Money

Photo by JasonGoodger

I read an article recently that mentioned the problem with a budget is that it doesn’t give someone the incentive to save money.

It’s not really supposed to. A budget is a tool. It doesn’t make you save money.

A diet plan doesn’t lose weight for you.

A home management notebook doesn’t clean your house.

An alarm clock doesn’t make you get out of bed.

All of these things are helpful, but they are simply tools, and you still need to find your own motivation to make any changes.

Sara at On Simplicity recently said,

Breaking a bad habit isn’t about doing what’s “right.” It’s also not about paying absolution. It’s about finding something you simply want more, and weighing that cost whenever you’re tempted. (Read more…)

When you want to make changes, the motivation has to be big enough that the long-term reward is greater than short-term satisfaction. That’s why bad habits are so hard to break, because we love instant gratification, and we usually don’t see the consequences until later.

So what is it that you really want? (Or what do you want to avoid?)

• If I want to drink more water, then a water bottle might help, but my vanity’s desire for pretty skin will motivate me to use it.
• If I want a clean house, my desire for peaceful surroundings will make me clean up more than a posted schedule will.
• If I want to save money, then I need to think about my reasons why, because a budget won’t do the work for me.

Overcome a big goal by getting started. Things often seem too hard at the beginning, but if you get started, you gain momentum. Just take that first step.

Keep your motivation reminder close by, whether it’s on a post-it note, or a photo, or an inspiring quotation.

What is it that you want, and what are you willing to give up for it? Just think about it for a little while today.

Photo by dno1967

Looking around at the stores and malls everywhere, it’s easy to see why shopping is one of America’s biggest sources of entertainment.

Carly decided to stop shopping for two weeks as a project for her Sociology class. Her assignment was to make a lifestyle change and observe how it impacted the people around her. She didn’t know it would make such an impact on herself or her marriage.

Carly’s story:

I have really bad spending habits, incessantly spending money I should be saving. It has placed a bit of a strain on my marriage as well, considering I’m married to a frugal super-saver.

After the summer we had, our savings account was dwindling. We had a $3000 plumbing emergency in our newly purchased house, bought a new truck, and subsequently had to pay the sales tax on said truck.

The first week of the project, I decided to spend my whole week’s worth of money on lunch with some coworkers. We had been talking about it for a couple weeks, and it was definitely worth it.

It was great to spend my money on something I really was looking forward to, rather than just another lunch. It was excellent.

The second week, I spent a little here and there, but still stuck to my budget. I was worried for all the things I’d be missing out on by not going to Target every other day at lunch or wandering around the mall after work to avoid homework, but I didn’t miss anything.

I got caught up on my homework, worked out every day with my husband, and really had more time to do things I enjoy because I wasn’t wasting time at the mall. I baked, I made candles, and visited friends. It was a highly productive two weeks, without spending money on needless things.

After the two weeks were up, we had already managed to put $300 in our savings account. That was enough to convince me to stay on this allowance/budget system. Not just me, but my husband is now on one. It’s been amazing for our marriage and my stress level.

I have more time to devote to my Bible Study, my homework, and working out. And I’m not as stressed out about money or time.

We have been able to put into our savings regularly, put a little extra toward my credit card, and enjoy the occasional meal out together, rather than an every-other day occurrence. We’ve also spent more time together, grocery shopping and going to Costco together, keeping each other (ok, me!) accountable.

I am happy to be saving more, but also to be less dictated by what I feel pressured to buy or have. I’m finding that I forget about most of these things I “need” by the time I have the time or energy to go get them, or I just put it on a list and save up. 


More “No Spending” Projects

A benefit of blogging about our annual No Spend Month is hearing from others who try their own projects to save money, become more aware of their spending, and practice self-discipline.

Here are a few who are currently blogging about their experiences:  

• We Take It Easy – blogging from Spain about limiting spending until the end of the year.
• Simple ~ Natural ~ Nourishing — limiting spending until the end of the year, including not shopping at the grocery store.
• Just Plain Joy — a limit of $300 for personal and household spending during November.
• (Update) Saving Advice — a limit of $400 for personal and household spending during November.

We’re debt-free, but we didn’t begin our marriage this way.

Since this is our story, I asked Doug to write it with me. I’ll share how we did it, but I don’t intend for this to be a “do these easy steps and you’ll get these results too” type of article. I just hope that someone will be encouraged by this story.

Rachel:  We were about to get married, and the day came for us to “open the books.” I knew Doug had some debt, but I wasn’t sure how much it was. We needed to discuss our finances openly together. It turned out to be a really hard day.

