I am still getting use to the new mortgage. I am not use to seeing the large principal amounts that are being paid. This month, $1,382 went to principal. That's about 3 times the principal I was paying before.
Since I am paying more in interest then principal, it feels like I jumped to the back nine of a golf course. I can more easily see the end. It's still in the distance, but I am halfway there.
Next month, I'll top of the 401(k). I'll have some extra money to go towards some of my other goals. But, truthfully, all of it will probably be going to the new furniture and house stuff. But it does mean no new debt.
Not much of an update. Still on the straight and narrow. I have a few things to play catch up on like the 529s and maybe add a few more months to the emergency fund. Other then that, I'll me looking forward to 2010 where 529s and 401(k) investing will be on cruise control, I'll probably start putting money aside for a nice vacation, and start adding more principal to my mortgage payment. When I do that, I will probably add pay off date to my sidebar. I think it might be fund to see the date moving closer and closer.
Viewing the 'Budget' Category
I am still getting use to the new mortgage. I am not use to seeing the large principal amounts that are being paid. This month, $1,382 went to principal. That's about 3 times the principal I was paying before.
What a month. We have started buying new furniture for the house and some small renovations (crown molding, lights, paint, etc.). It has been pricier then I thought, but we are not going into credit card debt or taking out a home equity loan. We are basically just cash flowing it. All the spare money in the budget that went to car payments, credit cards, and medical bills is going towards the house.
Hopefully in January of next year, I'll be back up to a full work week. This will allow me to have some extra money to pay down the mortgage or invest. So I think I'll just write out my thought process.
From a mathematical side, my payments are set in stone for the next 15 years and I am being charged 4.5% interest. There is no risk of my payments going up. If I were to invest in a risk free invest like cds or money markets, I might get 2% now.
Why am I only looking at cds and money markets? I am basically looking at riskless investments that are highly liquid. Why? My reasoning is that the mortgage is riskless liability. There is no risk of FNMA or the bank calling the loan and the payments are set in the contract, so I am attempting to compare apples to apples.
So, right now I believe I would be better off taking the extra money come January and paying off the mortgage. Now, if I look at the mass amount of debt the Fed is incurring and the monetizing of the debt, I do believe that the future inflation will be higher and the fed will need to raise rates.
If cds rise above 4.5%, I would be better off putting money in cds. Yes, I am not looking at taxes. I believe at the end of the day that taxes would negate themselves. I would save taxes on the mortgage interest but pay of the CD interest.
So, if interest rates on cds climbed to over 4.5%, I would probably switch to investing in cds.
With that said, there is another element of this. Not having a house payment will free up a large amount of cash flow on a monthly basis. And just getting rid of that nut is rather appealing.
So I would probably add a premium to my above statement. In other words, I would probably invest in cds if the interest rate was 5% or higher. Logically, it may not make sense, but I believe that I would have to earn a higher return to justify the higher financial stress I would feel with the mortgage.
Those are my thoughts at this time.
So I made my first payment on my new mortgage. I was used to putting $480 to principle a month. This month I put $1,376 towards principle. It was actually $50 more then the interest payment. Just think that I am now paying more principle then interest. What a great feeling.
I estimate that 9/2010 I will have caught up with my old amortization schedule, where the principal on the mortgage would be about $330k. So under the old 30 year, I would pay about $9k off the mortgage over 14 months. In the new mortgage, I will be paying off over $21k.
It just nice to see this pay down accelerating, feeling that I am making progress.
As for my other goals. I plan on completing my 401(k) contributions in August. I have about $4,000 in contributions left.
I am getting a little anxious to finally start contributing and setting up 529 plans for my sons. Granted, they are young (4 and 1), but these really need to get started. $18k may be a little too much to bite off this year. But, it's good to have goals that you need to stretch for.
So, if you are following the Dave Ramsey plan, I would be on step 4 planning on attacking step 5.
As for step 6, paying off the mortgage, I keep going back and forth. If I had a 6% 30 year mortgage, I would probably try paying that off quicker. But a 15 year at 4.5%.... I'll have the house paid off by the time the kids hit college, and 4.5% is really more like a 3% loan because the tax write off with the interest. It is getting to the point where you could argue that you could outperform the mortgage for very little risk.
On the other hand, getting rid of that monthly nut does reduce a lot of stress (not that I have a lot of financial stress) and frees up a lot of cash flow. It would allow me to start looking into opportunities that really interest me without regard to income.
Right now, I am kind of stuck where I may not be in my dream job but it does pay some hefty bills. So, when I look for jobs, income is first enjoyment is second.
But for that reason, I am leaning towards paying off the house early. Of course, I still have time. I don't plan on coming to a decision until the 529s are fully funded. Just mulling it over in the old mind.
Don't forget, we are half way through the year. Are you still on top of your goals for 2009? What are you planning to accomplish in the next 6 months?
What a month!! The big thing I accomplished this month was the refi. The net of the refi is that I will pay it off 11 years early, I will be putting $1,000 more towards principal a month, and it costs me less then $700. If you have a good credit score, equity in the house, and a job; I would look at refinancing.
