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Money Problems: 30 Days to Perfect Finances

Welcome to the series, Money Problems: 30 Days to Perfect Finances. The series consists of 30 things you can do, each in one setting, to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

Day 1: Setting Goals

To start with, we look at 3 questions:

What is your financial goal?
Why?
How can you get there?

Day 2: What’s Going Out?

On day 2, you’re going to find out what you are spending. For most people, this will be a bit of a surprise.

Day 3: What’s Coming In?

For day 3, you’re going to examine exactly how much money you bring in each month and think about how you can make more.

Day 4: Making A Budget

On day 4, you’ll build a basic budget. This doesn’t have to be intimidating.

Day 5: Boosting Your Income

This is the day we really dig into ways to make more money, whether that means getting a raise or finding work on the side. Nothing beats more income for balancing your budget and getting out of debt.

Day 6: Reducing Expenses

Second only to more income, reducing expenses is the best way to save money.

Day 7: Paying Off Debt

If you’ve got debt, you are in interest-slavery. Make that go away!

Day 8: Insurance

On day 8, you’re going to look at the insurance you have and the insurance you need.

Day 9: Health Insurance

On day 9, you’ll spend some time learning about your health insurance options and how to examine what you’ve already got.

Day 10: Debt Insurance

Debt insurance is insurance you pay for that will pay your lender in the event of your death, dismemberment, disfigurement, disembowelment, or unemployment.

The rest is yet to come. Check back often!

Money Problems – Day 4: Making a Budget

Finance

Fiscal Year 2010 Budget Briefing (200905070001HQ) — Image by nasa hq photo via Flickr

Today, I continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

This is day 4 and today, you are going to make a budget.

Now that you’ve got your list of expenses and you’ve figured out your income, it’s time to put them together and do the dreaded deed. Your going to make a budget today. Don’t be scared. I’ll hold your hand.

Here are the tools you need:

Your list of expenses from Day Two.
Your list of income from Day Three.
A spreadsheet. I recommend the spreadsheet included in Google Docs, but Excel or the Open Office alternative, CALC, are acceptable substitutes.

Setting up the spreadsheet is dead simple.

Create a column for the label, telling you what each line item is. Create a column to hold the monthly payment amount. At the bottom of column 2, create a formula that totals your expenses. If you are including a bill that isn’t due monthly, use a formula similar to the day 3 income formula to figure out what you need to set aside each month. To figure a quarterly bill, multiply the amount by 4, then divide by 12. To figure a weekly bill, multiply by 52 and divide by 12.

Scoot over a few columns and do the same thing for your income.

Scoot over a couple more columns and set up a total. This is easy. It’s just a matter of subtracting your expenses from you income. Hopefully, this gives you a positive number.

To make this even easier, I’ve shared a blank budget spreadsheet. No excuses. If that simple spreadsheet doesn’t meet your needs, I’ve got a much more detailed version that includes categories. I use the detailed version.

Making a budget may be the most intimidating financial step you take, but everything else is built on the assumption that you understand where you money came from and where it is going. Without,it, your navigating a major maze based on a coin flip instead of a map.

Your Budget is Worthless

Finance

When you realize that you’ve buried yourself in debt and decide to get out from under that terrible burden, the first thing you’ve got to do is build a budget because, without that, you’ve got no way to know how much money you have or need. After you’ve got a budget, you’ll start spending according to whatever it says. Hopefully, you’ll stay on budget, but what happens when an emergency does come up? What do you do when your car dies? When you suddenly find out your kids needs vision therapy? How do you manage when your job suddenly gets shipped off to East De Moines?

Your budget isn’t going to help you meet those expenses. Most people don’t have enough money in their bank account to make it all the way to the next payday, let alone enough to keep the lights on and food on the table. How can you possibly hope to deal with even the little things that come up?

You whip out your emergency fund.

The problem with a budget is that it does a poor job of accounting for the unexpected. That’s where an emergency fund comes in. An emergency fund is money that you have set aside in an available-but-not-too-accessible account. Its sole purpose is to give you a line of defense when life rears up and kicks you in the butt. Without an emergency fund, everything that comes unexpectedly is automatically an emergency. With an emergency fund, the things that come up are merely minor setbacks. Without an emergency fund, your budget is nothing but a good intention waiting to get shattered by the next thing that comes along. With an emergency fund, you are managing money. Without it, it’s managing you.

How much money do you need in an emergency fund?

Every “expert” has their own opinion on this. Dave Ramsey recommends $1000 to start. Suze Orman says 8 months. The average time spent looking for work after losing your job is 24.5 weeks(roughly 6 months), so I recommend 7 months of expenses. That’s enough to carry you through an average bout of unemployment and a little more, but that’s not a goal for your first steps toward financial perfection. To start with, get $1000 in a savings account. That’s enough to manage most run-of-the-mill emergencies, without unduly delaying the rest of your debt repayment and savings goals.

