Category Archive: Budget

Avoid These Budgeting Mistakes

My family and I have been living on a budget for nearly 10 years.  Over that time, we’ve made our share of mistakes – and we’ve adopted some valuable habits.  When making your budget, consider the following –

Do not wait until the last minute to make your budget.  Our budget begins on the first of each month, so we sit down and write ours out a week or more before then.  This gives us a chance to discuss the upcoming month – and it also gives us plenty of time to tweak the budget before the new month begins.

Do not use an unmanageable number of budget categories.  It’s easy to get too complex – or too basic – when creating a budget.  Use enough categories to “tell your money what to do”, but not so many that you are overwhelmed.

Do not use an unusable system.  If you have a spouse who is comfortable using budgeting software, rock on.  If not, stick with pen-and-paper.  Use a system that is accessible for all involved.  Which leads to the following –

Do not use a budgeting system that restricts total-family buy-in.  If the system doesn’t work for everyone, it doesn’t work for anyone.  When it comes to financial planning – I love to nerd-out.  My awesome wife? Not so much.  We want to work together to manage our finances, so our budgeting system has to be something that she will use and enjoy.

Do not forget annual expenses.  It’s easy, when making that first budget, to focus on next-month’s expenses.  Remember – there are taxes, fees, and insurance payments due on a non-monthly basis.  These must be factored in when creating a budget.  We use a savings account, make monthly “payments” into that savings account, and use those funds to pay for annual expenses.

Do not skip the emergency fund.  Budgets are awesome – but they are not perfect.  Unexpected expenses occur – which is why we focus on maintaining an emergency fund.

Do not keep your kids out of the loop.  We have three kids, ranging in ages from elementary school to high school.  We routinely include them (especially our older two) in discussions about money, financial planning, long term goals, and where we are headed as a family.  They like being included – and are developing skills which will be beneficial for them in their adult lives.

Do not overestimate the amount of sacrifices you are willing to make.  This is crucial.  Sure, we all like to think of ourselves as frugal, but creating a super-tight budget, based on unrealistic expectations, is a recipe for failure.  Obviously, we want to curb spending, but let us be true to ourselves.

Do not give up.  The reality is, there will be months when we simply do not stick to our planned budgets.  Life gets in the way, stuff happens, and it’s easy to feel discouraged.  Don’t!  Instead, regroup, focus, and move forward.  Take the lessons learned, and incorporate those into a new, improved budget!

Living on a budget has been a blessing for our family.  I hope that you have enjoyed this article.  If so, please use the social media buttons below to share it.  Thank you.  Blessings.

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Forgotten Budget Categories – Home Maintenance

When making a monthly budget, it is easy to forget certain budget categories.

One of the most often overlooked and underfunded categories is Home Maintenance.

It’s easy to understand.  None of us want to think about stuff breaking – especially in our home – so we tend to ignore this vital category.

Over the years, we have employed two different techniques for including Home Maintenance in our monthly budget.

1.  We simply lumped it into our baby Emergency Fund.  That’s kinda what the baby emergency fund is for, in a way, so that’s what we did.  When something broke, we stopped our accelerated debt reduction, fixed the broken item, and then continued with debt reduction.  This worked well for us, but wasn’t the perfect solution.

2240344525_bf3036b5992.  We created a separate Home Maintenance category in the Savings portion of our budget.  This worked very well for us – but it was a bit tricky, figuring out exactly how much to budget, each month, for an expense that may or may not be incurred.  At this point, we have enough data, from several years of budgeting, to have a pretty decent idea of what our monthly Home Maintenance costs might be.

Budgeting is, ever, an inexact art.  Over time, we have worked hard to minimize the surprise costs associated with household finances.  By taking the time to plan ahead – we have avoided the emergency-borrow-emergency-borrow cycle.

Side note – For those interested, here is a partial list of the Home Maintenance expenses we have had to deal with over the past 3+ years of home ownership:

We replaced two broken windows.

We repaired two pieces of siding.

We replaced the garbage disposal in the sink.

We repaired and reconfigured the outlet for our dryer line.

We replaced the blower mower on our HVAC unit.

As you can see, none of these are killer expenses, but all of them required a bit of money, and if unplanned for, could have been real headaches.

Image credit – austincameraguy

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Monthly Money Plan

As part of my ongoing efforts to Simplify. Everything. – I have reworked our monthly money plan.

Our monthly money plan details our strategies for managing our household finances.  The money plan is very similar to a budget – but it also incorporates the use of a calendar and a filing system.

I like for things to be organized.  Our monthly money plan keeps us on track, moving towards our main goal, and in control of our finances.