I also noticed that I have contributed $10,600 to the 401(k) already his year. Looks like I'll max the 401(k) in August or September. Just in time for preschool bills and holidays. Maybe I can also start paying down the principal on the mortgage. We'll have to see how the year shapes up.
Speaking of that, I'm still only working 4 days a week. We haven't had any more layoffs since March and we have had a new hire. I think in a quarter or two I'll be able to work 5 days a week. But, it's just a feeling. In the meantime, I'll work 4 days a week and enjoy the family.
This brings me to another interesting thing I noticed over the past month. I have become more content. It wasn't like a switch, I think it was more a gradual thing. It's kind of like that story about the grasshopper and the ant. The ant works all summer and has food to last the winter and the grasshopper just wastes the summer away.
Last year, I had the nose to the grindstone reducing debt. This year I saved a 3 month emergency fund. I still budget and live below my means. I am just sitting on my pile of dirt enjoying the sunset while everyone around me is feeling all this financial stress and uncertainty. It really is surreal.
I think what has really started to click is that it's not what you make but what you save. I can't stress that enough.
And remember, get you will done and get life insurance, if you haven't already.
I was thinking about this the other day. And I was thinking "is this really true?" So, I started going through my old budgets.
My big fixed costs were the same from month to month (mortgage and health insurance). Even my variable costs were similar (like food).
But the biggest difference was seasonal costs: Paying for preschool for Sept ‚Äď May, paying for swimming lessons and camp in the summer, birthday presents in late spring, holidays in November and December., utility costs (I don't use heat in the summer), etc.
Also since I am hourly paid, my paychecks fluctuate in the number of hours I work. Over the last 2 weeks I have worked 70% of the hours I normally work. Also, the last paycheck included FICA, 401 (k) contributions, and deductions for health insurance (last year I paid my own from month to month).
In April, I'll get money back for taxes or pay more. This will also have an affect on my income along with any vacations or holidays.
The answer for me is pretty obvious. Since expenses and income can change from month to month, the budget is in constant flux. Sure, there are parameters. I mean my budget isn't moving $10k a month but it could move a couple of thousand, especially a month with an extra paycheck.
I usually budget on a weekly basis. It's easier for me because I get paid weekly and divide my pay into envelopes. I used to have to put 33% of my take home into the mortgage and healthcare envelopes, 33% into debt reduction, and use the other 33% for household expenses. This was pretty much set for the last quarter.
January is a new year. I am still doing the weekly budget and of course change in the budget is constant. It might take me a little time to adjust to the budget again and then it will stabilize for a few months. But in the end, the goal is to live below what I take home and not have any of my envelopes in the red.
So far, so good.
We are half way through the third quarter. So far this has been a tough quarter. I paid of $4,500 in wife medical, paid life insurance policy of $920, paid for my wife's birthday party of $1,500, and need to save $500 for a vacation in September. The vacation house is paid for the week in Chatham down on the Cape. All I need to do is my some groceries (read beer and wine), probably a dinner out, and entertainment (read mini golf and ice cream). So, $500 should be enough maybe I should save $750, now that I am thinking out load.
Anyway, before that last tangent, that's over $7,400 in expenses that I paid out that didn't go to reducing debt. At first glance, I look at my debt and *sigh* thinking of how much more I could have paid down. But you know, I don't feel that bad. At the end of day, I am talking about probably $2,000 I could have put towards the debt.
Needless to say, I am back on track. I am looking at paying of my wife's braces this month and then attacking my son's medical. Also, looking at getting over the $3,000 mark for debt payment in September.
So, this quarter was all about rolling with the punches and being flexible in the budget. The most important thing Ė NO NEW DEBT!!!!
I also started posting my 2009 goals on the left and added a new page with retired debt. Just trying to declutter the webpage a little.
A few posts I was comparing my journey to the Boston Marathon. I had just past the halfway point at Wellesley College and the cute coeds were cheering me on.
I had found my pace and was just cruising along and was about to hit a downhill stretch. That was May. And it was easy. I had to use different muscles but still not to bad. I was setting up June to pay off 2 debts and then BAM.
Right in front of me for the next 5 miles. Sit 4 long uphills. With Heartbreak Hill being the last.
Well June starts and I receive an email from a Hospital with about $7,000 bill. Eeek. I got the final bill over the weekend (Happy Fatherís Day!!!) for about $3,400.
Well no one said running a marathon would be easy. So, Iíll probably reduce the car fund and then pay off this bill. It basically throws my debt snowball off a month.
So, time to take a quick drink of water, make sure my laces are tight, and attack this hill.
I canít wait to get over these hills and then see the final 5 miles where a few nasty hills (my wifeís birthday party about $2k and a week off in September where I donít get paid) will test my resolve. After this hill, I just need to grind it out to the finish line.
As an aside, if this happened last year, this would have been more then an inconvenience. This would have completely deflated me and put me in one foul mood.