How do you build an emergency fund?

Let’s not kid ourselves, $1000 is a lot of money when can barely make it from one check to the next. Unfortunately, this vital first step can’t get ignored. If you really work at it, you should be able to come up with $1000 in a month or so. Here are some ideas on how to manage that:

Cut. Drop every possible expense. If you drop cable, your cell phone, Netflix, and a weekly dinner out, you will already be saving $400 that month. You’d be almost halfway there.
Sell. How much stuff do you have that you don’t need, want, or use? I’d be willing to be there’s more than you realize. Last spring, I had a garage sale that brought in about $1300. Everything we sold was just crap we don’t use any more. We sold candles and candle-holders, DVDs, books, clothes, toys, electronics, games, and anything else we could find. I spent a month going through every room in my house to find my inventory. Craigslist is a good way to sell just one or two things at a time.
Work. Have you thought about delivering pizza or working weekends in a gas station? If you have some technical or writing ability, you could pick up some part time work on oDesk or eLance. Your opportunities are only limited by what you are willing to do.

Stop at a grand?

Dave Ramsey’s advice is to get your fund up to $1000 and then leave it alone until your debt is paid off. Screw that. I’ve got money going into my fund every month. It’s only $25 per month, but over the last two years, it has almost doubled my fund. Don’t dedicate so much money that you can’t meet your other goals, but don’t be afraid to keep some money flowing in .

Using the fund?

When can you pull the money out? That is entirely up to you. I have ju st two points to make about withdrawing from your emergency fund:

Don’t keep the money in an easy-to-access account. If your fund is in the savings account that serves as your overdraft protection account, it’s too easy to spend it, and it will go away. I keep it in my INGDirect account. I don’t use the checking account for anything in person, so I don’t carry the card. If I want to spend that money, it will take 2-3 days to transfer into my main bank account.
Never decide to spend the money on the spur of the moment. There are very few major financial decisions that can’t wait until morning to be answered. Sleep on it. If it’s still necessary tomorrow, you can spend it without guilt.

An emergency fund makes your life easier and your budget possible when the unexpectable happens. Don’t forget to fund yours.

How much money do you keep in your emergency fund? What would it take to get you to spend it?

Whiners

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I have a lot of friends and family in different financial stages in their lives. Some are deeper in debt than I am, others are just starting to dig their own pit, still others have paid off every cent of debt they’ve ever used. That’s okay; as they say, it takes all kinds to make the world go round.

Out of all of those, the only ones who irritate me are the spendthrift whiners. These are the people who spend 28 days a month struggling to make ends meet and complaining about how hard their lives are. They make snide comments about how easy other people have it, and act like they are being cheated out of their birthright whenever anybody does anything fun that they can’t do because they are too broke.

The other two days—or sometimes three—of the month, are payday. These are the days the the spendthrift whiners try to make themselves feel rich for 24 hours, while wondering why you aren’t willing to hit the fancy restaurants and expensive vacations with them. This is the day they will buy a dozen moves, or a new home theater system, or a big screen TV. It’s the day they will drop a non-refundable deposit on an exotic vacation, or shop for a new car. Before they know what’s happening, the money is gone and they are broke again until next payday, condemned to whining about their horrible situation, while their spendthrift-whiner friends and neighbors complain about the injustice of having to go without luxuries while our hypothetical spendthrift whiners have a big screen TV and an exotic vacation to Dubuque booked.

These people give no thought to the future. Their life savings consist of depreciating electronics and a fancy scrapbook. What do they do when life catches them by surprise? They come begging for a loan, or charge the emergency to a credit card while complaining about the cost of interest. Ultimately, everyone who plans ahead and sets some money aside is obviously trying to rip them off, because nobody can actually do well for themselves without being crooked.

They are absolutely convinced that life is too hard to succeed, and they refuse to examine their own behavior to find the cause of their problems.

Until payday.

What’s your biggest financial pet peeve?

This was originally a guest post written for a blog swap run by the Yakezie personal finance blog network to answer the question “What is your biggest financial pet peeve?“ It ran on Faith and Finance.

Money Problems: Day 12 – Paying for College by Doing Without

Finance

Today, I am continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

On this, Day 11, we’re going to talk about one method of paying for college.

I have a secret to share. Are you listening? Lean in close: College is expensive.

You’re shocked, I can tell.