Doug:  Right before we got married, we had a financial meeting. I found out I had a lot of debt, and that Rachel had lived without debt. It made me feel really bad. I felt like I was bringing a burden into our relationship. I knew as our relationship went on, the debt would become even more of a burden. That day I knew we needed a plan to get out of debt.

Rachel: When he added up the debt, it was more than $30,000:  $14,000 owed on his car, $16,000 in student loans, and possibly $2,000 in credit card debt. It was greater than all of my savings, and I knew that when we got married, the debt would become mine. I was ok with that. I felt encouraged that it was mainly from student loans, and that he wasn’t adding to it by overspending.

Doug: We had such different ways of handling finances. I had paid no attention to mine, but Rachel was in control of hers. When we compared our two financial situations and I saw them side by side, there wasn’t a middle ground. It became clear to me that I wanted to change how I had been doing it. I wanted to be unified in the way we handled our finances, and be debt-free.

Rachel:  One challenge was I had made a career change to an entry-level job in a new field. I was only earning half of what I had earned at my previous job. Somehow, that didn’t slow us down. Every extra bit of money that we earned was sent to pay off the debt. We watched the balance go down month after month.

Doug:  It was hard at first to take what seemed like Rachel’s money and pay off my debt, but I just kept thinking about how even our money is married. Money is a huge part of a marriage relationship. Every couple has to get together on it or else it could be a big problem. So we did.

10 Ways We Became Debt-Free

1. We considered selling the car instead of slowly paying it off. As it turned out, the car was totaled in an accident, and the insurance money cleared the debt. We didn’t replace the car for a while. Doug had a work truck to drive to work, and we used Rachel’s car for everything else. When we replaced it later, we paid cash for a used car that was much less.
2. We rented an apartment instead of buying a house. We still live in an apartment, but it’s because we want to, and it’s been a good decision financially for us.
3. We furnished our apartment with second-hand furniture instead of buying new.
4. Rachel sold company stock at an opportune time, and then paid debt with the money received.
5. Doug took side jobs on the weekend and worked overtime to earn more money.
6. Our income tax refund was sent to pay the debt.
7. We left our savings alone, and primarily used our income for debt payments.
8. We were making good progress on the debt payoff, so we contributed to our retirement accounts at the same time.
9. We didn’t buy very much that year. We didn’t have cable. We stayed home a lot and watched movies.
10. We lived on Doug’s salary. Everything Rachel earned went to the debt payoff, plus extra from Doug’s income. When the debt was cleared, we continued to live on Doug’s salary. It helped us when it was time for Rachel to stay home with the baby.

Doug:  The day I graduated from high school I received student loans, so I had been in debt my entire adult life. I was 33 years old, so it had been 15 years. I didn’t even consider it, because it was always there. By the time I was 34, the debt was gone. We hammered it — it was awesome. I was proud of myself. I felt manly. I felt free. Fortunate to have Rachel. Now I know that having money under control leads to having a lot of other things in life under control too.  

Rachel:  I’m honestly surprised by how quickly the debt was paid off. I’m so thankful, just really thankful. I know that tackling it early in our relationship helped, because we didn’t have as many responsibilities at the time. It became a foundation for our finances — how we make decisions and work together on it. Doug worked really hard, he still does all the time. And that’s the story.

by banoootah_qtr

A budget can help you to plan for expenses and know where your money is going.  It’s a fantastic tool — as long as it doesn’t get too complicated.

Karen recently sent this question to me:

Good question, Karen, and I know other people are wondering about it too.  I’ll try to answer your question, and other readers can contribute their ideas.

When I make a budget, I focus on two kinds of amounts:

• Planned amounts- what you think your income and expenses will be.
• Actual amounts- what the income and expenses actually were.

If you’ll notice, I didn’t mention “ideal amounts.”  My thoughts are a budget is a planning tool, and it is most effective when it is realistic.  It’s not the place for what you wish the numbers were.  Once the budget is set up and you can see where your money is really going, there will be plenty of opportunities to change your spending.

If a budget is too complicated, you won’t use it, so let’s just go through the steps to create a simple, workable budget.  You can use a piece of paper, a spreadsheet, or budgeting software.  

Most people find it easiest to budget monthly amounts since so many bills are paid once a month.

Start with your income.

Add up your expected monthly income, plus any side income.  If you are paid at odd intervals, just get as close as you can.  You might want to take your annual income and divide by 12.  If you have an uncertain income, then choose an amount that is realistic, but conservatively low.  You can always adjust it later.

(I am going to use made-up numbers for these examples.  They’ll vary from person to person because of differing priorities and situations.  There’s really no single answer for what an amount “should” be.)