That's great, it starts with an earthquake, birds and snakes, an aeroplane -
Lenny Bruce is not afraid. Eye of a hurricane, listen to yourself churn -
world serves its own needs, regardless of your own needs. Feed it up a knock,
speed, grunt no, strength no. Ladder structure clatter with fear of height,
down height. Wire in a fire, represent the seven games in a government for
hire and a combat site. Left her, wasn't coming in a hurry with the furies
breathing down your neck. Team by team reporters baffled, trump, tethered
crop. Look at that low plane! Fine then. Uh oh, overflow, population,
common group, but it'll do. Save yourself, serve yourself. World serves its
own needs, listen to your heart bleed. Tell me with the rapture and the
reverent in the right - right. You vitriolic, patriotic, slam, fight, bright
light, feeling pretty psyched.
It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine.
Thatís right. I feel fine.
Yep. My wake up to date started with an earthquake of 25k in medical debt last August. Then, I was listening to my inner voice just churn with self-doubt. Then, the fear of the height of my debt crept in. Then, I saved myself and served myself and it was the end of my old world as I knew it, but I feel fine.
During the first quarter of this year, mid month was always the apex of the stress for the month. Then last month, something happened. There wasnít any stress. This month, no stress.
Why? I had a plan at the being of the year. Itís basically the same plan I have this month. Itís because I have full faith in the plan. As they say ďPlan the work and work the plan.Ē
So now, I donít have to devote my mental energy to worry about the whether the plan will work or not. I can now start mapping out my next steps. My plan, which encompasses my goals, is pretty much mapped out for the rest of the year. I work the plan and I should get there.
This leaves me to start looking at what I want to do in 2009. What direction do I really want to go? And what are the main variables?
So whatís on the table for 2009?
1) $15,500 to 401(k)
2) Contribute to 529s Ė total of $4,000
3) Max. 2008 IRA contributions
Now comes the harder goals. I need to explore if it is better for me to be a 1099 consultant or a W-2 consultant.
But the real big question is whether to stock up cash for real estate investment purchases or to pay down the mortgage. My thought process is that I am probably 2-3 years from purchasing my first investment property. I have a child that is 9 months and one that is 3.5 years old. At this juncture in my life, I really donít want to take time away from them. Also, I want to do tremendous research into the market and formulate a business plan. I also want to enter the market from a position of strength (good down payment, strong cash reserve, and time to devote to it).
I also would love to get my 30 year mortgage down to a 15 year.
So those are the three things rolling through my head right now. But I have time to think before 2009 gets here. Time at the moment is on my side.
A third of the year is almost gone already and I am doing great on my goals so far. Paid off another debt this month and made a substantial debt in another.
So, letís jump into things, shall we?
My goals for 2008 are:
1) Pay off debt (except mortgage) by October 1st
. a) Pay off CC by April 1st
. b) Pay off Car 1 by June 1st
. c) Pay off Car 2 by Aug 1st
. d) Pay off wifeís braces by June 1st
. e) Pay off sonís medical by October 1st
2) Invest $10,000 by year end
3) Invest $15,500 in 401(k)
4) Review and reallocate retirement funds by end of Q1
5) Will by end of Q2
6) Life Insurance by end of Q2
1) Pay off all debt but the mortgage by October 1st
04/30/2008 - $23,057 ($15,059 paid)
Car 1 (4% interest rate)
04/01/2008 - $0 ($4,264 paid)
Car 2 (3.9% interest rate)
04/30/2008 - $5,029 ($10,139 paid)
Wife's braces (0% interest rate)
04/30/2008 - $2,028 ($156 paid)
Son's medical (0% interest rate)
04/30/2008 - $16,000 ($500 paid)
True, I did have a huge tax refund of $13 k and I put about $11.3 k towards the debt but I also but in an additional $3.7 k. That means I put more then $15 k towards my debt.
We received the title for the first car, which just got my wife a little jazzed up. I only owe $5 k on my second car and I am hoping to have most of that paid of in May. May has 5 pay weeks for me, so I am hoping on putting a majority of that last paycheck towards the debt.
I am still on track on having car 2 and the wifeís braces paid off in June. That will leave me with only my sonís medical, which is looking at earlier September, if I can keep the pace up.
2) Invest $10,000 by yearend
Looks like we will start hitting this in September. If my calculations are correct, I can surpass this goal and throw $4 k total into my sons 529 plans. That would be sweet. And, Iíll have very close to a fully funded emergency fund (about 6 months).
So I am currently looking at making upping this goal to $15,000 and adding another goal of a 529 savings of $4 k. I have to run a few numbers and scenarios and should have it done for my mid month update.
3) Invest $15,500 in 401(k)
Invest $15,500 in 401(k)
04/25/2008 - $6,547 invested
I am 42% through this goal so I am still planning on this being hit by end of October. Then I plan to use this money towards Christmas, New Years, and Thanksgiving. A lot of wine and presents need to be bought and I also host a little family get together. Hoping not to have debt after the season and it looks like it shouldnít be a problem.
Thatís right. Iím already planning for Christmas.
4) Review and reallocate retirement funds by end of Q1
5) Will by end of Q2
6) Life Insurance by end of Q2
Yep, I still got to get on this and still plan on getting it done this quarter.
I am pretty happy as debt still continues to drop off. Now is the point in the race where I have to remain focused and it is getting harder. I feel myself starting to want to stray a little bit, which I think is odd. In other words, I feel myself saying look at how far you have come, loosen up the reins and enjoy life.
