
It's hard to remember, because we don't like to remember that we owe people or institutions money.  When it's pay day, the best part of it is relishing in all the things you can buy.  it's no fun to take the money and relish in all people you need to pay back.

It's even harder to admit over one's pride who is owed money.  "I don't have to list the property taxes,  due in 3 months, it's in 3 months and I'll deal with it then.  I don't have to list the quarterly trash bill.  I'll deal with it later.  I don't have to list the $50 I owe my sister.  She'll forget about it."

List it ALL.  

Anyway, examples speak louder than words.  Here's my budget.

$5850 / month after taxes

  • 800 apartment rent
  • 1020 house mortgage
  • 30 prescriptions
  • 350 groceries
  • 180 car gas
  • 125 auto insurnace
  • 112 house gas
  • 51 house insurance
  • 80 apartment electric
  • 185 house electric
  • 30 apartment gas
  • 70 lawncare chemicals
  • 80 cell phone
  • 60 house internet
  • 60 apartment internet
  • 25 random fun
  • 512 school loans
  • 540 car payment
  • 140 various medical bills
  • 1570 credit card minimums
  • 590 non-monthly bills (trash, water, sewage, hoa, taxes, car maint, car reg)
$6610 Total Out

I'm not even saving money or going out for entertainment, and I'm short $760 every month.  I'm not quite bankrupt yet, but I definitely must change some stuff.  So what kind of acrobatics am I juggling in order to keep my ship semi afloat?

  • Gave up iPhone and cancelled plan. I use my free work phone and my wife keeps her iPhone. Went from 150/mo to 80/mo.
  • Not saving the non-monthly expenditures because I can't.  I'm using my 3 paycheck months & overtime to cover extras that come up occassionally.
  • Refinanced to a lower rate on the house to go from 1200/mo to 1020/mo.
  • Shredded every credit card.  Now there's absolutely no fallback.
Nothing here is quite radical.  Really, the phone portion was the bulk of the pride that I had to get over. Most months, there's enough over time to get me an extra couple hundred bucks or my wife will chip in a couple of bucks here and there with her new job.  Up until a couple of months ago, I was floating the 200-300/month that I was short on credit cards.  Unfortunately, I would end up spending way more than just the 200-300/month I was short.  i was spending closer to 500-1000/month on miscellaneous junk that would just accumulate at 20-30% interest.  What ridiculousness those credit cards led to.  With them shredded, now my wife and I have no choice but minimize the outgoing and strictly follow the line items.  There's no more, "yea, I guess we can spring for that extra $20 for that widget that we really need/want."

I have some credit cards on their way to getting paid off, which should free up some significant monthly cashflow, then I can do the waterfall method to start working on paying off those cards.

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