The fact is, college prices are rising entirely out of proportion to operation costs, salaries, or inflation. The only thing college prices seem to be pegged to is demand. Demand has gotten thoroughly out of whack. The government forces down the interest rates on student loans, then adds some ridiculous forgiveness as long as you make payments for some arbitrary number of years, creating an artificial demand that wouldn’t be there if the iron fist of government weren’t forcing it into place.

Somebody in Washington has decided that the American dream consists of home ownership and a college education. Everything is a failure. He’s an idiot.

College isn’t for everybody.

Read that again. Not everyone should go to college. Not everyone can thrive in college.

Fewer than half of students who start college graduate. The greater-than-half who drop out still have to repay their loans. Do you think college was a good choice for them?

Then you get the people who major in art history and minor in philosophy. Do you know what that degree qualifies you for? Burger flipping.

Yes, I know. Just having a degree qualifies you for a number of jobs. It’s not because the degree matters, it’s because HR departments set a series of fairly arbitrary requirements just to filter a 6 foot stack of resumes. The only thing they care about is that having a degree proves that you were able to stick college out for 4 years. That HR requirement matters less as time goes on and you develop relevant work experience.

A liberal arts education also—properly done—trains your mind in the skill of learning. First, not everyone is capable of learning new things. Second, not everyone is willing to learn new things. Third, a passion for learning can be fed without college. If you don’t have that passion, college won’t create it. Most of the most learned people throughout history managed without college, or even formal education. Even if you want to feed that passion in a formal classroom, you’re assuming the professors are interested in training your mind instead of indoctrinating it with their views.

Now there are some pursuits that outright require a college education. The sciences like engineering, physics, astronomy, and psychiatry all require college. You know what doesn’t require college? Managing a cube farm. Data entry. Sales. I’m not saying those are bad professions, but they can certainly be done without dropping $50,000 on college.

Some careers require an education, but don’t require a 4 year degree, like nursing(in most states), computer programming(it’s not required, but it makes it a lot easier to break into) and others. Do you need to hit a 4 year school and get a Bachelor’s degree, or can you hold yourself to a 2 year program at a technical college and save yourself 40,000 or more?

That should be an easy choice. Don’t go to college just because you think you should or because somebody said you should, or to get really drunk. College isn’t for everybody and it’s possible it’s not for you.

Make a Budget

Finance

: Image by r.lovewell via Flickr

In the past, I’ve gone through a detailed series of budget lessons demonstrating how to make a budget and showing my personal budget spreadsheet template. If you weren’t here to see them develop, you probably haven’t seen them at all. I’ve never built an actual index for those posts.

This is the master index of my budget planning resources. As I develop more, this will grow.

Budget Lesson #1 – In this lesson, I go over how we handle discretionary income and I explain our modified envelope system. The discretionary budget contains things like our grocery bill, or the clothes we buy. We have near-total discretion over what is purchased, hence the name.

Budget Lesson #2 – Lesson #2 contains the details of our monthly bills. These are the ones that are consistent, predictable, and actually due each month. Most people take these for granted as the bills they have to pay, but it’s not true. You can get almost all of your regular bills reduced just by asking. You would also be surprised what you can do without, when properly motivated.

Budget Lesson #3 – This is where I explain how we deal with the non-monthly bills. That is, the bills that have to be paid, but are not due on a monthly basis. I also share the personal budget spreadsheet template I developed. I am working on a few sample templates to match various imaginary scenarios. If you’d like to be an anonymous case study, and get free help setting up a budget, let me know, please.

Budget Lesson #4 – In this lesson, I describe our “set-aside” funds for things that will need to be paid eventually, but not on a set schedule. Sometimes, they are never actually due. We set aside money for the parties we throw, for car repairs and for a number of other things. A few of these items are outright optional, but they are part of what makes life fun. You can’t make a budget without including some of the extras.

Budget Lesson #5 – This is the companion piece to lesson 2. Learn how I’ve reduced–or attempted to reduce–each of these bills. For the better part of two years, I called Dish Network every few months to ask for a discount. For almost 2 years, it was granted. Then one, day, they told me they were putting a note on our account to keep us from getting any more discounts, so I canceled. 100% discounts help us save more.

Budget Lesson #6 – This is the reduction companion to lesson 3. These bills are harder to reduce. Have you ever successfully gotten your property taxes lowered?

Budget Lesson #7 – This is the reduction companion to lesson 4. Notice a pattern, yet?

Budget Lesson #8 – Here, completely out of order, is the reduction companion to lesson 1. Watch as I magically reduce–or rationalize–our discretionary budget.

So, dear readers, what part of budgeting should I address next?

Search Results for: contact-me/money-problems-day-3-whats-coming-in/payday-loans-suck/a-budget-isnt-enough

How much money do you need in an emergency fund?

How do you build an emergency fund?

Stop at a grand?

Using the fund?