I have to stop and look at myself in the mirror and say, thatís great but we have a lot of work to do this year and debt is only the first goal of 6.
This post is mainly for Ceejay. Of course, if you feel inclined, please read on.
We all probably have a spreadsheet showing our debts and the like. Well, Iím no different. I have one sheet showing all my debts, the current amount I owe, and how much I have paid on a monthly basis.
I donít just use this sheet to record my payments to the debt, but I also use the sheet kind of as a scenario analysis tool. For instance, in March, I was coming up with different ways of using my tax refund and how that would change pay off dates. I also look at it to see if I am keeping around the same pace.
I usually play with this sheet every couple of days so I am very aware of how slight changes effect my overall goals. A little nerdy? A little anal? Maybe.
The next ones are the executive reports for the boss. As we all know, bosses donít have time for the details. They just want to now the bottomline and how we are progressing month to month. These big picture thinkers donít want to know how I swept the residual from an envelope on the 8th to add $28 to a car payment.
So the first report shows where we are now (it ties into my other sheet). And the following two show the monthly progression.
I have organized the reports to show Dave Ramseyís baby steps. It just gives a nice way to categorize the different goals.
So those are my sheets. (Notice how the executive ones are pretty, bosses like that.)
Itís the halfway point of the month and Iím chilliní like a villain. I canít believe tomorrow is April 15th.
As I said before, the 15th is usually my stress time when all my big bills are due. This month was no different. I looked at my watch last night and it was the 13th and I just logged onto my bank account and paid them. No muss, no fuss.
As you can see from my sidebar, I have paid of $12,803 just this month. Most of it was due to a large tax return but I plan on adding another $2,200 to payments this month (see if I can crack $15,000). So, now car 1 is paid off and am working on car 2. I have $7,129 left to pay off on it. The current schedule is to have it paid off in June with the wifeís braces.
Since I paid off the CC and car 1, I can start feeling the snowball gaining strength. I also feel some breathing room. Rather then treading water keeping my head up, I am starting to swim to the shore.
In fact, I have started dreaming, dare I say, of a debt free existence. Yes, I have calculated the time needed to pay of my mortgage, fully fund my emergency fund, fully fund my retirement accounts, and fund my kids college funds. It may be 5-8 years away, but I can almost taste it. I can almost see it. Dare I dream?
Yes, but now is the time to keep the head down and focus. No time to pat ourselves on our back. We got a lot of work to do before we get to these sweet dreams. A lot of workÖ
Bottom line: I have paid off $24,129 or 48.8% of debt to date.
I was hoping to post this over the weekend or Monday to close out the quarter on a great note but whatever.
So, I got my refund from the fed on Saturday for $12,922. Most of it was due to my taxes being screwed up when I switched jobs. Bottom line, this is one time refund that I will not see again. The check cleared today and so I have already allocated the money.
So, what did I spend all this new found wealth on? A new boat? A first class vacation? Invest it in BAís pyramid scheme?
They all sound so tempting, but alas I just decided to reduce my debt (and pay for TrueGreen or ChemLawn to take care of the lawn). The breakdown was Car1 paid off and $7,195 towards Car2.
I was hemming and hawing about whether to pay off the braces or Car2. Truthfully, in the end, it wonít matter. One way, I pay the braces off now and Car2 at the end of June. This way I pay the car off in mid June and the braces at the end of June. Since the braces are a 0% loan, it really doesnít matter. So, I decided letís due it this way and have both of these paid off in June.
So there you go. I started the year with $49,422 in debt and now I am down to $26,657, paying off 22,785 in just over a quarter.
Yes half of it was my tax refund, but Murrphy and his family are getting pretty nervous as an eviction is coming in Q3.
Itís a few days early, but I decided to go ahead with my mid month update. My February one, I was feeling like I might not be able to pay down the debt as quickly as I thought. At the end of the month everything worked out and I has a few hundred ahead of target.
Well, last week was one of those stressed week where Murphy puts you to the test. We had my sonís baptism and family had to stay over. This included a donation to the church ($100) and additional food and wine for dinner (people stayed over or house - $150) and party (small brunch party - $75). So, I had to borrow from some envelopes to scrap the cash together. And a very stressed wife. No new debt Ė Iíll take my wins where I can.
So we are closing in on the second week of March and I am actually feeling pretty good. With the paycheck I am getting tomorrow, I well have my envelopes funded where they need to be, a $1,000 in the CC envelope, and $416 in my 401(k).
This should put be on target to pay my minimums plus another $2,000 towards debt, eliminating my credit cards before they start charging interest and starting on paying down the first car.
I also sent in my taxes this week. Bad news Ė cost $400 for the CPA to do it, good news Ė weíre getting $13,400 back between state and local. This is mainly because when I switched jobs they screwed up my medicad withholdings and I paid double.
So, I hope that Iíll get my tax refund in April and most of that will go for debt. Iíll probably skim off about $1,200 for TruGreen to take care of my lawn this summer. The one that services my neighborhood really does a good job and it makes a huge difference. That still leaves $12,200 to go towards debt reduction then in May we get the tax credit. Iíll get $1,800, which will go towards debt.