In the example above, I subtracted taxes, insurance, and 401(k) contributions — all the things that come out of your paycheck before you get it.  What’s left is the planned Monthly Net Income to cover all of your expenses.

Next, list your expenses.

It’s tempting to set up a lot of categories, but don’t go overboard. If you’re doing it on paper, just use general categories. If you’re using software, you could create more.

I tend to use these general categories:

• Tithes and giving - I wrote about tithing earlier.
• Debt payoff - Paying off any kinds of debt should be a high priority.  It will free up your income for future opportunities when you are not burdened with the monthly payments and interest.
• Home - Rent or mortgage payment, insurance, property taxes.  You could even include necessary home repairs and upgrades in this budget category.
• Utilities - Monthly bills for water, electricity, gas, phone, internet, cable.  
• Car - Car payments, gas, insurance, repairs, registration, inspection, tires.
• Food - Groceries and dining out. I separate the two because groceries are essential, but eating out is an indulgence.
• Personal - Clothing, furnishings, wants, entertainment.
• One-time or big expenses - I set aside money each month for any big-ticket items before buying them.
• Grace - A buffer for mistakes and unexpected events helps you stick to your budget.

The amounts that you think you will pay go in the Planned Amounts column.  During the month as you go through your receipts, you will update your budget with the Actual Amounts in the second column.  The main goal is for the expenses to be less than the income. If you want to be more specific in your categories, your budget might look like this: 

Frequently asked questions about expense amounts:

What if the amounts change each month?  For bills that vary by a couple of dollars every month, like the water bill, I plan by rounding up a few dollars from the average amount. The electric bill is always higher in the summer, so you could budget for the higher amount, or request average billing. You can always adjust your budget for seasonal changes.

Where do I put household items like toilet paper?  Wherever it makes the most sense to you. You could include them with the groceries, or personal items, or have a household supplies category.

My grocery bills vary from one month to the next since I like to stock up.  Stocking up is great if you have the extra money to do so.  After stocking up, the following month you will be able to spend less on food so it will balance out.

How do I know how much to plan for single or big expenses?  You’re mostly limited by how much available income you still have left after other expenses. Think ahead how much you plan to spend at Christmas, for home upgrades, or for a new timing belt on your car in the next year.

What about bills that get paid twice a year? You should still set aside money each month in advance. You can keep it all in a savings account, or set up separate savings accounts for each big expense.  Consider having the money automatically drafted into the separate accounts.

What if the expenses are more than the income? It’s time to trim, drastically if needed. A serious look at needs versus wants is hard but necessary.

How to use your budget

Each week, enter your actual expenses into the second column. Hopefully they won’t be too different from your planned amounts, but you can tweak your budget as needed. If you need to decrease one amount to add to another amount, do it.

It can be very eye-opening to find out how much you are spending on eating out, clothing, or other things. As you get a sense of where your money is going, then you can decide if there are areas you want to cut back on.

One final suggestion: After paying off debt, any money left over should go into savings and investments.  Why?  Putting extra money away during months of excess will carry you through the lean times.  Unless you want to have a roller coaster of highs and lows, feast or famine, setting money aside when there is extra will give you a sense of stability and peace.  Besides, fun and entertainment have already been included in the list.  You’re not having to go without.

Karen, I hope that answered your question thoroughly.  Readers, what other ideas would you suggest?

Granny, 1949

I come from a long line of frugal family members. 

It’s not uncommon for my grandparents to go out to eat at Braum’s and split a hamburger.

Growing up, my parents were frugal too, so it doesn’t surprise me that I tend to be careful with money.

Some of it is because of personal conviction, but a lot is simply from habit, and my frugal ways began early.

There are specific lessons I remember my parents teaching me.  My dad said cars depreciate quickly in the first two years, so that is why I buy used cars with cash.  I also remember him showing me a check for $400 that he received from an investment.

me, 1982

But even more was unspoken, and I soaked it all in watching how my parents spent money.  Sometimes my perception wasn’t always accurate.  I remember when my parents made homemade root beer and filled up several milk jugs with it.  At the time I wondered if we couldn’t afford to buy root beer from the store.  My mom shopped very carefully.  I didn’t want to ask for things, and preferred to buy them myself.  

When I married Doug, we had to decide together how we were going to manage our finances, and thankfully we tend to balance each other.

Regardless of parents’ sound advice (or lack of it), at some point we all have to make our own decision for how we will handle our money.  We may still have tendencies that were shaped by our childhood, but we can consider them and try to work on new habits.  And this whole topic makes me wonder:

What example are we going to set for our kids?  Will we teach them what they need to know, and are we living an example of financial stewardship?

What are your thoughts? What did your parents teach you? For those of you who have kids, what are you trying to teach them about money?