Our Income Sources -

My wife and I both deposit our monthly paychecks on the first day of each month.  This is our regular income.

I also receive money for various part-time work.  This is our irregular income.

Our Budget -

We use a very basic zero-based budget to manage our regular income.

Irregular income is used to create a secondary budget – for things like vacation planning, reducing our mortgage principal, and longer-term savings goals.

Our Big Goal -

Currently, we are working to pay off our home mortgage in less than ten years.

Our Monthly Money Plan -

Step 1 – Paychecks are deposited at our local bank on the first day of each month.

Step 2 – Cash for monthly expenses is placed into our envelope system.

Groceries for us and gasoline for our automobiles are purchased each Monday – using the cash from the envelope system.

Step 3 – Bills are paid.  It’s very simple to locate and pay these bills.  They are either bookmarked in my web browser for easy access – or in our bills to pay file folder.  We pay our bills online via our primary checking account.

Step 4 – Paperwork associated with bills is filed.

Step 5 – Deposits, withdrawn from our primary checking, to our online savings account, are scheduled.

Step 6 – Deposits, withdrawn from our primary checking,  to our Roth IRAs, are scheduled.

Step 7 – Extra, principal-only payment is made to our mortgage provider.  Click to see our debt reduction progress!

Step 8 – Irregular income is deposited, as received, into our online savings account.

Step 9 – Budget needs for the upcoming month are discussed and budget is updated.

Step 10 – Mid-month and again at the end of the month, I check to see that all payments have been received and deposits have been credited.

Step 11 – Charitable donations are made.

Step 12 – We balance our check book.  This takes about two minutes – because our bills have all been paid and we use cash and debit for 95% of our off-line purchases.

Once a Quarter -

I check on our retirement accounts and make any adjustments that I feel are necessary.

Once a Year -

I review all insurance policies, to insure correct coverage and good rates.

That’s it. That’s our monthly money plan.  We make deposits, use cash, pay our bills, work hard to earn a little extra now and then, build our savings, and reduce our debt.  It’s very simple and very basic – and it works for us.

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Hit The Brakes – Get Real About Your Debt

This article is step 2 of the Hit The Brakes – Get Real series.  I encourage you to read step 1 – Get Real About Your Expenses.

In this series, we’ll examine ways to stop adding to current debt balances, create a basic budget, and begin the process of moving forward with a solid debt reduction plan.

Now that you have a list of next month’s expenses – it’s time to get real about your debt.

You’ll need access to your latest account balances.  You may need to log in to your online accounts and / or gather up recent statements.  I use Mint to track my various accounts and to manage our household budget.  It’s a cool tool – something you might find handy as we move forward.

I have created a couple of   worksheets – one for listing debts, the other for listing expenses.  I used worksheets very similar to these when I was creating my own debt reduction plan.  Remember, keep all documents related to personal finance in a secure place.  (These are Word files.)

Summary of Current Debt and Summary of Current Expenses Worksheets

Make a list of current creditors, account balances, minimum payments, interest rates, and payment due dates.

Quick side note – I am not a financial professional.  I’m just a dude who hates debt and wants the world to be debt free.  My approach, by design, is simple.  There are thousands of other sites, many written by friends of mine, with tons of detailed financial information.  I write for folks like me – people who want to get out of debt, save some money, and be in a position to bless others.  Now, on with the article!

You have your list of creditors and account balances – and now you are at a point where you can begin to do something about your debt – as a whole.

Add up all of those account balances.  That’s how much money you oweif you could pay off all of your debts, today.

Obviously, the goal is to reduce – and one day eliminate – all of our debt.  To do this, we must first stop adding to those balances.

We must HIT THE BRAKES.

When I decided to get out of debt, I did three things to avoid adding to my account balances –

1.  I stopped using my credit card.  I simply placed my card in the back of my wallet – and stopped using it.

2.  I stopped all auto-payments from my credit card.  I know, I know.  This is old fashioned.  For me, however, this was necessary.  I had several payments, including my cellphone bill and satellite t.v. bill auto-paid via my credit card.  Each month, a couple hundred dollars was automatically tacked-on to my already high balance.  By stopping these auto-payments, I stopped adding to my balance – AND I took another look at my bills.  Win-win.

3.  I committed myself, fully, to the process.  I didn’t leave any room for self-compromise (that a term?).  Instead, I jumped in – determined and ready to make big changes.

So – after step 1 and step 2 – We have a list of next month’s expenses.  We also know where we stand, in terms of creditors, account balances, and how much we owe.  We are committed to the process – and ready to stop adding to those account balances.  We are almost ready to create our debt reduction plan.  See you guys soon with step 3!

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