I am basically hoping that by end of June Iíll have the CC, car 1, car 2, and the wifeís braces paid off. So, Iíll be able to snowball everything into my sonís medical.
So far, March is looking good. Looks like by end of June, Murphyís family will be gone. Murphy will still be at my house, but I told him that heíll have to find a new place by end of the year. But you never know with Murphy, heís a tricky guy and once heís in your house heís tough to get rid of.
Well, I think the wifeís back on board.
I also think that she believes I was right. I think it was a couple of things just coming to a head. Our son is getting baptized this weekend. So I need extra money for the church and we're having family over for brunch. Also, both my sons seem to be eating a lot lately and it has really put a strain on the $100 per week grocery budget.
I think the furniture (one step up from parents basement) was the last straw and the wife went a little crazy. So, looking back, I think it was more a comment about the stress.
As I said before, since I didnít have to sleep in the guest room, I wasnít in the wrong. And thatís all am going to say on that
So next week things should get back to normal for her Ö and that means me too.
So what does this all mean? Well, right now I have some extra expenses that are coming up putting a little strain on the cashflow at the moment. My monthly budget is fine, just a short-term blip. So, I am going to steal from Paul to pay Mary. Iíll take some money out of my water bill envelope to pay some of these bills do this week and replace the money later in the month.
Hey, not perfect but I donít have to take on new debt.
As an aside, Dave Ramsey actually said yesterday that in a certain case he would use a credit card. The only case he could see using a credit card was if the alternative was to borrow against your 401(k).
This article talks about a 401(k) debit card. Basically, you transfer the amount that you can get as a loan to a line of credit. You pay a set up fee plus 2.9% above prime. What a bargain.
Great idea Ö just great. So my stock portfolio is gone, my home equity is gone Ö Hey wait I got some money left in my 401(k). I need my ďbuy more expense stuff to jam in my house with an arm that will be foreclosed in 2 monthsĒ fix.
Well, itís that time of the month for me. The big bills come in Ė health insurance $1258, mortgage plus escrow for insurance and taxes $2800, Ĺ a car payment $316, and sons medical $500.
Am I worried?
Well, each month I worry about this time of the month less and less. Between the 10th and 15th is when all these bills seem to be due, and it is a lot of money shooting out. This month, Iíll actually have to have all the envelopes funded with my 3/7 paycheck, as the 3/14 will come too late. Itís a good feeling to know the amount you have due, when, and a plan to have that money there for the bills.
On a side note, the wife is having a hard time. Most of her luxuries have been cut out. I had started cutting the monthly clothing budget, entertainment budget, eating out budget, and vacation budget. She started complaining that she canít live like this. So a little fight broke out (ok maybe not little).
I think this is the time when the rubber meets the road. Either we move forward or fall back, and I ainít going back. The good news is she is going to get a part time job. Sheíll make about $500 a month and weíll just use this money for the discretionary items.
Anyway, itís stressful now in the household, but I think if I can make the transition a little easier on her, sheíll get on board. Deep down, she knows that we have to do this. I also think that once we start baby step three and she sees mad cash going into her money market account, sheíll be all right.
Right now itís just tough to keep the focus, if you donít see that light, very faint in the distance. It doesnít look like itís getting any brighter on a month to month basis. You need scientific tools to measure these small changes, but the changes are there and that light is getting brighter.
I made it through my crunch time and I still have some money in the bank. Woo hoo!!! The first half of my month is paying the BIG bills. The second half of the month is to pay smaller bills (gas, electric, cell, cable, etc.), start saving for the BIG bills, and allocate the rest for debt reduction.
At this point of the month, I start doubting my debt payment plan. ďIt will never work, Iíll never be able to save up that money by the end of the month.Ē Those are my thoughts, but my plan says otherwise. My plan says to keep the focus and the numbers will work themselves out.
We all have that one week in the month that is like the hump. Once we get over it, itís all down hill. This is that week for me. The second week of the month.
Ĺ car: 316
Needless to say, I donít take home that type of cabbage on a weekly basis. This is where a budget fails. A typical budget looks at these items occurring within a month without regard to the cashflow. This is why itís important to have a funding plan. Your inflow and outflows donít match up. Some weeks are feast and some weeks are famine.
This is my third month of having a budget and funding plan, and I always had doubts on the second week. Is this going to work?
Well, this is the first month that I truly donít feel stress paying these bills. I do have doubts about how much I will pay my debt down this month but not how I will pay for the essentials.
I guess what I am really trying to say is that I am starting to fully trust the plans (budget and funding plans). And as the saying goes, ďPlan the work and work the plan.Ē
PS: No my employer doesnít have health insurance. And this was the best plan for piece of mind. Sometimes the expense is worth the peace of mind (especially if it keeps the wife off my back). Iíll probably look for a cheaper plan next year.
I have started to reach a really weird point in this budgeting project. Iím looking forward to paying bills.
Let me explain. Each month, ok Iím on my second budget, I create a budget and every week I get paid and allocate that paycheck into different items on the budget. During the week, we try not to go over the funded part of the budget.
I am currently $1.20 over budget on my groceries and $20 over the funded amount on eating out, but way within budget. BAD MERCH!!!! I should allocate other money from a different envelope, but I get paid tomorrow. So, Iíll take care of this tomorrow.
I use credit cards for all my transactions. Mvelopes.com keep track of all the transactions and I drop them into the right envelopes. When I need to pay the credit card, I look at the balance in Mvelopes and pay that to the CC, usually the same day I receive the bill.
No sense in waiting. The money is already spent on paper, just send out the check.
Now the worst thing about my bills is that they all are due at about the same time. For me, I have a mortgage, car payment, health insurance, escrow payment (house insurance and taxes), and medical bills all due around the 15th. This in the financial world is called a liquidity issue. For that week, my outflows are way greater than my inflows.
So what do I do? I save a piece of these bills every week, so when the 15th comes, the money is there. For me, it will take we 2 months to burn in my funding plan. In other words, January is going to be tight but it should set me up for a good February.
So, Iím keeping my eye on this month will looking forward to February. I still have goals on the left side that are realistic but Iíll need to keep a tight leash on the budget to accomplish everything.
Secretly, Iím wishing to accomplish more.
Time for 2007 to draw to a close and not to soon. What a wild ride it was. I have had my ups and downs, both financially and personally. We had our second son born in August and he had some medical issues (he is fine now, but now the bills need to be paid). My wife had a little depression afterwards and we had some help around for her.
The first half of the year, things were tight but manageable. Then August came, and WOW Ö just wow. My insurance was just horrible. But hospitals were great both BI and Newton Wellesley. In fact, a case study was written on my son (alas no royalties).
Then things went from tight to ďoh noĒ. And this has caused me to get serious about budgeting. I had to switch insurances (about $1,260 a month) and start repaying the hospitals ($500 a month). With things being tight, I starting asking for more hours per week. I am a contractor and am paid hourly (no time and a half). No big projects start before Christmas in my field. Well, I could always work at Target, Wal-Mart, Cosco, etc.
So thatís the catalyst that pushed me to take a serious look at budgeting. December was the first month for me to try this budgeting thing. And I survived it. It is 12/31 and I have not spent more then I take home. I also have money set aside for preschool and other classes for my 3 yo son. I have money set aside for car and home maintenance.
I have 2 furnaces in my house (no, itís not a McMansion, I donít have a servantís wing). The one in the attic failed to start. New England gets awfully cold in December and with a newborn, I had to get it fixed. I called the gas company. They said they would have someone over in 2 weeks. They gave me a name of a local company. I called them and they were out that day. There was some sort of lose wire that was causing the furnace to think that the door was open.
Old me (or pre-budget me or November me) would be thinking how am I going to pay for this. Put in on CC and hope I have the money after Christmas to pay for it. Well, good luck with that plan. New me had budgeted about 200 in House maintenance and funded that envelope about a week before the furnace failed. It was already paid for in my mind. Awesome feeling!!!
Awesome feeling 2 came this last week. The wife was ďencouragingĒ me to make Januaryís budget. She needed to know how much she could spend on groceries, diapers, etc. So, I put the budget together, we reviewed it and revised it together. She started talking about a weekend trip in February that need to be budgeted and a baptism in March.
I have really started feeling like a team with my wife. There was no yelling about money, just this is what is coming in, what do we need to spend. We work on the problem together and form the solutions together. I do feel closer to my wife. I understand her prioritize a lot better now.
So even with my monthly bills going up $1,750 per month, I feel I have the tools to make a run at this added expense. I also added a couple of other goals (pay of $6k in cc, one car loan, and save $10k). It will be an interesting year and I am looking at attacking these goals with my wife.
Well, next week my one month free trial period for Mvelopes expires, and I thought it would be a good time to review things in general.
Money in the Bank:
The first thing I noticed was that I have money in the bank. My old system was to grab all the bills due in the next two weeks and figure out how to pay them all, always under the shadow of that dastardly mortgage payment lurking around the corner.
This month is different. I get a paycheck and fund my priority items first and discretionary items last. Needless to say I have money spent on paper that I havenít spent yet (200 in an auto maintenance just sitting in the bank waiting for my car to breakdown). So yes, technically the money is spent on paper, but really this has led to having money sitting in bank accounts earning interest waiting for future expenses to show up.
I no longer look at what I have to pay this week and where am I going to find the money. I already funded these expenses in the budget. I know I have the money. So, now itís a bill comes in, the bill gets paid. No waiting around for my next paycheck or the paycheck after that if itís mortgage week.
This has led to less stress in my life. Just knowing that thereís money set aside for that bill is a liberating feeling.
A funny thing happened this month: I talked and listened to my wife. Every talk about money before this month was ďyou have to cut down, you canít spend this much, what did you do with all that money I gave you this weekÖĒ Her response was usually ďbite me!!Ē
The conversation around money now is ďwhat is this $34 chargeĒ. ďOh, I had to buy more formula. We have enough money in the grocery budget for thatĒ. I look and say ďYep itís funded and you have XX left. Is that enough for the rest of the month or do we need to move some money around?Ē
Sometimes not that nice but my point is that itís a lot better. She stopped throwing frying pans at my head.
This has also led to more respect. Maybe itís the openness (we can see every inflow and outflow).
Itís no longer my money, her money, and our money. When I first got married, we were both working. I paid a couple of the bills and she paid a couple of the bills. Money was pouring in. It wasnít uncommon for us to blow $200 on a dinner.
Then HE cameÖ Not that I would change that. My first son changed my life so much. I had to buy a house with a yard and leave condo living. No more $200 dinners that was replaced by diaper and formula. My wifeís income Ö *POOF*
But we didnít change are finances. We still had my money, her money, and our money.
Well, that changed with the budget this month. We still have 3 physical banks, but we can see everything and now weíre a team.
Iím the worker doing the day to day stuff. Damn management never understands our plight.
My wifeís management. Reviewing the budgeting reports, asking for us workers to tweak things.
Then, once a month the executive committee (both of us) sits down to discuss next monthís budget and any big items coming up (like a weekend getaway in February, my second sonís baptism in March).
Now, some of these changes are just starting and we need sometime to change our mindset, but I can see the changes taking place. So, I think Iíll try this budgeting thing for another month.
So I built my first budget at the end of November for this month. So Iím all set right? I can just spend now right?
Not so fast. You have to fund these categories.
Why? I mean I spent some serious time putting this together. I know what Iíll make this month and what I should spend. Done and done.
What about cashflows?
I have to match my inflows with my outflows. In other words I get paid weekly, but I have bills that are paid through out the month. For instance, my mortgage payment is due the first of the month. During that week, I still need to buy groceries, parking for work, gas for my car, a credit card paymentÖ Needless to say, for that fist week my outflows are greater than my inflows. Later in the month, it switches and my inflows are greater than my outflows.
So what do you do? Well, with each paycheck I get, I divide the money into different categories. I also list the categories as mandatory and discretionary. Mortgage, electricity, car payments are all mandatory. Clothing, vacation, are discretionary. I fund the mandatory ones first and the discretionary ones last.
For my mortgage, I might put some of my second, third, and forth paychecks of the month towards that expense. That way when I write the check, the money has been already allocated.
Why fund Categories?
1) Managing cashflow is the name of the game Ė The other half of cashflow is your income.
2) Easy to tweak the budget Ė Budgets to me are constantly evolving. Some times are inflows or outflows donít match our perceptions. By funding the budget through out the month, you can make small changes before they become big changes.
3) Helps prioritize items on the budget Ė I have to fund mandatory categories first.
4) Helps keep you out of the red Ė Instead of not spending more than you budgeted, donít spend more then you funded.
5) Forecast versus Actual Ė Lastly, a budget is a forecast. This is what the month should be. By funding the categories, you are moving from forcasting what should happen to what is happening.
I believe most people mange their expenses. Keep track of everything spent and categories it. Shouldnít you do the same thing with your income?
How does a lazy guy set up? Letís start with the obvious. I didnít have a budget. I had not budgeted in the past. I knew my first pass I was going to miss something. So, letís quickly google the internet and see what other budgets people use look like. As a lazy man says, why start from scratch when I can steal from others, I mean ďborrowí.
So now I have some categories. Everyone knows the big items: mortgage, car payments, electricity, cable, groceriesÖ Itís the small stuff that will get you and those pesky seasonal variable expenses. Did you know I pay more in December than November for gas to heat my house? Did you know in December that I have to (yes have to) by a Christmas tree? Well, according to my budget I didnít know.
So this is what I did. I budgeted about 75% of my income for the month of December on what I thought. I used last monthís expenses to project Decemberís, knowing I would forget some and total guess wrong on others. But I felt comfortable that the 25% of my income would handle these bumps. So far so good.
Now for those of you that are married, you know that nothing is set in stone until the wife signs off on it. So I sat down with the wife and we went over it and I got sign off from her. Now the question is: Can we stick to this? Or more of can I stick to it for more than a month?
As I said before, I am lazy. So I need a system to track all these expense. Now, I am not going to put every expense into Excel and go to all my banks and CCs everyday to see if transactions posted. I need a lazy manís solution. Back to the internetÖ
Well, I found a solution that would work for me. Mvelopes.com allows be to hook up all of my institutions and they will bring in all the transactions. Excellent!!! A little expensive (10-13 a month), but it takes less than 5 minutes a day to do the assign expenses. I also like that I can see all the balances across all my accounts.
Now the secret to budgeting: Before you spend any money you need to start funding the different categories. In other words, I have a budget of $500 for groceries every month. Each week I put $125 into that category. If there is no money in the category, I am not suppose to spend. Therefore, every paycheck I get, I divide into the different categories.
If my envelope goes red, I got to explain it to the wife. She keeps me honest.
One of the side effects of a budget like this is that there is a total honesty about finances. My wife and I can see where every dollar goes. Just log on to the net, and thereís everything. Itís not me verse her on finance. Itís more of us.
One last thing. I have 2 furnaces in my house and one broke on Friday. I need to get someone out there to take a look. Bay Stat Gas said they could be out there on the 24th. Yea, thatís not going to work. So I called a local guy. He came out (it was a loose wire) and fixed it. $185, my wife was like ďthere goes the budgetĒ. I quickly looked at the budget and had set up a category called house maintance and it was already funded for $200. A pleasant surprise!!! Budget 1, Cynicism 0.
So what is a budget? Such a stupid question, right? You list your expenses for the month subtract your income, tweak it until the resultant equals zero. Sound familiar?
Sounds like a diet I was one that failed. To lose weight, take the number of calories you burn in a day and eat less calories. 3,500 calories equal a pound. So if I want to lose 10 pounds I need to eat what I burn in a day Ė 35,000 calories. HmmmÖ.. Thatís huge!!! And everything I eat is like 1,500 calories. Now I have to eat celery sticks and drink water. No more doughnuts or cream in my coffee. Well may be if I didnít want to lose 10 pounds in 2 days I could have the occasional bad meal.
So I thought ok letís give it a try. Everything I ate, I wrote in a notebook. I used a website and looked up everything I was eating. When I ate my calories for the day, that was it. I was losing weight. Life was good.
Then I started to forget to write everything down and just guessed what I was eating and the calories. I stopped losing weight.
Then, the holidays came. Can you see where Iím going with this? Yes, I ate everything cookies, pie, turkey, ham, etc. Needless to say, I gained weight and declared the diet a failure and stopped.
So, what went wrong:
1) Unrealistic expectations Ė Iíll lose 10 pounds in 2 weeks and then Iíll go back to my old ways. WRONG!!! This is life style change not a temporary thing.
2) Lazy Ė I got lazy. I didnít plan what I was eating ahead of time. The stuff I was eating, I couldnít find what the calories were (a lot of eating out because I was a consultant)
3) Eliminating the things I enjoy Ė Up until the holidays, I hadnít had a cookie or cake and I love both. When the food came my way, I had a craving and went way overboard.
I think there are a lot of parallels between dieting and budgeting. We have tried each a couple of times and failed miserably. Budgeting is a lifestyle change and a commitment.
Budgeting is a process of tweaking and refining. For example, I guessed that heating my house in December would be equal to what I have been paying the months before. Well I got my December bill and it was 4 times higher. I forgot to budget a Christmas tree in December. The old me (fat, lazy, and undisciplined) would have declared the budget broken and tossed it out.
The newer me (still lazy and overweight, but a little more disciplined) decided to rework the budget.
Also I have items in the budgeted called entertainment, vacation, and money to blow on stupid stuff. Yes, stupid stuff like a Starbuckís $4 coffee twice a week. How can I put these items into a budget? A budget is suppose to be bare bones, only the essentials. Think of that money could be put towards bills and credit cards.
Yea, thatís true. But I just donít live that way. It would be too constricting right now and I would crave those few luxuries too much. Maybe even resent the stupid budget. I think I need to have some fun in my budget a few luxuries so I can keep doing a budget. Just thinking about that vacation fund grow, I might even like the budget.
Basically, budgeting is more of a tool, a management tool. It should be able to tell you what is budgeted, what is funded, what was spent, and the differences. With a process to tweak and revise it what worked and what didnít. After all, you are changing your lifestyle.
Like diet and exercise, itís all good for you.
I think my next posts will be how I put the budget together, how to fund the budget, how a lazy man tracks everything, and how my wife puts up with me.
Letís be serious. Budgeting to me equates to exercise. There are those freaks out there that talk about getting a ďrunnerís highĒ, how they canít miss going to the gym for one day. I am not one of them. Honestly, most of us arenít.
We only get serious about exercising when our doctor calls us a fat pig or itís January 1st and ďmore exerciseĒ is our resolution. 2008, I am going to me a more moral, caring person and take care of my self mentally and physically. How long does that last? Until the first snowstorm? Not even?
Well budgeting is the same. It sounds like a good idea and we know we should do it. But thereís all that work. I have to write done every penny and what I bought, I have to set a budget knowing that Iíll miss half the expenses, I have to live my it, and then I have to do it next month. Oh joy!!! I can see this working out.
So whatís a lazy non-freak like me going to do? Have my wife do the budgeting. That didnít work very good last time. She was very good at tracking expenses and nagging me for my expenses but we never know how much we could spend on certain items. Also I wasnít good at keeping track of things.
Well, I started searching on the web for budgeting tools. Excel ones Ė too much work. Paper ones Ė way too much work. And then I discovered Mvelopes.com.
Mvelopes takes the envelope system and modernizes it. The envelope system is when you take your paycheck and put the money in actual envelopes that are labeled (like food, gas, car, insurance). Once the money is spent, itís spent. The issue in todayís world is that we donít pay cash for things. We use credit cards, debit cards, checks, and cash. Some of us have more then one bank (we have three) and multiple credit cars.
Thatís were Mvelopes comes in. My banks, credit cards, loans (auto and mortgage) all hook into Mvelopes. Any transaction that appears get uploaded to my view. Then I just drag and drop the expense in the proper folder, much like dropping emails into folders in Outlook.
The hard part is setting up the budget and funding the folders. Iíll talk about this in my next post.